Ilana Weinstein Discusses Hedge Fund Recruitment

on in the alternative space. Alana Weinstein is uniquely situated to understand hedge funds, venture capital, private equity, the demands of scaling a billion dollar firm into a forty billion dollar firm, Who is moving around from firm to firm, Who are the most talented people in the space, What is going on without flows from hedge funds and why.

I don't know how to describe this except to say this is absolutely an incredible discussion from a person uniquely situated in a one off vantage point to understand exactly what's taking place in this space. So, with no further ado, my conversation with Alana Weinstein. This is Masters in Business with Barry Ridholts on Bloomberg Radio. My special guest this

week is Alana Weinstein. She is the founder and CEO of the I d W Group, a leading boutique for hedge funds, private equity, and family offices in search of top investment talent. Previously, she worked at such August firms as Goldman Stacks and the Boston Consulting Group. She got her undergraduate degree from the University of Pennsylvania and her

MBA from Harvard Elana Weinstein, Welcome to Bloomberg Radio. And I add that because I've seen you on Bloomberg TV many times, but I don't recall ever hearing you on Bloomberg Radio. This is my first time, Barry, So, you've been in the asset management industry for more than two decades. How did you end up on the recruiting side. The short answer is I was really young and I was still trying to figure or out what I wanted to

be when I grew up. Literally, Um, I had gone to HBS after a year at Goldman, So I literally went from penn from my dorm room to my parents home, worked a Goldman for a year, uh and then UH

and then went to HBS. And just to go back and answer your question, I ended up going to the Boston Consulting Group really because I felt I needed to get a post m b A to my m b A. I wanted to figure out, um, what path I wanted to take, what sorts of problems I wanted to solve, what industries were interesting to me, and um and this is in the I was in my late twenties, this is in the mid nineties, so the dot com because that's of course what we called it back then, and

the dot com bubble was just bubbling. And within a year and a half, my entire class of MBAs at BCG, the class I entered with, was gonzo. I was literally they'd all gone to California to seek their you know, start the next whatever. Give me a big fat slug of stock options and a stock that just goes up ten percent a day, and and everybody jumped at it and done right. And you can imagine how that ended for most of them. It depends on if they knew

when to hit the bit or not. If they were smart and and took off some risk, not too bad the people who didn't, so they had gone to try to start dot com companies. And um, I that wasn't my gig. I wasn't I realized I didn't. Really, I had learned a lot of BCG. I didn't want to be a management consultant um as a as a career path, and I still was figuring out what do I want to do? And before I committed to UM any particular pathway.

I figured I would jump into another milieu where I could learn again more about companies and functions and just figure out where I wanted to commit to. And so I joined a large recruiting firm, thinking that would give me a purview. And as it turned out, I was really good at it, and I fell into quickly joined their financial services practice, and uh, that's how That's how I ended up in recruiting, and so you end up focusing a little further along in your career on head funds,

private equity, family offices. So what happened was UM after about a year or two, there the dot com bubble burst, and there this is this big search firm I was at. Their financial services practice was really focused more on investment, banking, equities, traditional asset management, sort of what i'll call older school businesses, compared to what I really fell into and started to focus on, which was back in the late nineties early two thousands. As you'll remember, these were the this is

what was fueling the cell side. This is where the action was. It was the prop groups, and it was it was these new, first of their kind type financial products. It was called so it was credit correlation. Asset swaps wasn't even called credit derivatives back then, highly structured first of their kind derivativesy types of transactions. That's what we were focused on for the cell side clients that I

was working with, and that's where the juice was. And all of a sudden, I developed my own business which was on fire within this big firm, and it just became obvious after a few years to me um to really try to do this on my own, given um I was acting effectively independently within a larger construct which was having issues at the time. So let's talk also about the timing. As you were explained that, I began

to think about the timing. If we go back years, what were there two hundred four hundred hedge funds Today there's eleven thousand. Your timing into that ramp up could not perfect Barry, right, I planned it perfectly, right. I mean, so so all these and Goldman sachs Is is infamous for saying to a group of traders who they smell might be itching to head out, Hey, why don't you guys go set up a hedge fun We'll get you capital, will will prime broker for you, and we'll steer some

potential clients to you. And that's how they built an immense prime brokerage business. How much was the Goldman Sacks connection helpful or as you was an analyst, it had nothing. I was literally just understand I started a Goldman in the middle of my senior year of PEN. I mean because I just was. I don't know, I was stupid. I was like working. I just I got through all my classes. I didn't have I didn't have enough fun in college. At the bottom line, I'm making up for it,

trying to make up for lost time now. But I was finished with my classes. I started middle of my senior year and I was out within literally a year to HBS. So think about it. I was I hadn't even graduated from college. So this was it was. That was not what UM really what really jump started my business. It what it was. However, UM, you are correct in signaling the cell side um as as a driver of hedge fund talent, because back then it was the prop

groups that were the precursors to hedge funds. It was it was these you know again, high octane um and these were the guys who got paid the most on the cell side at the time, and I even still felt like they weren't capturing as much of their p m L as they wanted. Well, you know it, within a cell side context, they were doing as well as they possibly could. Back then, you could be a superstar prop trader and earning forty million bucks a year, which

which doesn't happen anymore. You could be earning more certainly than the CEO. But their buddies were leaving UM, many of whom were Goldman partners or just were um just like again, high octane prop traders from Credit Sweez, from Deutsche Bank, from Morgan Stanley, from JP Morgan, and they were setting up shop. And remember back then you could start with fifty and scale to a billion very quickly. And so and all of a sudden, there's no headwinds from any other part in the bank. There's no cap

at all in terms of how you get paid. You can do whatever you want. And if you're an entrepreneurial person who is a great investment professional and that's your passion and that's what you want to do, why be part of a bank. There was no headwind to getting into this business and scaling if you could produce the goods, and back then you could do that a lot more easily, quite quite fascinating. Let's let's talk a little bit a

lot about how your business works. Do hedge funds and family offices come to you looking for slots to fill? Are the traders and fund managers reaching out to you? What? What does the structure like? So, UM, let me back up and tell you, which I'm actually quite proud of. We've been in business for almost seventeen years, seventeen this February. Most of our clients we've been working with practically, if not since the beginning beginning, certainly within the first few

years of inception of I DW. So what that means is we're UM, we really know their business, We've helped them build their business. And yes they are coming to us UM for specific assignments, whether it's and the common thread being they are all uh senior people who can move the needle, whether it's a someone to do VI, a t M t PM for equities UM, someone to run an emerging markets business, someone to build and run distress.

But at the same time, and this goes back perhaps to my BCG background, UM, I really are our role my firm's role is to also be an advisor to them as well as to the market. So it's I'll give you two assignments we're working on today. A in the genesis of it UM each each one UM is arguably for one of the biggest and most sophisticated hedge funds in the world. One UM, I started talking with the founder at the end of the summer about a

new business he wants to build. He runs a forty billion dollar hedge funds, super successful, and he wants to create something wholly other than what he does today. So we're helping him find somebody who could oversee that and build that. That's that's a very sophisticated person who's not

This isn't someone looking for a job. This is somebody who has actually had great success with what they've done in the past, and this is kind of an interesting maybe chapter two UM and and as successful as they've been, it's an opportunity for even greater wealth creation. The second example I'll give you is another UM client that is almost as big UM and again, these are two of the most successful hedge funds in the world. Very forward thinking guys. Uh, this is al we've worked with for

a long time. I came to him and I said to him, Um, there I see an ARB in the market right now. UM, there's a universe of people who are really talented and our staying where they are not because they're happy, but because a better option doesn't exist. And if you created this, I think you could capture that alpha right this this group of individuals that have been phenomenal P and L generators, even in the last few years where it's been very difficult, he's now building

that business. So it's both UM working on UM discreet assignments for our clients as well as coming to them with advice about where to take take their how to take their funds forward. That's that's fascinating. So if someone comes to you and they're looking to fill a specific role, what is your thought process like when you're trying to say, who do I know that might be a good fit for this? Or if I don't know anybody in particul killer who comes to mind, how do you go about

creating UM a pool of applicants that could fill that role. Well, after again almost two decades doing this, we typically, UM, you know most of the player We kind of No, I'm not going to go so far as to say we have the answer before we begin, although that is often correct, like actually formally begin this like someone says something and you're like, I know, in the back of your head, I have just the p We We've done so much work in every conceivable asset class so many times,

um that when we start something, it's rarely truly brand new what it can be because certain strategies are more cyclical than others. So for example, UM, when we did the here's a good example, when we did the head of Emerging markets for one of our clients, he asked me how much work we've done in e M and I told him we had done a fair bit of work. This is going back a few years. But because it's

a cyclical strategy, not for a while. UM, So they're what we did is we threw a lasto over the universe sort of as we knew it from when we last left off and when that strategy was last in vogue, and and it was a pretty sizeable universe. But um, and this was a global search as well, right, because it's a head of emerging markets, it's the person could sit here or could sit in London and we just dive in and we build a tapestry of who the best people are, which is both by meeting people that

we already know to be good. But even if we have no idea UM, the reality is we're doing so much work in other areas, whether it's credit rates, macro, and if we're doing work at a multi strat and we have the credit candidates or the equities candidates some play, they will also have perspective on who is good in a m right, whether it's at their firm or they may or they may know someone that they respected another firm.

And and the common theme is these are people we're reaching out to, people who have who we who we view as best in class and um, talented people tend to recommend other talented people, so we we very quickly um form a picture of who the best people are. And the other thing Barry is just good old fashioned hard work. When we do a search, any search, we're typically going through maybe to three people, even though I know the answer is within ten to fifteen of those.

We just want to make sure we're leaving no stone unturned and also building our own depth and breadth of knowledge. So when you make a final recommendation to a firm. I imagine this varies from firm to firms. Do some firms say find me the guy and I'll hire them. Or do firms say give me your best on a three choices and will interview them. What what's the range like?

It's really it's usually iterative because again there there is there's the best three choices in its basis form, which is people who are um who can generate Who are the people who can generate consistent P and l over time? UM that meet with with our UM with that meet with our investing you know our investment parameters. But your your version of who the those best three people are may be different than someone else's. Part of it is

cultural fit. Part of it is just how flexible you, as a founder are going to be with respect to giving them. You may say you're going to give them a fair degree of you know, a lot of autonomy, but they may need more than what you're willing to give them. Um, they and then there were just nuances. They may You may say you're open to somebody who runs in a in a manner that's quite that's concentrated, in volatile, but their version of concentration and volatility maybe

too much for you. So there's a lot of nuances where we you and I um need to iterate on truly who the best quote three are. And the way we work is I'm not gonna we're not gonna throw fifty. We're going to do the work of meeting all the bull but we're going to have you meet let's call it fifteen twenty that many, and they want you as well because we're talking about really good people and they're

going to learn something. They're going to learn how other funds are set up, they're going to learn how other um how they're going to get ideas from these people right there. There may be um uh, let's say it's along short equity search. There may be things that that that the candidates are in that are actually helpful for the founder to know about. So if if I told you that a search is a portal to meeting the top fifty people in your universe, you would take every

one of those meetings. That's a good use of your time. So this isn't just I need a guy to do this, get me some now, this is a whole big, holistic process that's a really a two way street with a lot of exchange of information. That is the only way we work. And it's and and I will tell you, um, we're doing a search right now where the founder was candid with me. He may not even end up hiring someone.

He just sees um an opportunity that he may may being the operative word, want to capitalize upon and wants to meet the smartest people who do this out there. And then let's iterate on what makes sense. So that's not that different than BCG, where I had to sort of help a CEO draw a conclusion on whether to enter a market, and the way we went about that was through competitive benchmarking and speaking to other really smart people who sat in competitive companies and would help us

to help him figure it out. So here's the obvious business question. Typically m headhunting and recruitment firms get paid when the hier is placed. If someone says to you, hey, I may may not hire this person, but do all this work, do you have to set up a different sort of consultingly. We we are retained firm. We don't do any work without without so it's a very different

structure than the old school. Now we we are at the risk of being totally a modest I will tell you, for a variety of reasons, I don't think we look like anybody else that the most prominent one of which is um are the level we work at and the access to the people that we have. So um It's. Yes, there are discrete roles that founders need to fill. Yes we are hired to complete those searches, but they tend to be really important searches that will move the needle

for the for the fund. And if it's a fund that's let's call it somewhere between ten and forty billion, that's a really important person. Um. And and and it's not about who's looking for a job. It's not about um uh, you know who's available. It's that's not how we come in things. If you think of a ven diagram, one bubble being best in class, and there are very few people in any asset class I'd put into that

bubble that are really that good. Again, there's all the work we do to make sure we're leaving no stone unturned, but I really have a firm view on who is best in class. My firm does before we start at any sorts. That's why I say, we sort of know the answer, but we just wanted we do all the work to make sure we're not missing anybody. The second bubble is people who are disenfranchised, miserable, looking for jobs.

If there's an overlap, and these days, for a variety of reasons we can get into, there's probably more of an overlap than ever before. That's a happy coincidence. It makes our job a little bit easier. All we care about. All we care about is that first bubble and really talented people who are who have accomplished something special. This would not be an unusual profile of a candidate. Somebody who oversees five billion dollars where they sit today has had triple digit p n L every year for the

last specifically triple digit. Yeah, it's not even double digit. Triple digit is an actual candidate and this isn't an outlier. This is like, this is every day what we do. So five billion, triple digit p n L and the las four years have been really, really difficult. So that's quite an accomplishment, right, much much tougher environment, which we can talk about um and uh uh. And compensation for him has typically been between twenty and thirty a year.

He's not looking for a job, and he's at a great firm, by the way, which is not at all facing the issues other firms are facing. He's coming in to talk to me and my team because he wants to understand given what we do, given all the smart people we meet, and the clients we have, and everything we see across the entire hedge fund landscape. Am I, what do you think about the structure of where I'm sitting? UM? What is what else exists out there? Here's what I've built?

Do I take my bag of tricks and do something different? And then what does different look like? What should compensation look like? For me? It's it's it's it's an advisory UM meeting, and in that it is our job to understand everything about his firm before he walks in, which we know. Why do we know because we've met plenty of other people at that firm UM constantly and UM and also understand what all his other options look like.

So we have to have deep intelligence on all the other funds that he could theoretically think about, and then have a point of view on which of our clients could make sense. And there are times there isn't although it's rare there you know there isn't something else because our clients tend to be very innovative and creative. To attract someone like that, there are times he should stay exactly where he's at, but more often than not, we can set something up that is structurally superior to where

he is. Even at that level, that's a very different dynamic than somebody who like needs a job. Quite fascinating. Let's let's jump into something you alluded to earlier. The past decade has not been especially kind to most hedge funds. A lot of them have been struggling. First question, from your unique vantage point, why is that? And second what can they do to turn of things around? Okay, so I don't know that it's been the past decade. I think it's more from twenty fifteen on. Okay, Okay, so

we could that's a whole longer. That's a whole longer discussion. We can talk. But it's it's been it's been a very very tough environment. But but let's talk about what's gone on. And MO went to timing, so um, and let's juxtapose it to when I started, which we talked about earlier, which was two thousand and three, that's when I started my firm, uh five hundred billion of assets

under management, three thousand hedge funds. As you said, Barry, Now there's eleven thousand hedge funds and three and a half trillion of a UM. A lot of that growth actually came post crisis. At the time of the in two thousand and eight was one point four trillion, now is three and a half. So that's a lot of growth. Actually in the last is that organic growth of assets or is that just capital flowing? Capital flowing in literally

especially post crisis. Right, that's when you saw the shift, right, And that's also you know you mentioned earlier we do UM which we do uh work to find investment talent for the hedge fund industry, but we also do work to find and this is when this started, was was in two thousand and eight. We have a very meaty practice looking at UM non investment talent across functions like president, CEO, head of marketing UM meaning the non investments administrative Well yeah,

but but senior UM. But what what what really drove that was post crisis you saw all the the shift from fund of funds and high net worth LPs to institutional LPs because they realized that had they invested in a hedge fund, they would have done much better than buying the market. Right, most hedge funds were down half they were down, but they were down half as much as the SMP on average. So so so institutions said,

we'll wait a second. You know this is this is like, this is an asset class that we should be investing in. And so all of a sudden, hedge funds had to look they had to grow up right. It was no wanting legal compliance, accounting operations. We were suddenly they couldn't just be a fly by night sort of a couple of guys working, which is what it was, right, So we were brought in all these founders that we did work for on the investing side, said well, wait a second.

You know, my head of marketing isn't going to cut it anymore, my CEO isn't going to cut So we had to revamp these funds and make them institutional, right, so they would be attractive to institutional LPs. So what happened is you saw all this institutional money pouring into the and and pouring into the hedge fund world, and institutional LPs were also far less sophisticated back then about hedge funds because it was a new asset class to them. So what so where so what happened? So we went.

So you have this huge growth of funds, tremendous amount of capital pouring into the industry. UM technology became much more sophisticated, right, think about technology in two thousand and three to today. So today everyone has access to the same information. That's why it's so, that's why scale is so important in this business. To have the ability to have UM data science and quant and a machine internally

that can turn that data into alphae signals. Very few funds do that successfully, but it gives their people a tremendous leg up if if they do create that in house. UM so so so everyone has access to the same data. Information is much more transparent. Also since two thousand and three, you know, to date, you have the platforms. When I say the platforms, I talk about the multi managers like Citadel and Point seventy two and Millennium and ballet Asney.

These guys exploded, they got so much bigger. You have all these pms now sitting at these shops UM and so many more eyes and ears at conferences UM and behind a shorting model that can suss out under performance. So so if management says something squishy at a conference, it used to have three to six months to for that under performance to get price fully. Now that happens in two days. So the window of efficiency right for performance has gotten much smaller. And LPs, as I said,

have gotten much more sophisticated. And so with all of this, returns have come down because the industry is so much more crowded. Oh and liquidity right mutual UM funds and retail have shrunk, So there's far less liquidity now than there was back then. I fewer companies are going public right with increased UM regulation and scrutiny. CEO s or like, I don't want to go public. If I'm a tech company, I can just go to the go to a big tech private equity firm and and get funded. That way,

I don't have to subject myself to this. So for all of those reasons, UM, it's become far more difficult to generate alpha and what you see literally the last good year for most of these funds. And when I say most, one other sort of clarification point we talk about eleven thousand hedge funds. Most of them are single

manager funds. They're not multi managers, and they're not multi strats. Although, um so, the actual number of hedge funds, the individual hedge funds tend to be single manager funds, meaning six eight thousand, what what sort of numbers? Probably yeah, I mean I don't know the exact number, but that's the majority of funds, just because in order to be think about it, there aren't who else, you know, there's not that many other funds you can name that are multi managers, right,

um uh. And in terms of multi strats, uh, those would be funds like Davidson, Kempner, Golden Triangela, Gordon. These are behe myths that are in multiple strategies and managing thirty billion or whatever it is dollars. There aren't that many funds that look like that. Most funds are are actually quite small. Most hedge funds are. I think the two thirds of hedge funds are two fifty million or less. So this is like a cottage industry of two bit

players for the most part. Um But I have to jump in and ask you this question because you you said something previously that um, you just reminded me of, which is it's a myth that being a hedge fund manager is the route to personal riches. I'm paraphrasing somewhat, but you you've said that previously, your explanation of this, that the vast majority of hedge funds are single manager funds with a couple of hundred million dollars. Is that

what underlies that statement? Um quote you told the Wall Street Journal the biggest myth about working out a hedge fund is it's a quick way to um earn great riches. Is that what's underlying That's absolutely part of what's underlying that. And the other piece which I was getting to that's underlying that is now the difficult the difficulty of generating alpha. So returns have come. So yes, most funds are small,

they're inconsequential. You're not going to make a lot of money managing like a couple hundred million, and many of them are even smaller than that um and they're not going to exist. Most of these guys in in or or they'll just be okay, managing a little bit of money. And that's that's a different business model. That's not what you and I are talking about. Right, that's not our client base, and that's typically and those small guys they're lucky if they're in our office because what we're doing

with them is we're popping them into bigger funds. We do a lot of acquisition of hedge funds as well, so they'll get gobbled up by the bigger players if there are any good and they should be thankful for that because they'll have now a lot more capital, resources and um artillery for lack of a better word, to be successful. Are they being gobbled up because of their

alpha generation or is it because of their assets? Is more of an a A fund like UM Citadel doesn't need the assets of a two d and fifty million dollar funds far from that two hundred and fifty million dollar fund needs Citadel because they can't grow, they don't have scale, they can compete for resources, talent, capital. They are they are inconsequential. However, if they've had good returns, that's a great place for them to be because now they can scale that business. So that becomes an aqua

hier Is that a fair tech term to aqua higher? Yeah, it's an acquisition. We're effectively you're hiring, Yes, that's exactly what it is. Um So there's a lot of that that we do as well. But but let me, because this is an important point come back to why um

to where we are today? Okay, because we are in a very different place today than we were when this industry first started, when we when I DW first started um so, so, UH, when you look at returns for most funds, again, single manager funds, it's like you look at UH fifteen, sixteen, seventeen, and eighteen, the last four full years, it's a it's really bad. If you add up the cumulative return, it's a sea of red and pointing to not even positive negative returns for a great

number of them. Yes, it's like if you add them up, it's basically flat to down. So I look, I think it's just again it's a more difficult environment. It's harder to generate alpha UM And also if when returns come down, when we're talking about fees, if returns come down, it's very difficult to justify that two and twenty fee structure. I'll give you a discrete example. If I'm a fund that historically generated in the good old days returns and by the way, these guys love to quote inception to

date returns, which is like nonsense. I mean you you have to they have to say that's great. Now let's talk about words, okay, and then they like go quiet, it's not good. So if you look at the return turns of these funds again very bad for the last four years, and you look at UM asset flows in the industry, they are reflective of what is going on. The total amount of net outflows in eighteen was UM thirty seven billion. Do you know where we're at to

date in terms of net outflows? Go ahead over six and was a year we saw a lot of big fun shutdown, right. We saw high Fields chose to shut down, URBIOND shutdown, Criterion Ivory, fold your Hill, Glen Hill, three Bays. I'm it can go on and on and on. And yet we are fifty percent higher this year than last year in terms of net outflows to the industry. So LPs are pretty um disappointed in terms of where things

are at. And so back to my example. If I'm a fund which UM returned, let's say the let's just say I know it's up higher, but let's say the s m P is up fifteen percent and I'm a fund, a long short equity fund that runs UM fifty percent net long. That means fifty percent of my return one could get an LP could get from just buying the SMP. And let's say I'm up in line with the SMP this year, So fifty percent is beta. Right when you're a long short, your your risk parameters are very different.

And no, but if if if, if fifth, If I'm running net fifty percent long, that means that UM fifty percent is correlates to the SMP. That's what that means. So fifty percent is beta and fifty percent is alpha. So if I'm up fifteen and the SMP is up fifteen percent, only seven and a half percent is alpha. Yet I'm charging two and twenty and that tent is on both alpha and beta, So um fifteen So of fifteen percent is three percent three plus two is five. I'm charging five p on a U m uh five

percent divided by seven and a half percent. Just follow me with the math, and you know, um, your your your listeners can uh yeah, I'm sure they can kind of work this out for themselves. It's a Mathew group. That means two thirds of the alpha. By that equation is going to me, the hedge fund manager, and one third to the LPs. That's not a winning construct. But then you have hedge funds like the multi managers, where it's all alpha. Everything they generated alpha. It's uncorrelated, it's

low volatility. That's why. And and so that's a totally defensible business model. And jumping onto another subject, the startup environment. While so few funds can scale, and we have so we have more closures than startups these days. The exception to that rule are funds that splinter off from the successful multi managers. That's why we saw Exodus Point have the biggest launch and hedge fund history last year at

eight billion. That's why this year you see Woodline and Candlestick Um to Citadel spinouts launched with anywhere somewhere between one and three billion UM. Candlestick I think was between one and two and will be and uh Woodline is between two and three. These are exceptions that prove the rule and also shine a light on the efficiency of this of the hedge fund universe. You have hedge funds that are struggling to come up with a fee structure that can address the lack of value creation and then

you have funds like Element that are charging two and forty. Again, it's it's it's efficiency. Our last time, when you discussed all sorts of really fascinating things, I wanted to circle back to UM in particular about the shifts and where institutions are putting their money and the fee structure. So

so let's start with with the fees. One of the things I've seen that's been kind of interesting, and you explained earlier why institutions hate to pay alpha prices for beta is the rise of a so called Falkrum fee where there's a very modest fee on assets and the actual profit sharing fee the typical two and twenty. Part of the fee is not on what the SMP provides, but only on the excess performance, so it might be instead of two and twenty five basis points and thirty.

What what do you think of those sorts of fee structures that they have any longevity? I think that we need to UM. We need to move to a model which is closer for if you're if funds are going to charge what they charge whatever, which is sizeable, UM, we need to move to a structure where LPs are paying for alpha. That's the bottom line. So whether it is they lower their fees UM or the just charge on alpha that has to be where the industry is going.

Or and or here's another thought. There are hedge funds which UM really and this is true of a of a lot of the single manager long short equity cubs long short equity funds, whether Tiger cubs or related. Some of these guys are really best at generating long alpha. They're really not that good on the short side, and if you look closely at the composition of their return, the shorts are actually volatility enhancers and alpha detractors. But

they have to short because they're hedge funds, right. They can't charge two and twenty without with just having a long only model. And it's very hard to short when the market has, at least for the first half of this bullmarket just rampage straight up from O nine to twenty. Let's called it's just it's not there. It's they're not it's not what they do best. There are UM and they're also not set up UM to do it as well as the multi managers that have much broader and

deeper resource. Is UH to help these guys be successful. UM with respect to with respect to managing factor volatility and coming up with single name alpha shorts. So the best thing these more concentrated directional managers could do would be to say, Okay, I'm best degenerating long alpha. Therefore let me set myself up in a way where I maybe they create an alternative long only fund where and I think this is the way of this is how a lot of these funds are going to go UM.

I mean you recently saw in the last year so a band even it really converted most of their assets to long only. And so the idea being, UM, if I'm best degenerating long alpha and I'm not that good at managing short term volatility and coming up with UH with alpha with alpha shorts, alpha alpha generating single name shorts, but I need two to three or four years to

let my thesis play out. Then you know what, you know, maybe you just charge on alpha at the end of that time period, and so you have to and it's a totally different structure, but that's the point. You need to figure out what you're best at. It's so hard now UM to generate consistent alpha, and you need to figure out what UM structure is going to enable you to be competitive, and that may mean locking up capital for a longer period of time and charging less or

just charging on alpha. But the idea that one size fits all when it comes to fees, no matter what you're investing style is or how much beta you employ um is ridiculous. You know, the guy charging to the same it's the same fee structure for the guy running NET thirty and running NET sixty. So I think there should be a hurdle um with respect to how much is alpha and how much is beta. You mentioned how

many hedge fund closings that were in eighteen. Typically when a fund shuts down, does that money leave the space or does it just rotate to a different hedge fund? Um at least from an institutional perspective, Well, given the trend line I shared with you earlier, which is we have now sixty billion of net outflows to the industry, that's that's net outflows, UM, I think money is actually leaving the industry. That's where I think things are going.

And so it could go to another fund, But the problem is there are so few good options where it doesn't want to go to another fund that has had the same me or crappy performance. A lot of the better funds candidly are closed. That's the truth, um so. And that's why you see when when guys splinter off from the funds that are closed and LPs are salivating for access to they they're the ones that scale overnight.

And there're only so many of those. So that's why I think we're seeing the the aggregate amount of net outflows and also the trend line. The thing on the trend line is the only other year in hedge fund history where we had four consecutive quarters of net outflows was two thousand and eight to two thousand million. We are probably Q one was the only other time in hedge fund history we saw four consecutive quarters and that

was and and Q one. This year we had fifteen billion of net outflows, where now at sixties something, so I guarantee you we're now in our sixth quarter of net outflows. That is first time ever in hedge fund history. Wow, that's amazing. So the I don't want to call it the flavor of the month, which it's a little too uh glib, but it's clear that private equity is the shiny new thing. Lots of money seems to be flowing

in that direction. Is that who is the beneficiary of the outflows from hedge funds As if you're an institution and you know you expected returns for equity is going to be five or six percent and bonds yielding less than two percent and alter enoughers are promising. Do these outflows end up going to private equity? UM? They do.

But you know, interestingly, and and it's true that in the last four or five years, while hedge funds have suffered because their returns have come down UM, and for most of them, fees have had to readjust or in the process of readjusting, private equity was was had the hot hand because rates were low and UH, and it was you know, it was easier to to buy companies. UM. I think that. But it's but you know, I think what we're seeing now is the merge merging of UM

public in private. You see private equity firms trying to get into the public markets. You see UM hedge funds UH developing their private investing expertise, and so I think each one is trying to capitalize upon the other's revenue stream. That that's quite interesting. UM. One of the things I

read about you that I thought was pretty amusing. There was a event, a gala that you helped put together earlier this year, and one of the co producers of the gala was Stevie Cohen of Now Point seventy two, and he discussed what a challenge it's been for so many hedge funds and basically said, no one's winning the hedge fund game. There's this recruitment process where people go from one fund to another to another, and the only one who wins is you. He kind of dragged you

a little. No, it was just to be clear. The gallo was in honor of me. I was so we So it was a little bit of roasting, takeing bit of roasting, I think, I hope. I think it was. He was introducing me. I was the honoree. So I think it was mentioned it was good nature and okay, because when you read it, it's like, Wow, Stevie Cohen's really dragging a lot, but it's nothing. I think it was seen that way. I think his point was, um, there is a war for talent because they're so little

of it right there. Only I said it myself, there are only so many people I put in that first bubble of best in class in the JASSA class. That is true. Um, and you see it with the returns of funds. Are only so many funds that are performing and only so many people within those funds. P and L doesn't lie. That's what I love about this industry. It's real time. It's mark to market. You know where you stand at all times. Um. Uh. But um, you know the so and we so that is true. It's

there's an intense competition to attract the best. It is also true we tend to be in the mix of it. Um. But the the other thing that's true is as much as there are only so many good people, they're also so there are only so many places those people are going to be attracted to. And Steve runs a great shop.

Point seventy two is one of them. Um. Other places like Citadel, Millennium, Davidson, Kempner, Golden Tree, you know there are there are there are places that have built something unique and are going to be able to do something special to attract talent and make them more successful because of the very fact that they are on those at those funds or on those platforms. And that's what creates a symbiotic relationship between talent and the best places that

exist and myself. At the end of the day, we I d W has been very deliberate about who we choose to work with. I mean, I'm not going to name names, but there are places plant no no no in terms of the ones we choose not to work but because we need it is as good as I'd like to think we are at the end of the day.

The people we are dealing with on the talent side, they are very sophisticated, they are very smart and and and um, They're not going to go someplace that isn't a market step up from where they are today with a pathway that is unique, and nor would I feel good about trying to convince them to do that. So UM, I have tremendous conviction around the I have to have tremendous conviction around the um um what around our clients and what they've built and what they can provide for

talent and um and and so again. I think it was a joke, but at the end of the day, there are only so many places that also talent really wants to go. Can you stick around a bit? I have so many more questions. We have been speaking with Alana Weinstein. She is the founder and CEO of the I d W Group, a leading boutique for hedge funds,

family offices, and private equity, starching out top talent. If you enjoy this conversation, we'll be sure and come back for the podcast AFTRAS, where we keep the tape rolling and continue discussing all things hedge fund and alternatives. You can find that at iTunes, Google Podcasts. That's your Spotify, wherever your finer podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast us at Bloomberg dot net. Give us a review on

Apple iTunes. Check out my weekly column on Bloomberg dot com. Follow me on Twitter at ripolts. I'm Barry Hults. You're listening to Masters and Business on Bloomberg Radio. Welcome to the podcast, Alanta. Thank you so much, um for doing this. I've been looking forward to this. You really are somebody who is maybe in one of the most unique spots

in the entire alternative space. You see everything, you know everybody, your perspective as to what's going on in hedge funds, private equity, and maybe not quite as much venture capital, but I know that's certainly an area that is not outside your UM observations. Is unique too strong a word. I don't think anybody else has the vantage point that you do about what's going on in the industry. I

I I mean, yes, it's it's completely accurate. Means it's accurate precisely because what we do every day is meet with the most talented people in the industry, not because they're looking for jobs, but because they want our perspective.

And it's a virtuous loop. All If all you do is meet with really smart people that are best in class, you build a picture, a composite of what is driving the industry and what the opportunity said is and where it's going and UM and so we have so we have insight into what is going on at every single fund, who is making money, how lumpy the pool of talent is, how how precarious each fund is, like what situation they're in, UM like I mean, I often say, if LPs knew

what we know, UM, you know, they'd be pulling capital left, right and center and reallocating to the places that we tell them too. I have a very clear sense, as does team on what's what? And And you know, I don't think anyone else does because the level we're recruiting at, both in terms of breath um and uh and and just the sheer talent that we have coming in the door across every assa class and every geography I think,

I think is second to none. And it does give us insight into what to look for and what differentiates the bs from the non bs, the good from the great. There's there really specific things we're looking for. So let me ask you a little bit about something related to that.

You know, when when I look at different funds, and I've spoken to a lot of people from a lot of different funds, very different personalities, who founded them, who are running them, the corporate cultures seem to very dramatically oak Tree Capital very different than Bridgewater, very different than point seventy two. How important when you are looking to match somebody for a very in your position is that

corporate culture? Um, it's definitely important, But I don't know that there's um is much variability as you as you might think. UM, I might over emphasizing Bridgewater because it's such a unique I mean, yeah, that's sort of an outlier into itself, right, So let's just full full disclosure. I've had ray On three times. I love him, I'm fascinated by him. He's a brilliant um guy. Some people

find him quirky. I just find him really fascinating. But there there can be no doubt that Bridgewater is not the typical So let's let's put that sort of to the side. Um. I think the biggest differentiators are um how much it's look, no one wants to work in a jerky culture, so it neither do I want to work with jerky founders. That's not I'm using intentionally, and I sir word, I'm thinking really right, So that's consistent,

that's not you know, and and people. And at the end of the day, what's really interesting to me is there are certain founders who are dear clients and friends of mine who you know, there's this perception that they're like big bad wolf and really just tough and and make crazy decisions and like, you know, I can be there one day and blown out the next, And the reality is these are some of the most measured down to earth and I will say it good people I know,

but they also have great commercial instincts. And are not afraid to make tough decisions. And if you're really talented, you want to be an environment where you can shine and aren't going to be dragged down by a bunch of deadwood around you, where your your your compensation gets netted every year because the founders just like too wimpy to make tough decisions. You know, So let me push back on you a little bit there. I won't even say the funds because we'll see if you have a

sense of what I'm talking about. There are funds where people get hired at and they know from the day they're hired, I will eventually be fired for either good cause or not, because that's the way this manager operates. Is that a fair assessment about some funds? No, I don't. I mean, I don't. I there may be funds that fall in that category. That's not my client base. It's really not. Um uh, there are I come back to

there are there are. I think the best founders are also great business builders, and when they look at their investment talent, they don't view it differently than a portfolio. They double down on their winners and they cut their losers. And and that's what I want if I am a talented investment professional, because the biggest issue in this industry from talents perspective is UM is not confidence compensation deflation. It's it's if a fund does poorly and I did poorly.

It's a pay for performance industry. I get that I'm not going to get paid, and I'm okay with that. The biggest issue is when I said at a fund and this is not exceptional what I'm telling you, this is par for the course. I said, at a fund that is eight billion of a UM or ten billion. Okay, these are big, these are big funds UM. And I am one of two or three people that consistently drive P and L every single year. And remember, the last

three or four years have been really tough. Present year excluded, but again a lot of beata in the returns for this year, and also snap back from being down last year, right right, just riding the market back up. So you look for the last four years excluding this year, and even this year, I am the I am one of two or three primary P and L drivers at a fund which has sizeable assets. And what are the other

people doing year after year? They're noting their weight, They're not really contributing, and I'm getting netted because the founder having to take from my pocket to pay them, right, so those guys have to head out the door stroke. So so this idea of like, I have job security, but at the end of the day, um well, I said, you know, of course you do. You're the star within the fund. And the bigger question is why do the

other people have job security? They should be like the founder has a fiduciary duty to Hale's LPs to be retiring and retaining the best people. And part of retaining them is getting rid of the ones that aren't performing and making room for you know, better people. Am i am I hearing you say that people think hedge funds are cut throat, and you're suggesting some of them aren't cut throat enough, then order or say it less emotionally less um inflammatory Lee, there are a lot of funds

that simply aren't acting as a meritocracy. I think that founders are often very loath to make tough decisions, and we can all that not acting as a meritocracy, or not being cut throat, or just candidly being whimps. I think that there's an element of the optics of what are LP's going to think if I fire these three people. LPs would be very smart when they do their all their operational due diligence. If I was an LP, here's what I would be asking. I'd want to know that's

the way. Okay, what so let me ask you the question what should LPs be doing and what aren't they doing today? So UM, and everybody knows LPs limited partners, not the fund managers or the actual general partnership. I think that they should UM, they should find out from the founder. And you know, it's hard because if it's a single manager fund, the founder at the end of the day is the ultimate decision maker, right if what goes into the portfolio and how the portfolio is constructed.

But ask him, and I'm going to use along short equities, one because it's the hedge fund universe, and two just to be illustrative, it's an easy example to understand. Ask him, Okay, where did your winners come from this year? In what industry? Was it industrials? Was it t MT? Was it healthcare? Uh? It was healthcare? What about last year? What drove pan l oh Again? It was healthcare and industrials? What about

the year before, what about the year before? And we get that at the end of the day, the founder again is the ultimate decision maker, but again just behind the scenes that's more gray than you. Those people have tremendous influence if they're senior and they're good on the portfolio, so UM the so LP should also be asking where did where were your biggest losers? And you're gonna see patterns across the biggest winners and across the biggest losers.

And then they should be asking the founder, what are you doing about getting rid of the guys who are covering the three sectors that actually have been a net drain on pan L. What are you doing about um developing the three sector heads that have generated the most pan L. How do you manage paying those guys when you have to when you have these other guys that you have to pay like these are the tough questions

that founders really need to be held accountable for. And and also LP should be looking at who left Were those people that were p m L generators to the fund or were those people that were that were pushed out right because they didn't do well? And if what they're seeing as a trend line of the best people leaving and they have to figure out a way to get it that. We know that because we're interviewing these people and we see the compositive the entire p l of the fund and who did what. If the best

people are leaving, you should be pulling capital. And if and if the people who um did not make money are the ones who were leaving and being managed out, then you should deploy because that's a founder who understands how to manage his team and is managing them again like a portfolio, unemotionally and making decisions in their best in you're really answering a question I was about to ask you, which is what should founders do to retain

their best people? And what you're effectively saying is pay and bonus the high high performers and cut the people in the night. And I'll go one further. I think that founders need to be willing to go to zero for themselves in times where they don't have much of a performance fee. And that has been true for the

last four years. Even this year, a lot of funds may be doing better, but they have a high water mark from the previous year or a group of year, meaning that what you've took as a profit um as a profit distribution. Once we fall off of those market highs, you don't take another profit distribution until you get back over that you lost money last year. You first have

to make that back up before you start to get paid. Right. So, if I'm a guy who for the last three or four years is generated tremendous pan L for the firm, and there are guys who come in to meet with us who literally are of the pm L of the fund for a hundred of the p L, other people are a dragon exactly, if the founder would be wise to go into his pocket, go into his management fee and and pay that person right so that they don't that's what they need to do, and and and also

be clear about how they're coming up with the number. For many of these guys, if they're not sitting at a multi manager which is formulaic, or they don't have even if they have points in the fund a lot of the times, how UM there's a jump bowl which is discretionary if they don't. If the if the absolute number is disappointing because times are not good and there isn't much of a performance fee, and also assets have dwindled,

so the management fee is smaller. Founders need to give people insight into how they're coming up with the numbers, so it's not this black box. Um they they again it comes back to running a business, not just managing a p n L. And that's a mind shift for a lot of founders because they grew up. What they know best is investing, right, not managing people. They need to manage their fun like a business, not because not like a cliptocracy, which is how a lot of these

guys view it, that that work the cliptocracy. So let me lip the question from what founders need to do to retain their best people to some of those best people that talent. What are they looking for? What makes them decide not only that I'm ready to move, but I'm going to go there or here? What What are they looking for? So the most important So the things they're looking for having change, they're just more difficult today

to come by. They're looking for stability right when you see funds like big funds back and we started with Eaton Park and Perry going out of business and then all the others I mentioned last year, and they'll be more to come. Um that means that there's no more terra firma under their feet. And by the way, you even look at funds that are still that are big, that that are well known names, they're still existing today. It may be interesting for your listeners to look at

the a U M drops of these funds. Green Light, Okay, and this is by the way, I'm going back to not circle two thousand and three or two thousand and set. Let let's say right before the crisis two and seven or two. I'm talking about in the last few years. So this is how precipitous the a U M drops were. Green Light was twelve billion now it's sub three billion. Corvis was seven billion, now it's two billion. Discovery was fifteen billion, now it's three billion. For Tree was thirteen billion,

now it's five billion. Scopia a year ago, one year ago was almost seven billion. You know what it is today under two billion. So these are again like only so many funds even get into the billion dollar territory, right, So these are the these are the sort of the bigger names, the bigger guys, and they are a shell of their former selves. So stability is like very hard to come by these days. And you may think, oh, that's a well known fund that's stable. NA. Not not

the case. Um. The second thing that's really important is netting, which we talked about not being in a construct where you're not going to continuously get netted, right, I mean went by netted. You mean your payment is a little bit of a kibbutz where you're not necessarily well winning all of your uh, your pan l. It gets spread around. As a guy just said to me the other day, and I love this phrase, and I told him I'm going to steal it. He said, I feel like labor arbitrage.

That's that's what's got your high performer. They're a low performer. And everybody I'm generating all this pan L, no one else around here is pulling their weight. And every year I'm paid a fraction of what I should be paid. So that's a guy right to be pent. And does management not understand the frustration of a high performer, like we are not talking about um a low octane sort of people work on an hourly basis. This is these are people who are willing to live and die on

eating what they kill. And it's it's a really um aggressive industry. It sounds like some firms are sort of trying to soften it and make it more of a group. I think there's a look, there's a lot of inertia in this industry. We saw this with LPs, to this pace of net al flows is only just picking up now. For a long time LPs were sort of just hoping things would get better. Well, the consultants always say to them, hey, this is an off year. Just given another two or

three years and we'll be fine. And if to ten years of hearing that people finally figured out and it ain't gonna be fright right, so um So I think there's an element of hoping that things change, hoping that the performance gets better. Um And and and you know, you have to understand, these senior people that we're speaking to have been where they've been for in many cases

over a decade. They have a real relationship with the founder, they helped build the fund um they are partners where they're sitting, so it's not as transactional, you know, as one might think. And I and they feel loyal, they feel embedded. But at a certain point, the chickens do come home to roost. And I think we're kind of at that tipping point. We really are at a tipping point in the industry, both with respect to frustration on the part of talent, frustration on the part of LPs, UM,

UH and UM. You know, I think that it's it's the shakeout. Is it's happening. We see we see money leaving the industry and the guys who figured it out are the absolute clear winners, and they're going to gobble up the best talent and UM that's they've represent stability, they don't net their talent. And the other few things, just to answer your question, are that these guys do best the winners UM talent. Also what you asked me, what talents looking for? They want to be made better,

They want to improve. So, you know, in an environment where returns are so hard to come by, how can I be better at shorting? How can I be better at managing UM volatility? UM? How do I how do I improve? And the and the best places, which are typically UM that have really sophisticated UH technology and data UM and risk management are the best multi managers. They

give these guys an unbelievable feedback loop. So they say to them, listen, let's look at your P and L um, you are a lot of it came from um you know, it's actually not like a lot of it came from beta or came from factor exposure. That's not repeatable. So giving them transparency into how they make money sets them

up for better success in the future. And and there are very few places that have the same tools and resources um as some of the guys that I mentioned, all the big scalable giant shops that that are not afraid to spend them, but ones. But that's the last part of your sentence is key. There are funds. It's amazing how few funds use scale to their competitive advantage. There's a fun time thinking of which is north of

twenty billion. They have nothing internally. They basically they have two people that manage half the a U M. Those two people literally have like two people in beneath them, and there's no infrastructure. There's no there's like five data scientists at the entire firm. There's no real They haven't built the fund in a way which bestows competitive advantage

on its people. And the problem with that construct is if the two golden geese leave the fund, there's no interest, there's nothing there after that, So you you hinted at something earlier. I want to get explicit about regarding partnerships. How should these firms be thinking about succession planning? Not just if the founder is hit by a bus, but what happens when they retire, what happens when they want to spend more time away from the office. What should

firms be doing about that? Well, you know, the industry is still relatively young, so we haven't had that much succession that's gone on. Right, So the same way I'm still running I DW and I'd like to think I'm still young, right, thank you. Many of these funds that started about the same time, there's no succession going on. These guys are in their forties, right but for but for the But there are some um that have done it successfully, and I think we can look to them

for how to do this one. It can't just be a found one founder in his brain that LPs are investing in right and and and a like a bunch of UH investment analysts around him. They have to feel like there is um UH an infrastructure there which will continue to do as well with or without him. And I think there are two models that lend themselves to it.

One is the multi manager construct, where there are multiple pms right that have autonomy and are managing capital, and there's also sophisticated risk management in house to help them be as successful as possible. That's not the founder every day walking the floor making sure these guys are thinking about the world in the right way and and sifting through their ideas and say this is interesting, this isn't

let's size this, let's short that this is. This is the car that sort of you know, runs on its own UM. And then the other model would be the multi strategy model UM. And we saw this very recently with UM Tom Kempner stepping down name on the door, Davidson Kempner one of the original founders and turned over the reins to Tony use Off and they did not miss a beat. And the reason they were able to do this is it's a real partnership with fourteen engage

partners UM. Decision making is done in unison. This is it's not like partnership a lot of hedge funds. Partnership is a nice thing to put on the business card, but at the end of the day, it's still this sort of partner there. It's exactly so this is. This operates kind of like I think it was modeled in some ways after the old Goldman Sachs partnership. It really UM is a group of engage people who make the

important investing and operating decisions for the firm. And when they when Tony moved up, they very wisely took two of their people of that group of fourteen and made them um CO deputy managing partners, signaling to l P S there's already a plan in place when and if Tony retires, and the place operates again in a way where the strength of the firm and its secret sauce is not just one guy at the top. So I have to ask you a question, because you and I

are both talking about this guy and that guy. Guys, guys, guys, what is to be said? I'm going to man splain the lack of women and hedge funds to you would be pretty hilarious. Why are there such a lack of women in the industry? UM? Generally speaking, it's true in finance, but it is really acute in hedge funds. Why is that and is that ever gonna change in our lifetimes? I have thought about this question a lot. UM So

there are a couple of things. One is, there is a twenty two at work where look, people are attracted to industries and into roles where they see people like themselves having success. Has to be a role model somewhere. There isn't right now. So are there any high profile women hedge fund managers? Um, there is really hardly Annie. There's Leader Braga who spun out of Blue Crest, and there is um uh Dawn Fitzpatrick, who's the c I

O of Soros. But those are really the only two that come to mind that runs scale businesses, and Dawn didn't found Soros, right, that's so that's a different I think. So yeah, like General Custer's white horse? Right? Um? What

what color was that? Uh so? Um? Uh so, so you know there are women quote unquote air quotes running funds, but there are two bit players like they don't you know they It just it's not influential funds and so and and again think about the fact that back in sixteen, ten of the a u M, which was around two point nine trillion back then, was controlled, So ten percent of hedge funds controlled the u M. So that's even smaller now it is very much a fat headlong tail.

It is not the normal distribution, right, So back to women, so the one they don't really have role models to. Again, the industry is still fairly young. When you compare it to finance, like investment banking or UM. You compare it to consulting, or you compare it to medicine. Those are all industries that have been around much longer, so they've had more of a chance to catch up to for you know, to make it for for women to UM

have a bigger percentage. But when when we look at things like law and medicine and consulting, women are forty plus percent. When we look at finance, there's been a lot of gains in the past decade, but it's still really tilted towards the male side. UM. I can name two dozen chief economists, uh market strategists. I mean, there's tons of women in very visible places today that didn't exist twenty years ago. But find it's still very It's still so much better than the hedge fund industry. It

really is. So that the hedge fund industry is worse than finance. So finance is bad, right, So fine, So that's my man explaining about the lack of women. If I always find my always laugh at myself when I'm like, are you man explaining this too harsh? And know it's more about this stuff than you ever will, but it's

true there are so few women. So we need to do a better job of pulling women in earlier and explaining to them that this is an industry that is not just hospitable to women, we are dying for women. It is rare that I do a search, um where the client at some point does not say to me, you know, we love for the a successful candidate to be a woman and and the problem but the problem is we have a fiduciary duty to hire the best person,

not the best woman. And so by the time we get involved, which is really at the most senior end of the industry. If you think about a mountain, if at the base there are so few, you know, it's the pool you start out with, and then by the time we get there very much against right. And so I think that that, um, that's the issue as well as UM the fact that there's something about the P and L and the volatility of the P and L that is that is um. You know, it's it's you

can't control it. Even in private equity, you have more control than you do in the public markets. You have ten uere money, you have full information, you're one of eight on a deal team. Trump tweets something that portfolio isn't going to go. Hey, you can be the darling of the industry one moment and be out of business the next. And that is not that all so um, you know, can be scary. So I don't know, UM, I don't know if that is less appealing to women,

but maybe that factors into it as well. Huh. That that's that's quite fascinating. So in terms of coming trying to bring women into the industry earlier on last week, and I am trying to you know, I'm doing what

I can. Last week, I actually um went out to the University of Michigan to be the keynote speaker for the their Undergraduate Investment Conference, which is like the sound conference for for exactly for undergrads, and uh really to signal to them that this is an industry that wants women and try to encourage all these undergrads to come if they're interested, Like this is a this is a um uh play, this is an industry that is salivating for talent and UM, it is totally meritocratic and if

you're talented, nobody cares if you're a man, woman or otherwise. It's just this is like, you know, it's that's a uh, that's what the focus is on. And one of the women towards the end when we had the Q and A, asked me the question of what can women do? How do we become more, UM, fearless? How do we go for it? How do we set ourselves up to be

more successful in life? And I, you know, I answered the question in terms of just UMU having you know, you may not have the confidence early on, but that comes with success and UM building it over time and just sort of not you know, going for it. That's the bottom line. But I but I UM. What bothered me about the question is I do think that there is a UM sometimes a little bit of a orientation of like, how do we how can we be UM, how can we set ourselves up better for success? How

can we be more as you put it, fearless? Why are we at the world as though we have a handicap. Everybody's scared when they're young, everybody's scared to make a mistake every you know, but you just whether whether you're a man or a woman, you have to sort of buck up and and as I said, go for it. And this idea that, um, because we're female, we're somehow disadvantage by our very nature pisces me off. And I

sort of said that to her. I said, there's, like, you know, this sort of cont impacted idea that you need special handling or there's something about you that we need to treat differently. Why. I mean, you know, as long as we're all being good actors and behaving correctly, why should we Why do why do we need sort of a different way of treating you? That as that as long as is a loaded phrase because I recall the early days in my career on a trading desk.

It was horrific. That can't go on anymore. And it doesn't. You see ken foot happen with ken Fisher's contra, right, So it's my good business, it's not good business. It's not gonna lead to a successful outcome. And come back to at the end of the day, there's so few talented people. If that person happens to be a woman, There is no hedge fund manager in his right mind that will do anything to make the environment inhospitable to her. Not to mention, it's you can't get away with that

stuff anymore. So the world has changed completely. I don't know if it's changed completely. I'm again, like you know, we just saw with Fisher. There are still people who act out of turn. But in an industry that is measured minute to minute, and you're only as good as UM, your last p m L, you cannot do things which are going to scare away the very people that can have a real impact on your business. It's just, it's so there's so much clarity in terms of who the

winners and losers are. And to have half the population UM not be a source of talent is insanity. And there's no hedge fund manager that would think that way and that's going to be successful. But when we see the academic studies on male versus female mutual fund managers UM, the data shows that the women tend to do better than the men. The women don't have the same ego issues. They certainly don't suffer from the test what some people

have called testosterone poisoning. That they are more measured and less aggressive in a negative way than the male fund managers. So the data even supports female fund managers can outperform male fund managers with without any change to who they are with. You know, it's funny. I had drinks with a woman that I'm not going to name her, but I was so pleased when she did end up being this successful candidate for search we did a year ago,

very successful PM. One of the few who ran a lot of capital where she was she ran two billion. Now she's running four billion as a real team underneath her. And we were talking about somebody that she recently had to let go, and it was just so I had such a smile playing on my face as she was describing how emotional he was and he wasn't making rational decisions, and he was constantly complaining about, you know where where his p n L was at? And she's like, I

know where you're p P and L is at. I'm watching it, get with it and fix it, and so you know, it's anyway, it's just a sort of sidebar on there is no difference these flighty emotional men. I mean, how can I exactly what I have to deal with? But but you know that is a genuine perception issue and the reality is how So this was a question I didn't get to, but I wanted to ask h You have said the people best suited for this industry

are the ones who remain cool under pressure. That that's a quote of yours, which certainly is who's going to argue with that? How can you identify that in a sort of casual conversation until you see them under pressure? How do you know how they're going to react. Well, it's less about the person, you know, the how they act, so to speak, it's more about the comes. So decision

is not necessary. I'm looking at consistent pan l over time, and whether you do that by standing on your head or you know, crossing your fingers and toes and screaming, or whatever the case may be. If you can generate, particularly in the last four or five years, where has been so difficult and there's not been this tailwind to performance, if you can generate consistent pan l over time, that to me says you're somebody who possesses um a whole

bunch of other qualities which come with that. You're somebody who is flexible and humble. You are You're You're not so wetted to your positions that you can't um take new inputs and shift you know, on a dime where you need to um you um uh and and and so so. Looking at pan L over a period of time gives me insight as well as some of the you know what makes some people vulnerable, which is the

founder is often more vulneratible than they are in that. Again, I'm not talking about behavior, although that comes with it sometimes, you know, I mean decision making. It's a guy who comes into my office and says, you know, this happened two years ago. Um he sat at a large hedge fund.

He was responsible for a big for a big chunk of it, and um uh, even though he was doing well, the fund was not, and he had he was the most robust uh short, had the most robust short book within the fund, which was not the founder strength or

skill set. And the founder came in over the top, took off all his alpha generating shorts, put on index shorts, and erased a lot of this guy's pan L. So you know enough of that kind of stuff happening is you know, it's the differentiation between the founder acting out of sort of panic and emotion and not really understanding what's going on, and this guy pointing to consistent pan l and where he's gotten tripped up is when he's been overridden by um, somebody who isn't taking a more

measured approach. We assume that guy is no longer at that fund. We can. I have a million more questions for you, but I know I don't have you all day, So why don't I go to some of my uh favorite questions. This hasn't been too painful, it's been a lot of fun. Oh, I'm so glad you've said that. So let's jump. And I don't know if you're gonna be able to answer this question because you were born in Brooklyn and moved to Manhattan. Um, but let me ask you the question, what was the first car you

ever owned? You're making model? Okay, Barry, you don't drive? You got it. You are the first person I've been waiting for someone to say that to me. And I was expecting, like a millennial to say, oh I uber or Isaip drive. See I'm ahead of my time. You are so you never owned a car, never owned a car, never drove a car. I took a feely I took a few lessons, uh like ten years ago and I was just like, this is a waste of time. I'm never I'm never going to create the muscle memory to

know how to do this. I'll probably kill someone or myself. So if we get you on a track, it's a lot of fun. Could be surprised. Can we do? Like the what do you call them? The bumper cars? Though? So now those bumper cars are all electric. There's a place called RPM. There's a bunch of them around this one in Farmingdale and it's just the most amount of

I would love to have. It's a blas I should do that with my fifteen year old who tells me in star contrast to myself he's going to have his learners permit when he's sixteen, which well I'm terrified of. But you know, it's such a different having that happen pre Internet, if you lived outside of a major city, a car represented freedom. Now everybody's playing everything. It's just such a different So let's talk a little bit about, um, you,

what's the most important thing we don't know about? Allana Weinstein? Although I think you may have just revealed it. I think you I may have just revealed it. That I never have driven a car, never during a car. Yeah. And and you know what everyone in this industry knows me is like a very um which is true to the point, um, no nonsense, say it like it is businesswoman all true. But Barry, I do have a soft and gooey center, right, I don't believe that it's true.

What is your soft and gooey center? Like? What what it's meaning? What? Um? So? What is what is yours? So maybe this is the thing we don't know about you. What you work in a tough industry, male dominated, very sharp, elbowed, very competitive. What are you soft and gooey about? And you brought this up? Not me? Yeah, I mean it's just more you know, it's my it's my alter ego, non work persona. It's uh, you have to have a yang and yang, my yang or yang or whatever you

want to whatever. The opposite one is that we're referring to is you know, it's just you have to enjoy life. And and that's a big part of who I am. Fair enough, Who are your mentors? Who has influenced your career? Well it might be a cliche answer, but my parents are tremendous mentors. Um. Uh my mom in particular, even though she was a stay at home mom, she is an incredibly bright woman who kind of managed the family.

I'd say in some ways similarly to a how a CEO manages his you know, best employees, but with lots of love, very but very no nonsense. Very kind of like the advice I gave this girl at you of them like, get up and go for it, stop whining, just get it done. And um, and that gave me you know, and and forcing my and that made me strong, um and creates winds and then it creates real confidence. Um.

Other mentors were just you know. I've cultivated great relationships, um, great relationships with my clients who have given me great advice along the way. UM. I mean everywhere I've worked, I've just um, I've had the good fortune of finding great people who um I learned a lot from quite interesting. UM. Tell us about your favorite books. What do you like to read when you're not out recruiting talent. I love books by and I think there's some commonality between them.

I love John krak Our, Tom Wolfe, Michael Lewis. They all right, real stories um that are almost read like thrillers. And Tom Wolfe is fiction, but he's really writing about moments in time that right, a bonfire, right, even I am. Charlotte Simmons is based on you know, real LuFe. Do you know that book? It's great, It's uh. I read it a few years ago. It's a woman's um, a young woman's travails and experience at undergrad. I think it's it's meant to be a big Ten's type school and

everything she goes through. It's a very thick book, but I thought it was so on point in terms of what the undergraduate experience is like. I'm sure based on characters that he knew. Well, maybe Ben his own family. Give us some more book titles. You mentioned a number of authors. Um, I have to think the Big Short is right in your love. In fact, it's funny you

bring that up. I was on a long flight a few weeks ago and I didn't reread the book, but I did see the movie again and I actually called a number of my clients and said, you have to watch this again. And I made my son watch it again. It's so good, and I have so much respect for how Michael Lewis did that. How he you know, he found it's just it's so many. It's a tough subject to understand for a late person. He totally explained it well.

And he takes these stories and builds these not builds they were, but brings to life these characters that were interesting in esoteric and dynamic in their own ways and contrarians. And then there's this That's why I call it a thriller, like how is how is it all going to come together? And how did they figure this out? And how did they all sort of end up interweaving um and tells the story which is so multidimensional. I just brilliant. That

is the Michael Lewis form. Find an esoteric, quirky outsider, and we've a narrative not from the center, but from the people on the periphery who identify in a contrarian basis. Wait what what does everybody seem to misunderstand? And then the next level is how can we capitalize on it? And you know what, you just describe what we do, what you do, what I do as a hunter, What

I do as a headhunter. It's finding the people who who see something, who can come at things differently, who are um who are able to generate Alpha consistently over time in spite of everyone else, And what do they and what does that mean in terms of UM where they can be most successful and where the industry is going Give me one more book title, UM, because I'm curious as to what else you read, And then I'm going to share two with you. I'm gonna bet you

probably well. One of them hasn't come out yet, but one of them I wonder if you read. I'm in the middle of one right now, which is not something I normally read, but someone into to me and I'm actually really into it. It's called hacking Darwin. Have you read I'm familiar with it. I haven't ready. So it's it's written by this UM technology futurist and it's all

real stuff, which is amazing UM. And he's the premise being we can hack the genetic code the same way you can have a computer, which we know we can, you know, do things now with the genetic code UM to make people healthier, to make them smarter. Uh. And it's just I'm only midway through it. But it's both the UM ethical challenges inherent in that as well as the socioeconomic challenges. If we decide something's not ethical, but another country decides it is. Does that create sort of

a superior population to us? You know? There's there's so much in it that I think is interesting, and it's written in a way that a non um medical person like myself can totally understand. Jamie Metzel, yes is the author courtesy of Google. So the two books I have to ask you about because you kind of describe them both.

One is The Spider Network, but I think it's David and Trust about the libor manipulation scandal, same sort of thing where it's a financial book, but it reads like a thriller and all the characters are odd and interesting. I'm totally going to read that. Yeah, that's it. And then the new Greg Zuckerman book on renaissance technologies and Jim Simon's The Man Who, um I'm trying to remember with the title is the Man Who figure who solved

the Markets? Another one that reads like a thriller, And and how do we figure out um, we figure out commodities and futures? How do we apply that and figure out equities? Really a fascinating that's such a unknown entity and there's so little public information on renaissance Um, the Jim Simon's book is really quite fun. Thank you. I'm totally picking those two up. Can I tell you? I know that the Simon's book is just gonna go crazy

only because it's, uh, it's a black box. No one knows what goes on and post election um everything that happened with them, Uh Simon's partner who who had such an impact on the Trump candidacy. That that's the I just see that book is blowing up. I could be completely wrong and what I'm interested in very often other people aren't. But I think you would, really, you especially would really appreciate both of those done. I'm totally reading them. Next question, tell us about a time you failed and

what you learned from the experience. So I'm going to cite something that happened early on in my career, like inconsequential looking back, but I remember it because it was so scary and crazy at the time. Uh. And this

was my first as my first job. I was a Goldman UM and I had done this analysis and submitted it and I got pulled into the partner's office who ran my division, and he started reaming me out, like totally carrying on and screaming and yelling, and I'm sitting there, white knuckles, grabbing the chair, wondering what the heck did I do? I worked so hard on this, like, well, how did I screw this up so badly? And I

just I'm my head was exploding. I was listening as I said, well, I don't I don't understand what what because it had been submitted to some other partner that was senior than him, so I can't make this up. I had left off the middle initial of the partner who was the ultimate recipient of this analysis. I had left off I think it was an A. I remember to this point, to this day, I remember his name, but I remember the middle initial was an A and it was so insane. Wait, wait, that's what he was

upset about. This guy had his higher up. It reamed him out because I attention to details, she left off my middle initial, so I can't see exactly. Um, but on crazy I know, so UM. But you know what I ended up doing was calling the guy who was the middle initial A guy and asking to meet with him, and we ended up having lunch and Um. As it turns out, he wasn't nearly as upset as I think the guy who called me into his office was just

having a bad day or you know, whatever the case was. Um, but it it taught me about dealing with things head on and not letting someone else speak for me, um and uh and diffusing the situation um again by just having a candid conversation, you know, sort of person to person and so UM it was. You know, it stuck with me because I it was a ballsy move, but it ended up okay as a result. Quite quite interesting. What do you do for fun? What do you do when you're not um up to your elbows in the

hedge fun industry? So I've discovered inner athlete in the last few years. I you know, growing up in New York, I uh, I don't know. I didn't like I went to Stuybison. It wasn't like I was. I wasn't a big sports person. I took ballet that was about as athletic as I as I was. UM. So I found that I love cycling. Go on all these cycling trips now like all over the world. I have a buddy who does that. They have a Chase van and they they went through Italy, they went through So I do

this in style. I'm not like you know, I mean, so there is a van that follows us. We stay in phenomenal places. We eat crazy copious amounts of food because we can. We're cycling fifty six. You see stuff you would never see as a tourist, you know, you really and we picked places that are just that are like you know, they're beautiful to cycle. Where have you give us a few names? Provence, Croatia, uh, other parts of France. Um which is off the coast of LaRochelle.

It's kind of like the Hampton's of Paris, Umu, Costa Rica. Yeah, that that sounds fascinating. Let me ask you UM this question about the industry. What are you most optimistic and

most pessimistic about the world of finance. So I think that this this shakeout is going to be for the better, because I really think the industry has gotten tagged with the poor performance of the majority of hedge funds and if they go away UM or, then I think what we're left with are the guys that are actually really delivering on um a business model that works for LPs. And so I'm I'm as much as this is a

painful moment in time for a lot of funds. I think the shakeout will happen the way it's supposed to. Before we get to the pessimistic I meant to to quote you something from Jim Chanos who said thirty years ago there were a hundred hedge funds. They all created alpha. Now this eleven thousand hedge funds, and it's those same

hundreds that are creating the alpha. Is that a fair statement or you Now I don't I don't think that's true, or you wouldn't see funds again like Eating Perry and I mean sorry, Eating Park and Perry going out of business, or High Fields closing its doors or Blue Ridge closing its stores. Those two were by choice. The first two we're you know, I'm not sure they were. UM and and again all those funds that I mentioned that are

now shells of their former selves. Right, we talked about the A U M drops of funds like green Light and Corvax and Discovery and fir Tree. So those that's not indicative of funds that have delivered great performance for the past four or five years. Again this year exclusion. So I don't agree with that. UM. I think now what what UM is the differentiator? Are really funds that have set up an infrastructure that bestows competitive advantage to

their people. So what sort of advice would you give to a recent college grad who was interested in going into finance. I think they need to They need to understand whether it's finance, whether it's investment banking, or it's going directly to a hedge fund or really my advice would be no different to whether it's consulting anything. They need to be prepared to work harder than everybody else if they wanted differentiate themselves. And I tell this to

my son all the time. Everyone thinks they work hard. The truth is is you and I know Barry, most people don't actually work that hard. And I think, particularly with millennial millennials, UM, they I don't think people these days we interview young kids from Goldman even to join our firm, to my firm, they're not working the way I used to work when I was a Goldman, And so I working hard that hard in being that overprepared in the beginning is what will set you up for success,

because you'll be ready for unexpected um questions. UM. It sets up a work ethic which UM, I think just serves you well in life. You know, and I that's that's the ethos I live by still to this day. It's the ethos of my firm. It's just it's being paranoid that you're missing something and making sure that every last stone is uncovered. I've read certain coaches say that given a choice between hard work and talent, I'll take

the hard work. Quite interesting, and our final question, what do you know about the world of alternatives and talents and recruitment today that you wish you knew twenty plus years ago? So I think there's a special cocktail of art and science that goes into what makes the best people. And when I look at the people I thought were good fifteen twenty years ago, you know, when I when I see them now, a lot of these people, I'm like,

what was I thinking? It's just what? So our judgment has certainly become a lot more refined as we've seen people evolved through different markets. But there are certain things that are common traits. Is what we've distilled from that that I know now that I wish I knew then. So those fall into two categories science and art. On the science front, what we're looking for is a defined process.

We're looking for people who come at things through systematic research, through systematic um independent research, not through talking to their hedge fund buddies. We're looking for velocity of ideas. I want somebody who's constantly thinking out of the box and coming up with things, regardless of how tough it. Maybe. I want somebody who can UM run a scale business. You know, being able to deploy ten million dollars is

different than a hundred, is different than a billion. For our clients, I need the guy who can deploy a billion dollars successfully and generate consistent alpha over time. And that goes to my last point on science. I want somebody who can be effective in different kinds of markets. Isn't just a one trick pony. So that's on that's a that's a toll order. That's on the science front.

But you can have of people who have great science and no art and can't really generate P and L and on the and art is you know, it's a I think it's a little bit. You know it when you see it, certainly for us, And I'm not sure how much of it UM can really be taught. I don't think you learned this stuff that Wharton or it's hard to It's just it's there's a d N a composition to it, and it comes to passion. UM. I know it when I see it. I know somebody who's

really into their subject matter. You can't fake that um intensity uh an intense desire to learn and grow. We spoke about this earlier, humility, um arrogance as a killer in this industry. It's what it's what kills performance. You have to be willing to pivot and come at things

differently and evolve. And I think, but I do think the art can be made better if if you're somewhere that can make the science better and gives you the tools to refine your process and comment research more effectively, then you can you can have more confidence in terms of relying on things like your non intellectual judgment and your willingness to take risk and be wrong. So I do think they're all those pieces fit together, and it's about being somewhere which can really help you develop the

right foundation. Quite quite fascinating. Thank you Alanna for being so generous with your time. We have been speaking with Alana Weinstein of I d W Group. If you enjoy this conversation, we'll be sure to look up an inch or down an inch on Apple iTunes and you could see any of the previous three hundred or so such conversations we've had over the past five years. We love your comments, feedback and suggestions right to us at m

IB podcast at Bloomberg dot net. If you're still here, uh this deep into the conversation, then you must have enjoyed it. Give us a lovely review on Apple iTunes. Check out my weekly column on Bloomberg dot com. Sign up from my daily reads at Ritholtz dot com. I would be remiss if I did not thank the crack staff that helps put this conversation together each week. Michael Boyle is my producer. Attica Valbrand is our project manager. Michael Batnick is my head of research. I'm Barry Ritolts.

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