Luke Ellis on the Hedge Fund Business (Podcast)

what a tour to force this conversation was. I wish I had him for another three hours. I just had so many questions to get to. If you were all interested in algorithmic trading, hedge funds, big data, understanding what it's like to run a large firm and to risk hundreds of billions of dollars, well, then what can I say? You're going to find this conversation absolutely fascinating. With no further ado, my conversation with Luke Ellis. This is Masters

in Business with Barry Ridholts on Bloomberg Radio. My special guest today is Luke Ellis. He is the CEO of Man Group, which manages about a hundred and four billion dollars. They are the world's largest listed hedge fund. The firm is known as a pioneer in the application of systematic trading. Since all the way back in Luke ellis welcome to Bloomberg. Very it's a pleasure to be here. So let's go back to the early days of your career. You began

at Japanese Bank Numeral Holdings in the eighties. Tell us about that experience. The eighties and Japan was a pretty wild financial world, wasn't it. Yeah, yes, well, look, I have to admit that. Um so, I knew from an early age that I wanted to work in finance. I sort of I grew up playing cards when I was very young, sort of three or four. And then then my grandfather taught me to bet on the horses when I was about six, and but to do it seriously,

you know, readformed guides, so on and so forth. And one day we're watching the racing and I there was there was a three horse race, and all of them had odds which were reasonably tight. And I looked at my grandfather and said, hang on, this isn't fair. None of those are good enough. The book he's going to win and he looked at me that the books were in on every race and I said, well, I think I want to be a bookie. One day he said, well, in our family we call that going to work in

the city. So I knew I wanted to work in the city. And it's hard for young people listening to think about it properly. But when I graduate did there wasn't the Internet, and so when you were trying to work out where to go and get a job, there was a career's office which had various books about jobs, and it only had three jobs listed in the city that weren't accounting, and I knew I didn't want to

do accounting. So I applied to all three and the first one that I got through to the final interview, m I nicely. They offered me the job. One of the interview questions was why do you want to go and live in Japan? But I just thought it was one of those trick interview questions that was all the rage in the eighties, like you sell on me this broken pen or stopped me jumping out of the window or something. So I just made up a story of

why I wanted to go and live in Japan. Anyway, they offered me the job, and then I discovered it was a Japanese firm and I'd signed up to four months training program in Japan. It researched was harder in the pre internet days. That's what I'm going to defend myself off. But it was a brilliant time him. Yeah, that was the height of the Japanese company's power in

financial market. So and when I was there in those days that they with one quarters earnings, they could have bought Meal Lynch, which at the time was the biggest US broker, Goldman, Sacks, you name it, just with one quarters earnings. So it was a pretty good time to get started in the industry, to say the very least. You know, if I find that Americans don't fully understand

the extent of the Japanese bubble. As bad as the dot coms were in the United States, I think the measure of the peak in Japan was something like five times the US or seven times the US valuation is that ballpark? Yeah, that sounds about right. I mean, amazingly it's still double where it's ever got two since the other way. So the that which was always the stat which was in the end the best was the Imperial Palace with its garden, which is a sort of bit

in the middle of Tokyo. It's right in the central of Tokyo. It's you know, it's a two or three type of plot. And at the time, the value of that land was more than the value of the land in California, and I mean all the land in California. That's the point where you know that this is a bubble that when it births, is going to have a really dire consequences. So you worked with Lane Tomlinson, who was founder of funder Funds Finance Risk Management. You ended

up at FMR. What was that like working there? FMR is fidelity I think I m so. I was lucky enough to start my career right at the beginning of the drivative business. So this was the very early days of swats, and in fact, in Japan, the word swaps

wasn't legal for very Japanese reason. So they had a group called the New Product Department, and basically Blame used to run that, and he got the pick of all of the new graduates that started that had a either some sort of mathematical numerical background, and luckily I got picked and so sort of died into the swap business when you know, nobody could teach you how to do it. You had to teach yourself because the rules haven't been written.

So we had the first IBM come order. It was called an a T or an XT, but the first personal computer on the floor in the mirror, and people used to come around to look at it. Yeah, this is sort of if I did my first trade by telex. The thing. Most people weren't even remember what it is, so it was a very different world. But you basically had to have a fields for numbers in order to

be able to do trade. And for me that was great because you know, I'm never was the best academic, but I've always had a natural affinity with patterns, and you know that was why I like playing cards. Originally it got me through degrees in maths in economics understanding patterns. But it really really worked when you were having to present value a set of cash flows in your head, because that was much quicker than the computer, and you could get the deal done before the other person's computer

have worked out exactly what the answer was. So you were very very different world than you'd imagine. Now, I certainly could you end up at JP Morgan where eventually you become global head of equity derivatives trading. What was that experience like, well, that was my first build a business experience, and so I went there to do swell and fairly quickly, maybe it's a couple of years I've been there. They had a problem in their sort of

Nathan Equity group to business. And this was back in the Glass Eagle days, so you know told of JP Morgan wasn't particularly supposed to be doing anything in equities, but you know, we were already a very important swaps house, maybe the leading swaps house, and they wanted to do other derivatives. They started in the equity rivative business and it sort of hadn't really worked, and in a very JP Morgan way, I got a phone call while I was on holiday saying when you get back from holiday,

your new job is this. And then a couple of hours later somebody called me back and said, sorry, we were supposed to ask if you wanted that, but you know, it was like, of course I'll take the job. Yeah, I didn't think I got a choice. And so when I got to that business, it was I mean it was sort of twenty people and it was losing a bit of money, and it had revenues of sort of I think revenues of ten million or something. And when I left it, what was seven eight years later, we

were up to making a billion dollars of profits. So it was it was a huge growth of a business, and it was a mixture of doing whatever we could do from a kind or of the point of view at the same time as effectively running a big hedge

fund embedded in the bank. And it was a sort of hugely successful business that we built up there, and it was a lot of it was driven by the fact that JP Morgan was trying to grow a cash equities business, and growing a cash equities business from nothing is very expensive, and the chief executive at the time had said that we would be able to build a

cash equities business without losing any money. And so basically sort of job of my team was to make enough money to offset whatever money needed to be invested in the next year of the equities cash equities business. Honestly, I had a real blast. I had a fantastic boss who kept all of the sort of complicated politics of being in a you know, in a money center bank, away from my shoulders. I didn't have to worry about any of that. I could just get on with running

money and we had a very good time. We built a lot of interesting strategies, made some very good returns, and grew it. And for me, it was a really exciting growing a business. I got a kick of that. I've got a kick of leading the troops, learned a number of lessons along the way, quite fascinating. One of the interesting things about the JP Morgan Derivative book is it actually held up pretty well in the oh eight

or nine crisis. Beca before that, a good five or seven years earlier, there was a little flare up that was managed. I don't know if you were there during that, but whatever policies were put into place, whatever risk management policies came in, really helped JP Morrigan navigate the Great

Financial Crisis with very very little damage. Did that overlap with your time when you were there, well, I mean, clearly I had left well before the financial crisis, but you know, I think that there'd been a number of you know, as I mean, as you grow a drip to business in your learning things, there'd been a number of should we call them small minor hiccups, some of which were at the time seemed extremely important, but when you look back, they were quite small numbers compared to

financial crisis. But you know, I was part of the sort of the old pre chase merger JP Morgan, where risk management was really the number one thing they taught you. And you know, Jamie Diamond obviously has a fantastic eye through his management, and so those two things together clearly

has helped them operate through the next twenty years. And you go from being you know, at the heart when you know, back when I was there, people looked at it as as a very uppercross type of business, but you know, it wasn't really thought of as a powerhouse away from derivatives. And obviously today it's you know, well it's the most successful investment bank. Earlier we were discussing your time running the equity derivative's desk at JP Morgan. How did you get to the Man group? What what

brought you over there? Well, so after JP Morgan, I had ten years building a fund of funds business with my original boss, Playe. Thomlinson. So he and I were partners in building up a fund of hedge funds business called FRM, which was really again that was my sort a second experience of building something, this time a private business. It was really interesting and entertaining, and I thought it got as big as it could get on its own. I tried to convince playing that we should sell the business.

We had a couple of goals of getting extremely close to selling the business, and he really couldn't bring himself to let go, and so I basically said, Okay, well, if you're not going to sell the business, then you have to buy me out. And I actually retired at the end of two thousand and seven. So I had the good fortune to be retired during the financial crisis and to be not emotionally involved in what was going on,

which has definitely given me longevity. And various friends running various hedge fund businesses asked for help during the course of the crisis, and you know, so I was you could call it consulting, but it was essentially helping friends with their businesses to think about what how they survived, what they could do, what they couldn't do. You know. It was an amazingly fast moving period and one of those was a business called g l G that at the time was run by a guy called Manny Roman,

who's sort of an old equity friend of mine. And when things calmed down in the middle of two thousand and nine, I carried on doing sort of one day a week helping Manny at g LG, which was nice and interesting, but I didn't have any urge to go back to all time. So I was sort of doing one day a week, and then what ten years ago now, So spring of two thousand and ten, Man Group made a bid for g LG and succeeded in buying Geology and in looking at you know, I understood the GELG

business very well. I also understood the Man business reasonably well, given it was sort of made up of a C T A and a fund of DGE funds. And I could see that the job of sorting out this merger was going to be extremely hard work but rather intellectually interesting. And so in effect I put my hand up and said, hey, many you've talked to me about coming full time to work at g LG. Well, now it's going to be the combination of mana GELG that looks really quite fun.

And so I signed up to join Man as part of the team that was there to turn around the business. As you put those two things together, that's quite fascinating in knowing it was. I came in knowing it was a turnaround and thinking that that, you know, I built two businesses. I'd enjoyed building two businesses, but I wasn't back excited about starting to build another new one. But the chance to turn around some big, quite complicated things seemed rather exciting, and sure enough it was. So so

let's stay with that. Turning around a giant hedge fund that had run into I don't even want to say trouble, but had become very complex, very complicated, and perhaps some of that was not showing up in UM the performance numbers, or at least it wasn't consistent. If I recall that era Man Group was a little inconsistent across different strategies, across different managers. Tell us what you saw when you arrived, and how did you turn a giant, multidiscipline multi manager

funds around? So UM, I mean, there was a lot going on. The big thing was that during the pre crisis period, Man had specialized in selling the structured products, sort of ten year structured products, which actually the clients did very well out of over time, but they basically took a c t A, a fund of HETGE funds, and a capital guarantee rolled it all up together. But importantly, Man Group earned enormous fees out of those by any comparison, so Man had the highest sea margins by a multiple

of five or six in the industry. But they also had a cost base that was a multiple of anybody else's cost base. And what was clear was in a post crisis, well, these structured products with those sorts of fees were unsellable, and so you could see in the future that we had to build a new stream of revenues for the business and a new form of distributing the product, and we also really had to sort out

the cost base. So I think roughly the numbers went at the point of the merger that were about two thousand, four hundred people in Man Group, and at the low when we finished all of the cost initiatives that we needed to do, there were about seven fifty. So it was very significant cost removal exercise. Combined with that, we had to make sure that the investment processes were really focused on alpha generation and that required some a mixture of change of people and change of emphasis of what

they focused on. And then thirdly, we had to build an entirely new distribution process. In the pre crisis world, these structured products were basically Man paid other people to sell them for them, and they were sold to retail around the world with an average ticket size and ten dollars. You know, what we did was to build a basically

from scratch institutional sales process. So today we're an eight percent institutional business and even the other is you know, what we think of as retail business is JP Morgan Private banking is Morgan Stanley's wirehouse. You know, we don't do any direct to individual type of selling at all these days. Quite interesting, So most hedge funds we know about are not publicly traded entities. Why did Man Group

decide to go public? Um, well, clearly pre my time, and I would say that at the time Man Group was more of a holding company and the bit that's the hedge fund was one of a number of pieces within the puzzle. And so a Man has a rather wonderful story in history. The business has been the firm

has been around almost two d and forty years. Used to have a monopoly and supplying run to the Royal Navy doesn't sound like much of a business, but everybody in the Royal Navy used to get what's not quite half a point of rum every day, and you have a monopoly providing that. It was a very good business for a long time. So they were sort of quite late to the asset management thing. It wasn't their nature.

They were a commodity dealer, but more a principle and through essentially the acquisition of HL which is the ct A within the firm, or the platform that came from the ct A, the you know, they started in the asset management business, and so you know when they went public, they were thinking of themselves as a financial conglomerate. As a hedge fund business. You know, there are things we gain from being public and there are things we lose

from being public. You know that the truth of it is, if you're a private hedge fund business, I wouldn't recommend going public. As a public hedge fund business, I wouldn't recommend going private. It's you know, there are swings and roundabouts, gains and losses. It's absolutely fine, but you know sort of that there's pluses and minuses in the columns. Look, let's talk a little bit about the state of the

industry today. Things are pretty challenging for a lot of hedge funds really since the Great Financial Crisis the past decade plus. Why is it that so many hedge funds have been struggling? And the obvious follow up question and how come you guys have not I think that one of the things that we're seeing in many industries with the rise of technology, and I think it's primarily driven by technology. But it's an interesting question because you see

it in many different industries. Is the stronger getting stronger and the week are struggling to survive. And the hedge

fund business is a very Darwinian industry. And what you're seeing is that the larger hedge fund platforms have actually done very well over the last five and ten years and have grown and have got you know, with signs, have actually been able to invest more and thereby create bigger barriers to entry, which creates competitive advantage, which makes it even harder for the small hedge fund And so, you know, twenty whatever years ago, when I started in

the hedge fund business, it was all about looking for the next two hundred million dollar hedge fund. The reality is that's not really an economically viable business anymore. And so you know that what's been happening is a concentration of the alpha with the people who can afford to invest in the technology, who can afford to invest in the best people, and that is squeezing out the smaller players.

So you hear a lot of stories of people struggling in the hedge fund industry because by number of hedge funds, that's right, But when you look at it in terms of the overall industry, actually it's in rather good health. It's just the good health is getting concentrated in first the top and the top hundred, now maybe the top twenty players when you take all we see that across

a lot of industries. So you mentioned and I think it's I think it's particularly something around this technology question because one of the big differences between human process and technology processes. When you develop a human process, uh, you know, the next day you have to repeat roughly the same process again in order to check that everything is all right, and so the amount of new research you do is

relatively constrained when you have a technology process. Once you've got the technology running, you don't really need to spend very much time at all making sure it's doing what it's supposed to be doing, and so you can put nine of your time into new research and that means that you get a compounding effect that over time really is is a significant benefit to the technology empowered business over the one that is sort of dragging its feed

quite quite fast innings. So during the first quarter, when the market dropped pretty substantially, you saw a drop of only eleven, a lot of hedge funds did much much worse than that. What did you guys see to get this right? Or asked more systematically, what was the technological edge that helped you avoid the full thirty plus percent

down draft? So many other funds suffered. So I think one of the things just to highlight is so sort of six what we do is hedge funds and is long only, and so we run a number of long only strategies as well within the platform. And you know, when you look at the returns in the first quarter, the long only strategies were down when we had some decent outfit performance, but they were down proportionately with the market. Actually, our hedge fund strategies on average made money small but

on average made small money in the first quarter. And you know what was that about. Well, the if I go back to that thing I mentioned about JP Morgan in the beginning, you know, I think that risk management is an incredibly important skill. And if you looked at our positioning on the February just before the market turned, yeah, we had good positioning for the way the market was then and therefore horrific positioning for where the market was

two weeks later. Um. But we've spent a lot of our time and energy on investing in our risk management processes and particularly a sort of strong belief that the simple answer to risk management is if you don't like position, don't try and find some complicated heading strategy, get rid of it. And so in order to do that you have to spend a lot of time and effort on

your execution process. But basically what we were able to do is the systems recognized very quickly that they had the wrong positioning as the market started to sell off, and we got out of that positioning very quickly by the end of February so that we could make money as the market continued itsel off down into the end of March, and you know it comes from very good risk management systems and the risk management built into everything

we do. But really important the execution platform because the market's got pretty crazy, as we all remember during that period, and doing your execution in a smart way was really important because if you were a bit sloppy about it, you could get terrible slippage, so you could be leaving loads of money on the table. Yeah. We because of the investment we made in that execution, we're able to get out of our positions without leaving lots a bit offer on the table. M hm, very interesting. What do

you make of this recovery? Here we are in the second week of June. Nasdaq is up to all time highs, SMP not quite back to all time highs, but just about positive for the year. Have we come too far too fast? Or do you just let the technology guide you on those decisions and not sort of spitball market commentary? Well, I'm always happy to spitball market commentary. But the machines will do what the machines do. They don't do what I tell them to do, that's for sure, But quite interestingly,

they they don't really believe in this rally. Either, which there's something about history, but it's very easy to see how the first half of the rally happened, given how quickly we sold off, perfectly normal in market behavior for a rebound, normally for for the port of shorts to reset if you like, um, you know, and then we saw this amazing wave of retail buying that came in and sort from the middle of April onwards that has

really driven the rally up here. And I think it's easy to look at valuations where they are now and think that the valuations are going down from here. Now. Whether that happens in the next month will depend on more buyers or sellers. I mean, you know, this is the market is being driven by technicals. But I think somewhere over the summer it's almost inevitable that the sort of buying frenzy from retail is running out of steam.

The issuing from companies is not running out of steam, and there's a point where that's going to create more sellers than buyers, and we'll start another leg down. How far that goes will be an interesting question. I think evaluation, which basically says that the current valuation says earnings have to be at least as high as earnings, and you're happy to put on a multiple that's higher than we

had in myself. You know, you can debate multiples, but you know that that even if the economy, I think that the most most optimistic view of the economy would be the returns to something like grow sort of absolute GDP into one, I think it's likely to be lower. In that process, I think that you're likely to see higher costs for companies and higher cost of capital because

they're likely to run more conservative balance sheets. You know, they're going to have to pay the sort of gig type of workers more, and so I think the you know, the margins that companies had in are not going to be seen. But at the moment, you know, this market is being driven purely by technicals. On every day, there are more buyers and sellers. You go up. Before we get into some more details about different strategies and what's working and what's not, tell us a little bit about

your role as CEO. Are you overseeing investments? Are you overseeing investor relations? Running the day to day business? Man Group is a pretty substantial, complicated business to run. What demands your attention the most? The interesting thing is considered not what people expect, So I probably maybe I spend ten per cent of my time on corporate stuff. We are, as you say, a public company that requires a certain amount of things, But I spend very little time with

our shareholders. I provide them with the information and then leave them to make their own decision. I spend about ten percent of my time on clients, um sort of temper cent of my time on the sort of other aspects of business management. And you know what I spend most of my time on is really the people. You know, I have strong views about markets. I talk markets all the time with the different people at work, but you know,

I don't influence anybody's investment pro fesse. But I spend a lot of time on getting people to work together well, making sure that they're happy in their job, making sure that people that are having a tough time have an arm around the shoulder, making sure that people that are doing really well don't get cocky, and you know, you poke them hard so that they don't get arrogant about it.

Because we all know, whatever your investment style is, at various points, the market will love your investment style and you'll look really clever, and there are times when the market will hate your investment style. And you know, what we want is people and whether it's discretionary or quand

to stick to a process. And so my job to keep them motivated, keep them working together, make sure you provide leadership to the people, because you know, in the end, these businesses are all about the people you have within them. Quite interesting in let's talk a little bit about what the various worldwide government's responses have been to the pandemic. Central banks of slash rates. They've injected a ton of liquidity,

lots of governments have done large fiscal stimulus. How much of this rally is being driven by all this government largess and how much of it is bounce back from the fastest down I think we've ever seen in market history. Yeah, I think we've hit the fastest, quickest, largest everything in the last oh actually in everything compare the last time that this all happened was in the circus, which is a slightly scary thought of the hold. I think what you've got going on is, you know, you have a

serious tsunami of pain in the real economy out there. Um, you know, even with a slightly strange unemployment numbers that we had on Friday. You know, we've had a ten percent increase in unemployment in the space for two months, and you know, in many countries it's a lot worse than that. Um. You know, when you talk to anybody running a small business in the sort of you know that's not in the financial markets, in the real economy,

that they're having a miserable time. Um. And on the other side, you've got this incredible ways of money that's come from governments and central banks getting harder and harder to tell governments and central banks apart to be honest. You know, that has to something I alluded to earlier that has definitely benefited a lot of the larger companies.

That's where most of the money has gone to. And so there is something understandable that says, you know, large tax stocks are doing relatively well in a world where the overall economy is still doing poorly, because there will be market share gains for big companies out of all of this, I believe. But one of the troubles of trying to put valuations on the market or valuations on individual stocks is you know, these enormous waves of money

in the different directions. People are trying to guess the inputs for their share model that you know, the stock valuation model that they had a year ago. What are the inputs I should put in for next year? I have to say my own senses, you need a different model looking forward, because I do think out of all of this, there are going to be some material changes

over time. Sort of time scales in the US are hard to guess given the political situation, but yeah, there are going to be changed us for the corporate landscape in the same way that there were coming out of two thousand and eight nine to the financial institution landscape two nine. You know what happened. You can say what

we realized. I don't know, but it's certainly what happened was that, you know, there's a conclusion banks were two levered and that they didn't take enough responsibility for their own actions, and they were not resilient enough in their business. And so we came out of two thousand eight nine with a series of regulation which put leverage limits on banks, to impose stress tests on them so the businesses were more resilient and put personal liability into the management of

the of the banks. I think personally that we're likely to see similar types of things come out of this, but applied to the corporate world, because what happened after two thousand and eight nine was bank leverage went down and corporate leverage went up a lot, and so we came into the crisis with all of these companies with absolutely no resilience. Not again, not all of the companies. You could see why an Amazon or an Apple has done incredibly well through all of this because they have

incredibly robust balant sheets. But if you look at a whole bunch of the names which um I've struggled, you see that they had huge leverage and no ability to withstand two three months of you know, I mean it's an extreme shock, but still to withstand two or three months of no income is not you know, I don't think that's an unreasonable thing to expect the company to

run with that amount of resilience. And I think you're life you to see regulation coming out of the other end of this which start to drive that behavior into company. We've certainly seen that in the just in time delivery for essential medical and food supplies. I wouldn't be surprised to see some regulations change with that. When the supermarkets don't have toilet paper for a month, that doesn't say

your society is especially stable, does it. There you go and you know you you mean, you know, toilet paper was I mean, it's a perfect post to chart on it. And one of the things is, you know, when you think you might run out of toilet paper, you're willing to pay any price for it. But that's not good for an economy. So I think that just in time inventories is another form of running businesses with extremely low resiliency.

And so I think that either through company management or through regulation, there is going to be a push for companies to run with more inventory, to run with shorter supply lines. And if you've got the longest supply line, then it's got to have more, even more inventory built into it. All of these things are likely to come

out of the other side of this crisis. And you know, when we when we moved from companies having you know, sort of a year of spare part inventory to just in time manufacturing, the route of direction was a good one. But I think you know, in the way that happens if there's no regulation, it went too far. I'm a huge believer in capitalism. It's the best system there is, but it shouldn't be untrammeled. It should have some constraints

on it. And you know, if you actually go back and read Adam Smith, you know who is everybody's posted child for the father of capitalism. Actually, when he talks about the invisible hand, in the rest of the chat, he talks about the fact that the invisible hand needs some constraints to stop it going too far. Absolutely, So let me shift gears a little bit and ask you about a different sort of practice within the Man group. You have a private practice focusing on real estate, single

family homes financing. Tell us a little bit about that practice and what you are looking at going forward. Some people have posited that following the pandemic, there's gonna be a little bit of an egress out of the city and into the surrounding bedroom communities where you have a little more space and a little more room to deal with either a pandemic or a shelter in place situation.

I think that's right. I would love to say that, you know, we have predicted that part in getting into this business, But you know, I think what we saw

was in the States. Two big things happening. One has been a gradual drift of people from I guess you'd call it something like the Northeast down in the direction of the southeast and south, in terms of moving from parts of the country where the cost of living is incredibly high to parts of the country where the cost of living is more manageable, and that suits both the individuals and the companies. Um. So, you know, the cost of having a three bedroom house in commuting distance to

a bank in Manhattan is crucifying the expensive. The cost of having a three bedroom house in commuting distance to Bank of America in Charlotte is you know, it's sort of a couple of hundred thousand dollars and therefore well within the sort of capability of people. But the second thing we've seen is that after the financial crisis, there is a whole generation of people who don't see houses as a store of value. In the UK, still there is the sense that the house is the one shore

fare store of value. Obviously, a lot of people in the US had real difficulties in financial crisis with housing finance, and so there is a whole generation that is very nervous of owning their own home, doesn't see it as a store of value and therefore is really quite happy with rental as opposed to mortgage finance. And so one could get people who can very easily afford the house

that choose to sit rather than buy it. We use some technology to basically identify best neighborhood's best type of houses for the type of of renters we're looking for, you know, and part of the thing is it's as opposed to the multi family, you know, lots of apartments packed in together. This is much more about, you know, the three four bedroom family house around the sort of ring road in one of the growing cities, where you know that they care a lot about it's a three

four bedroom house. You're worried about kids because otherwise why you've got three or four bedrooms, and so you worry about the quality of the local school and so access to the right schools is really important. And then once somebody is renting and their kids are at a good school, you know they're a pretty stable tenant because the last thing you want to do is take your kids out

of a good school. So, you know, we think that's a very interesting thing where you're delivering value to the tenants, and you can deliver a very decent return to the capital providers, to our investors, and actually, really interestingly through the crisis, you know, so we've been collecting something like class of the rent that we collected by number of tenants as this time last year, and actually more dollars of rent than we collected this time of last year.

So as an asset class, it's really held up even before me it's held up in cash flow, even before you start to see the possibility of of increasing prices as people start to move out of the big cities. Quite interesting. Any other new strategies that are being revealed by the pens I'm making lockdown or or asked differently, what has changed going forward? As a allocator of capital? What areas are you thinking about? As hey, this is

very different post than it was previously. I think the challenge for allocators is that everybody's got used to the idea that the sort of starting point is a sixty type of portfolio, and that was based around the idea that government bonds were a store of value and had

a decent yield and were uncorrelated. And I think we are seeing something through the course of this process of basically central banks funding government deficits and thereby repressing natural movements and yields, and so we've we've ended up at this place where the amount of upside in owning treasuries is extremely limited or government bonds anywhere over time, and you obviously have a downside if the central bank ever

loses control. And so I think government bonds globally have gone from being a long term investment as one of the core pillars of your natural savings process could basically

being a trading instrument. So there are moments you want to be long treasuries, there are moments you want to be short treasuries, but just owning them as a store of value over time with a nice yield that just doesn't apply anymore, and thinking that they're going to provide you with significant ballant in a time of difficulty also really not clear that that happens when you start getting down to these very low levels of yields, which are

only there because of central bank buying, because of QUI. So I think you know that there's a challenge in building successful portfolios for clients over time that really you have equities and the equity like things like credit, like private equities. They're all basically growth instruments driven by the same thing. On the one hand, and you have cash as the alternative, and that's a that's a riskier portfolio than the one that clients have had for the last

twenty years. And so we're doing a lot of work helping clients think about how you manage manage their overall pension fund, whatever it might be. In that type of environment. Quite intriguing. I know I only have you for a couple of minutes. More so, let's jump to our speed round. These are our favorite questions we ask all of our guests, and let's start out with what are you streaming these days? What are you watching on Netflix or whatever video preferences

you have. I have to say I thought about that one because I've heard it in your other questions, and I realized we haven't had a rather unexciting time with streaming. It's partly by the time you get to the evening, we're not I'm not after anything very intellectual, but you know,

we've we've watched some New Amsterdam. On one thing we watched, there's a British police drama called in the line of duty, which we somehow missed over the last ten years, so we went back and started that one from the beginning.

But fundamentally, television has been really dull for me without sport in barely worth putting the TV on for quite interesting tell us about some of your mentors who helped guide your career when you were a young buck um Well, I have to say that the uh, I've tried over my life to get, you know, sort of whoever I deal with to try and learn something from them. I'm quite a sponge for ideas and processes from people in

a traditional sense. So the you know, so I mentioned earlier, you know the best manager I've ever had was my boss at JP Morgan, who was called Rumond olivera who really taught me how to build a team, how to motivate people, and I've always been super grateful to him for everything I learned from that. Let's talk about books. What are some of your all time favorite books and what are you reading right now? So I have to say I've been reading a lot in the in the lockdown.

One of the things I realized was getting up in the morning and going straight to my desk was slightly sad, so that morning commute type of period. I've taken that first hour of the morning and I sit and read, which means you get through quite a lot. I try to read a mixture old things which are good for work, things which are sort of mind expanding in some form, of things which are just just a bit of fun.

My favorite book is a book called John McNabb, which is a John Bucking book written in thirties, I think, and it's actually applies incredibly today, and it's basically about three successful people who are suffering from on weed. They're somewhat bored with their successful life and they've lost the spark. And it's about how they refined that spark, which I go back to that really quite often. But in the lockdown, I don't know if you've come across the guy called

Matthew Said, who writes some very interesting books. He's more of a thinker than Malcolm Gladwell, but he's in the same type of area. He has one called Black Box Thinking, which is one of my favorite ones because it's it's really into how the the aviation. I mean, it's I can thinking of how do you create a no blame

culture within a business? But it's really about the difference between the aviation industry, where every time there's a problem, it's a learning experience, as opposed to the medical industry, where nobody wants to admit they ever got anything wrong. And he had a new one out just recently called Rebel Ideas, which is about cognitive diversity and have some very interesting ideas about practical diversity in a business, which is pretty appropriate in the circumstances of the last couple

of weeks. I love wine. I spent a lot of time thinking about wine. I like reading about wine. I like drinking it more and going around and fiddling in my wine cellar. But the somebody got me a book called Corkdalk, which is about New York's Famelia, which I

found a really good read. What I read Black Box Thinking some time ago, and what I found so surprising and fascinating was that the famed black box is actually orange because, as part of their process of always reviewing each problem, if a plane crashes in water or in deep forest, black is hard to see, an orange is easy to see. So even the same black box itself is actually a different color. That's how serious they are about learning from the process exactly and don't don't have

sacred coals. Learned from a process and try and get better. I definitely try to follow a lot of those ideas in my day to day process. Quite interesting, what sort of advice would you give to a recent college graduate, recent university graduate who was interested in either the world of investing or systematic trading or anything quantitative having to do with finance. For the first one would be simple, which is, if you haven't done it already, go and

spend time learning to code in Python. Python is one of these languages that you know, it's it's a new generation language where it's one of these places ways of language where you could get real compounding of ideas because you don't have to code everything from first principles. You could take chunks of other people's work. I think that's really important in terms of the one of the interesting

things that man is. You know, while while obviously English is the first language of man and we have I think we've worked out fifty two different first language is in the employees in the firm. The second largest human language is the Mandarin. So if we've got employees, because a sort of called it a thousand of them their first language might be English, hundred and fifty their first

language would be Mandarin. But we have about six people who code for a living in Python, and so really Python is becoming more and more the lingual pancra of our business, and I think is for anybody who has an interest in these sorts of areas, it's a real necessity. The other is something I would always tell people is don't choose a job because you think it's the one where you can make the most money. Choose a job because it's the one way you're interested where you get

intellectually challenged by it. Because actually predicting where which would be the most profitable jobs in ten years time, I don't think I've ever seen anybody succeed at that. But you'll never succeed at something which you're doing just for the money, Whereas if you're doing something with passion, that's always the thing you'll do best at. Quite quite of triguing, and our final question, what do you know about the world of investing today that you wish you knew thirty

plus years ago when you were first getting started. I don't know. That's an interesting one in terms of that they're easy answers like I wish I knew that rates were going to go down to nothing, but the but the reality is, I mean, I've had a great run, and I'm not sure I would change what happened in my thirty years of my career by knowing something different at the beginning. So what I would say is what I hope I did, which is trying to make everything

a learning experience. When you talk to somebody, try and figure out not what's wrong with them, but what do they know that you don't know. When you see a problem, try and figure out what you could learn from man and then you know, over the long run, you'll do really, really well out of that. Thanks Luke for being so generous with your time. We have been speaking with Luke Ellis, CEO of the Man Group, the world's largest publicly traded

hedge funds. If you enjoy this conversation well, be sure to look up an intro Down an Inch on Apple iTunes, where you can see all of our previous three D conversations over the past is it six years, seven years? I've lost count? You can find our previous broadcasts at iTunes, Spotify, Google Podcasts, Overcast, Stitcher, wherever final podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Check out my

weekly column on Bloomberg dot Com Opinion. You can sign up for my daily reading list at rid Halts dot com. Follow me on Twitter at rit Halts. 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. Maroufo is my audio engineer. Michael Batnick is my head of research. Batica val Bronn is our project manager. I'm Barry Retolts. You've been listening to Masters in Business on Bloomberg Radio.