Bloomberg Audio Studios, podcasts, radio news. This is Master's in Business with Barry Ridholds on Bloomberg Radio. This week on the podcast another extra special guest. Corey Hofstein is one of these really fascinating quants who has just a really interesting background. Not only did he stand up a research shop from a dorm room in college and started selling model portfolios to fund managers, but eventually created a suite of first mutual funds and then ETFs, really pioneering the
concept of return stacking. People have described that in the past as portable alpha. He does some really really interesting research and gets deep into the weeds on things like market structure, liquidly cascades, what really drives returns, how much should you be focused on alpha versus beta? But most fascinating of all, he is one of those rare quants who has the ability to take complex, sophisticated quantitative topics
and make them very understandable for the average investor. If you're at all interested in concepts of things like portable alpha or return stacking, or just want to know how a quant looks at the world of investing and tries to decide where there are opportunities I found this conversation to be fascinating, and I think you will also, with no further ado, newfound research and returned stacked ETF suites. Corey Hofstein, Corey Hofstein, Welcome to Bloomberg.
Barry, thank you for having me. Very excited to be here.
I'm excited to chat with you about things besides watches and cars in real estate. Let's talk a little bit about your background. You get a BS and Computer science from Cornell, a master's in computational finance from Carnegie mellon quantitative investing. Was was that the plan from the beginning?
Absolutely not really not No. I grew up in the Super Nintendo generation, so I thought as a young man that I was gonna make video games for a living.
Get out. Really I did.
And I taught myself to program when I was twelve.
Huh.
And all throughout late middle school and high school, I was programming games for my game Boy and developing game engines for the computer. I wrote my own programming language. I really thought I was on a path to go video games.
For what was your game of choice? As a kid, I.
Was a big Zelda fan.
Okay, I really was.
And it's funny I haven't played video games in probably over a decade.
Same, And the really funny thing is so here the age difference. I remember sneaking out of high school during lunch with a buddy to go to the mall to first start playing Space Invaders, then Galaxa, then Missile Command, like these are all retro games. And then when I started as a trader Tuesday nights, the quote server would be taken offline and it would become a quake server, and we spent and you just get lost in it, and suddenly it's eleven o'clock and oh my god, I
missed dinner. But that's really fascinating. Why didn't you become a game programmer?
As you mentioned, I ended up at Cornell for computer science, and as much as I love the curriculum, I looked around at the people I was in my classes with and I said, oh, don I don't know if this is whom I want to spend with, whom I want to spend all of my time.
That's hilarious in a cubicle.
As it turns out, I like talking to people, I like interacting, and I just sort of grew and evolved from there. This was the era two thousand and five two thousand and six, all of my friends were looking to get banking roles. Everyone wanted to go work on Wall Street, and so I sort of caught the bug and saw, oh, there's this really interesting thing I'm learning about called quant right, and I really liked the application of math and statistics and computer science to markets, and
I just caught the bug. And that's where I said, Okay, I think that's where I want to spend my career. And so graduating right into two thousand and nine, right out of the financial crisis, I said, I don't think I'm going to get a job. Let me see if I can go to grad school continue this education. And that's how I ended up at Carnegie Mellon.
So let's talk a little bit about the timing there. You're a Cornell six to nine, you're a Carnegie Mellon O nine to eleven, but you start Newfound Research in eight Well, what was this a dorm room? It is the next Dell computer.
It was. It was very accidental. I never actually intended to still be running this business sixteen years later. Truthfully, I named it Newfound after a lake my family used to visit in New Hampshire. It was truly a throwaway name. But in college I was working on some quantitative research models and happenstance we were talking about luck earlier got introduced to a local asset manager outside of Boston who saw what I was working on and said, this is
really interesting. Would you license these models to me. I'm a broke college student who needs some beer money. Yeah, And he said, I don't have any cash to pay you with, but I'll pay you in basis points. I did not know what a basis point was. I said, sure, man, whatever, I'm going to grad school.
But by the way, most college kids pay for beer money through quantitative model diviso.
That's right.
I mean, I think that's a generational thing, and why not?
Why not?
I don't know what a basis point is.
I didn't even know what a basis point was. And so we get this contract written and I go off to grad school, assuming I would go work at a big bank doing sales and trading in some quant role. And he ended up running a strategy based on my research models that went from zero to several billion dollars.
Get out of here and a couple of basis points on.
That is a lot to add up, and it afforded me the opportunity. It was interesting because this was a big transition time in Wall Street where a lot of the jobs I had been trained for when I went through that graduate school program, who, by the way, today looks nothing like the program I went through. It was all about pricing credit default swaps. No it trades credit default swaps anymore. So I'm looking on the other side of this and I'm seeing all the jobs I wanted
to apply for disappear. And my father was an entrepreneur. I always had the idea that I would do something entrepreneurial. And I said, you know, young, naive, brash, twenty year old, I said, well, I got a business that's already paying me. Why don't I just keep doing this? And that's where the journey began.
Right out of grad school, you just continued. Did you even look at jobs? Did you apply.
Places I did not?
You just said, ah, I could be my own boss.
That's what happens in your early twenties. You have that sort of brash arrogance.
That's amazing. So you have this one set of model, it's generating revenue. What was the next step? How did you turn this into a sort of quirky idea that is, creating a little bit of revenue into an actual business.
Yeah, so that was that was a lot of stumbling in the dark, candidly. So on the other side of that contract is I got paid basis points, but I had a confidentiality agreement with this firm, And so as those assets grew, I'm now a young twenty year old going out trying to go to other asset managers saying, hey, I have this quantitative research. It helps power billions of dollars of decisions. And they'd say, well, who are your clients? And I'd say, I can't tell you.
You gotta trust me on this.
And you gotta trust me. And as you know, again a young twenty year old, I'm sure I got laughed out of a lot of offices. And there's a very long story here that's better told over beers. But as it turns out, the reason that asset manager was able to raise so much money was because they had taken signals I had sent them, turned them into rant a back test, miscalculated that back test, and then ran around telling everyone it was a live strategy.
Oh really, So it sounds like trouble.
Sounds like trouble. So to about twenty thirteen, I was doing a lot of this research. I had sort of started to move into more subadvisory index provider roles and all of a sudden SEC comes knocking. And by the way, at that point, that client was at thirteen billion dollars.
Wait, so your you just provide the model. You have nothing, what's soever to do with how they marketed, who the clients are, how they run it.
It's just a model, yes, and by and by the agreement, I wasn't I wasn't even supposed to be in the equation at all. I've never been introduced. No one knew who I was. Somehow, no one in due diligence ever asked them about any of this, right, And so thirteen billion dollar firm gets a knock from the SEC, and the SEC says, okay, you're calling this a live track record, show us the audious.
The trade cracks record and it only goes back to nine.
And then you can imagine everything unraveled from there. And so in twenty thirteen, I'm staring down my largest client. All of a sudden it becomes obvious this is fraud.
Now by the way, how did the fund actually perform when it was live?
Quite well, right, I mean that's why I gathered so many assets.
So that's the crazy thing, is what led the Because normally the SEC gets called in when somebody's losing money and they're pissed, not hey, we're making money, but I'm not sure I love this marketing.
Just a routine exam. You know, you run an RIA. The SEC just comes knocking every once in a while to say, hey, you just want to make sure the compliance programs all set up. It happens every once in every couple of years. And at that point they were due for their routine exam. They had gone from nothing to twelve billion. It was time for the SEC to come kick the tires with what should have been a very routine This is you know, dot the ice across
the t's. Oh no, it turns out you've got a fabricated track record that, by the way, you miscalculated your back test and it's an inflated fabricated track.
Well that's really a problem. That's really they ever come knocking to you and said, hey, we uh.
It wasn't just knocking, because what happened.
Is, oh that subpoena is frightening, isn't it.
It was a subpoena, and as a twenty I guess I must have been twenty three twenty four at the time. Getting a subpoena from the SEC.
I'll get that'll wake you up.
Yeah, that'll that'll get.
The ice coffee, go right to the subpena.
And the gentleman who ran the firm that was my client was was so convincing to the industry that he had done nothing wrong during the SEC investigation. He grew the business from twelve billion to twenty five billion to.
Get out of here.
Yes, wow, yes. And so during that time it's even more basis points. Oh they stopped paying me that they did, they stopped paying me. Needless to say, the SEC ran a very aggressive investigation. I got subpoena. My life got caught up in this SEC investigation, and I said, all right, I've got two choices. I can leave this industry and go go move to Silicon Valley. I got a computer science degree. There's some good stuff going on out there. Or I can plant my flag and prove to people
I did nothing wrong research here. And so that's actually when I started blogging I started writing a weekly research quantitative research report, just to say hey, look there's there's something real here. Had a couple of employees. We started publishing our research, getting out there more and slowly use that the transition to be, you know, we're more active on social media. Started the podcast a few years later, just tried to try to say there's no there's nothing,
there's no fraud here. We were not the problem.
Hey, it's just a model, and we get we solved it to them that the problem is what they did with it. How did the SEC investigation resolve with you guys?
No issues?
Right?
Right? So they I mean anyone who's gone through this, so I suspect the vast majority of people have not you. Eventually, the SEC never says you're.
All right, You're okay. They just they stopped calling.
And then you ask for a letter that says, hey, can I get some resolution, And they say we've determined we're you know, we're not pursuing further inqueries into you. And so I've got a nice letter framed from the SEC that that says precisely that.
So framed framed on the wall.
Yeah, the other side did not end so well as you can imagine they were bankrupt a year later and twenty five billion dollars flew out to the wind.
Wow. So that's an amazing story. I had no idea about that. I want to just go back a little bit to Carnegie Mellon. You graduate with this quantitative background, you went into your own shop. What did your classmates do? Where did they go?
They went all over? A lot of them went to big banks, A lot of them went to buyside hedge funds. Some of them went to places like Citadel to trade options market makers. I mean they really when you when you talk about what is quant right, what you what you learn? You learn everything from how to price structured products, You learn the math that can help you with with market making operations, you learn the technology. It's a really
broad field. And so what ends up happening is people just sort of scatter to all parts of the industry.
Huh. I know you are not especially keen on back.
Testing now, definitely not keen on it.
So here's the question. How much did this experience affect the way you look at back testing honest back testing, really looking at the numbers versus exaggerating returns and making up the claim that something's live when it's not.
I think my view of this has changed over time. I've become I've always been very skeptical a back test for all the reasons quants normally are. I think quants perhaps did a disservice to this industry and making it easier to show people back tests, right. I have a theory unfounded. No one's ever confirmed this, but I always sit around and wonder, why does Blackrock pay MSCI so much money and indexing, you know, when Blackrock could clearly run all these strategies themselves.
The historical track record now and it's so that's live.
Really Arrah Finra, one of the other regulators prohibits you from showing a back test for a mutual funder in ETF. But if it's an index DTF, which is a regulatory term, if it's truly an index DTF, you were allowed to show the index, presuming it's a third party index provider. So what black Rock can do is say this is an index ETF, it's index to this MSCI or SMP smart beta product, and by the way, here's the thirty year back tests. And of course that back test outperforms
the market. And I think that helped fuel the smart beta boom of the twenty tens, and so I don't think there's anything implicitly wrong with back tests if done well. I think the problem is back test became a marketing.
Tool, Yeah, no doubt about it, and the SEC rules on back tests have just changed to the point that when I show a chart of the S and P five hundred or or VTI like, I have to be really circumspect in how I describe it. Here's how the total market return has performed over the past thirty years. That's about the most I can say versus, Hey, you know, if you have a portfolio with ABCDE, here's what you can expect. Like, the pushback we've gotten on some marketing
materials kind of surprised me. I understand they're trying to create like a big no fly zone to avoid the sort of problems that the guy who abused your model did, but it's kind of like, aside from the fact that past performance isn't necessarily relevant to what the world's going to look like in the future, that's that's a very different thing than Wait, I can't just show a chart I don't understand.
Well, and I'm sympathetic to the point that a lot of clients, whether they're advisory clients or my clients who would be advisors and institutions, will ask the question, Okay, well, how would this have performed during these different market stress scenarios, And that's what a back test would, in theory show you, And not being able to tell them or show them makes it harder for them to do due diligence to
understand how it may have behaved right. And so there are ways in which I think back tests can be used appropriately. I understand the blanket no from FINRA, and I understand the SEC's position on it because it can be used in such a manipulative fashion. But I do think it makes it it's easy to abuse, it makes it hard to do thoughtful due diligence in certain cases.
I'm trying to get a sense of how your investment philosophy developed. I recall reading that you were developing a stock screener and you were focused on value based models and discovered that they would get justice she'll act during downturns as the growth stocks did. Tell us a little bit about how screening led you to develop your philosophy and what your thoughts are on momentum and trend.
So very early on in my career, again, I was doing a lot of this on my own. I sort of self discovered factor investing and was basically you using statistical screens to try to find cohorts of stocks that would behave in different ways.
And just to clarify, when you say factor investing, we're really talking about FAMA, French factors, not necessarily smart beta type stuff.
All of the above. All the above, I didn't I didn't even know what it was at the time. I was just trying to say, Hey, if I find a basket of stocks and all the CEOs are bald, how does that behave right versus oh, these all have positive momentary.
I got a great ticker for that ets yeah, balt.
I don't think anyone's used it yet. So I was looking at all sorts of things, which is sort of classical equity quant type work. And I've always sort of had a tilt, just personality wise, towards capital preservation. And there was one conversation very early in my career, this was actually two thousand and seven, where I was interviewing with an asset manager and I pre meeting asked them what they thought of the market, and he gave me the most bearish prognostication I had ever heard. And again,
I was very in my career. I didn't live through the dot com fallout from a career perspective. I said to him, well, what are you going to do? And he was a small cap value manager, and he said nothing. My job is to provide small cap value exposure. If it's not appropriate for the client, the financial advisor should make that decision. And so I said, well, I talked to some financial advisors and they said, well, how in the world should we know when to take our clients
out of small cap value. That's the manager's job. And I said, well, in my opinion, no one's protecting my capital here, and so I started really looking into statistical models that I thought could help preserve capital. On the downside. Value had worked incredibly well in the dot com era, but my thought there was there was nothing inherent in value itself that was necessarily protective in terms of the
type of crisis that could unfold. And so I ended up discovering trend following and following in love with trend following, which is the idea that it sounds naive, but as prices have historically gone up, they tend to persist in that direction, or if prices start to fall, they tend to persist in that direction. And there's a little bit of a statistical edge you can use there to try to really clip your downside risk.
The challenge is always the transition from the uptrend to the down trend, which is why you have portfolio managers and allocators arguing who is responsible. The reality is nobody wants that job because it's thankless and practically impossible. Very few people seem to have come up with a formula that works from one cycle to the next.
That's absolutely right. There's very few, I would argue, probably no consistent predictors of any sort of economic or market cyclicality. What you have is maybe some statistical indicators that give you a slight bit of an edge. But when you talk about just a slight bit of an edge being played on, say a big position like the S and P five hundred in your portfolio, and you're only going to play that edge realistically three or four times in your life, that's a very low breadth bet that's going
to have a really big impact. It's just not smart on a math basis to do that, and it's certainly not smart from a career risk perspective.
I'm so happy you said that, because I frequently find myself wanting to respond to these claims on Twitter sample set of three. Who cares? You know how every time you look at the history of recessions, Hey, twentieth century recessions, what is it? Twelve fourteen? Even that not a lot of numbers. And are you saying the recession in twenty twenty is similar to recession in the nineteen fifties. It's such a different world. That you mentioned the dot com implosion.
The reason value held up was that was such a sector collapse. What was the NAZAQ one hundred down eighty one eighty two percent? And the S and P five hundred was down something like a fraction of that, I want to say, less than half, And then the Dow held up really well, down thirty five percent something like that.
Well, and if you go back to the history, it's because most of those value stocks had already sold off forty or fifty percent in ninety nine, right, right, they were in.
The late nineties. Anyway, they did poorly while the money rolled into the big cap growth and technology media and telecom exploded.
So this story came out that O value is defensive because it has this valuation buffer to it.
In that one example.
But people extrapolated that one example, right, They took a point and they drew a line, and then what happened in two thousand and eight, Well, most naive value portfolios are stuffed with financials, right, and value just got destroyed. Right.
So the obvious question to someone who makes that claim is, well, how to value doing the nineteen seventies not especially well? Look at the utilities, look at big oil compani as well. But that was all about inflation. Okay, but you said this is so it's a it's a hedge except when there's inflation. What are the other exceptions that I always come back to the sample set of three, sample set of five. I need a sample set of a you know,
let's revisit this in the year three thousand. We'll have enough data to be able to look at it.
So I have sort of philosophical view on this, which is, if I knew that value worked to protect my capital in every single recession, and I thought the market was efficient, then I shouldn't be able to predict recessions, because if I can predict a recession and I know value works, then I've outperformed the market. So you know there's there's an inherent limit here based on how efficient you think the market is. And I'll tell you I think the market's pretty darn.
Efficient, mostly kind of sort of eventually efficient. It gets their event what's the Benjamin Graham quote. In the short run, it's a voting machine, but a long run, it's a wighing machine. That's the mostly efficient, eventually efficient market hypothesis. So so given that, let's talk a little bit about things like portable alpha. You've done a lot of work in this, a lot of research. First, give us a quick definition of isolating beta and alpha. What does portable alpha mean?
If you're all right with it, I'm actually going to answer this in a round about fashion type by saying, what problem are we trying to solve here? First and foremost right, and the problem we're trying to solve with terms like portable alpha or return stacking is what I would call the funding problem of diversification. It's a bit of a mouthful. So what do I mean by that?
Most clients, whether they're individuals or institutions, have some sort of benchmark, a policy portfolio, some strategic acid allocation that they start with. They're typically not starting with just a blank piece of paper. It's mister and missus Jones. You are sixty forty investors, sixty percent stocks, forty percent bonds. But we think that we want to go beyond that and introduce diversifying assets or diversifying strategies. It's going to use gold as an example. Well, to put gold in
the portfolio, it's not, it's not just addition. Diversification is a problem of addition through subtraction.
What are you selling in order to buy that?
I need to make room and that creates two problems. The first is it creates a return hurdle problem. Whatever I'm selling that gold in this example needs to outperform to have that portfolio, or at least keep up with over the long run for that portfolio to not underperform the benchmark. Right, So if you do that.
So if you do that, you've even if you've gotten the same performance, you've reduced the risk because through the addition of a diversifying asset.
Right, But there's a risk there Let's say I think gold is going to keep up with stocks over the long run, so I sell my stocks to make room for gold, and it doesn't turns out my forecast is wrong. Well, there's a real opportunity cost there, right, So you've got you've got a modeling hurdle rate that you need to figure out when you're adding diversifiers. Is behavioral, and this is where most people understand stocks and bonds better than
they understand alternatives or alternative strategies. Alternatives and alternative strategies tend to be less tax efficient, more opaque, and so just like stocks can have their lost decades, alternatives often have their lost decades, and people are very unwilling to stick with those diversifying alternatives during lost decades, which means that when the diversification benefits eventually come around, their performance chasing.
And so you see these huge what are called behavior gaps in the returns of alternative investment strategy categories because investors aren't sticking with them. So the return that they realize what's called the investor return, tends to be hundreds of basis points behind the actual investment return. So the
question is how do we solve this. Well, it turns out institutions have solved this problem for forty years using this concept of portable alpha, which is to say, well, instead of making room in the portfolio, can we use some financial engineering to take that alternative and just layer it on top of our portfolio.
In other words, you're using the underlying sixty forty as a basis for borrowing in order to add a different asset class on top of it. Yeah.
I think actually the easiest way for most people to understand this, without getting into the world of derivatives like futures and swaps, is to think about buying a house. Let's say Eve a million dollars and you want to buy a million dollar house. There's really two ways you can do that. You can just go buy the house for cash, and then over time your return is just equal to the return of the house. Or you can
go to the bank and get a mortgage. Put two hundred thousand dollars down, get an eight hundred thousand dollars mortgage. You're going to get the return of the house minus whatever the cost of financing is, and then you're going to have eight hundred thousand dollars in cash with which
you can do whatever. If you were to take that eight hundred thousand dollars in cash and invest it in, say, mortgage backed securities, you'd probably offset your cost off financing, and your return there would be equal to your return of just buying the house, ignoring taxes. But if I were to take the eight hundred thousand dollars and then invest it and say gold, well, now my return is going to be equal to the return of the house minus the mortgage plus gold. I've effectively stacked the return
of gold on top of my house. We do the same concept in institutional portfolio management in portable alpha, but instead of using a mortgage, you use derivatives like futures and swaps, and instead of replacing a house, you're replacing exposure like the S and P five hundred or treasuries, where historically it's been really hard to beat the market and so it's not worth putting capital at work there.
So, in other words, you're not owning the S and P five hundred, you're owning a derivative that gives you the right to approaches the SMP five hundred at a specific price that's a fraction of what owning all five hundred stocks would cost. And then you take that money, that capital and buy other diversifiers and theoretically other holdings that will generate above market returns.
Exactly. So you could say, instead of buying a million dollars of the S and P five hundred, I'm going to take fifty thousand dollars use it as cash collateral to buy S and P five hundred futures a million dollars of S and P five hundred futures, which will give me the total return.
So that'll be equivalent. You'll get the same minus whatever the cost of the derivative.
Minus whatever the cost of the derivative is the embedded cost of financing, and then I can take the rest of that capital and invest it wherever I want. Now, you have to be careful here, right, This isn't a free lunch. You need to think about the operational risks. You need to think about the diversification. This is implicitly leverage. Leverage is a tool that accentuates both the good and the bad. We want to accentuate the benefits of diversification, not double down on the same risk.
I'm immediate. My immediate thought was, Hey, why can't I take that derivative and go all right, if it's going to cost me fifty K, why can I go two x with three x four? And people do that right, which is great until it's not.
Which is great until it's not right. And so for us, when we think about these concept of portable alpha and return stacking, we think they are incredibly efficient ways to get diversification into your portfolio, to get alternative return streams
that can both enhance returns and potentially reduce risk. But you need to be really careful about what you're introducing, particularly because during a liquidity crisis you tend to see correlations go to one, and you need to be aware of the leverage risk that's embedded.
So eight oh nine, that sort of portable alpha probably didn't do great.
Yeah, so let's talk about eight oh nine, and let's talk about why we don't call this portable alph and why we've rebranded it as return stacking. This concept goes back to the nineteen eighties with PIMCOH and got really popular in the early two thousands. What institutions realized, as they said, I mean, you know these stats like the back of your hand, it is really hard to beat
the S and P five hundred. If I have a bond benchmark and forty percent of that as treasuries, how am I supposed to What am I supposed to do with all that dead asset? Well, what I can do is I can use derivatives to get that exposure, either the SMP five hundred or those treasuries, and then I'll use my freed up cash and I'm going to go invest in some hedge fund that I think is going
to give me uncorrelated alpha. Right, maybe the hedge fund does relative value volatility trading, something with some sizzle, right right. And what's interesting is when you think about it, what the math does is I say, okay, I'm getting the S and P five hundred beta, and I'm stacking the return of this hedge fund on top. And now I can sort of That's why it's called portable alph I can port the alpha of this hedge fund on top of the S and P five hundred instead of fishing
in the same pond as everyone else. But what happens during a crisis.
Well, everybody has to raise capital because the there's anyone with leverage is starting to get margin cross.
See, you have four big problems that happen in two thousand and eight. Your first problem is if you were stacking this stuff poorting it on top of the SMPFI five hundred and the S and P five hundred lost fifty percent from two thousand and seven to the bottom in two thousand.
And nine fifty six and chain fifty six.
And change, and you only posted five ten percent is collateral. You're getting a margin call. So you did better if you stacked it on ballns.
Uh huh.
Not so wealthy stacked it on equity. So there's one problem. Folks who stacked it on equities were getting margin calls. Well, what do you do when you get a margin call? You rebalance your portfolio. Basically, that's that's what you have to do. So what they had they went to all the institutions, went to the hedge funds, and the hedge funds said, well, well bad news. Not only have we lost money too, but we're gating redemptions. You can't have
your money back. So all of a sudden, they tried to rebalance to meet their margin calls, and what they had invested their cash and was not giving them their cash back.
And nobody markets this is not portable alpha.
Right, and so they can't rebalance, they get the margin call, they lose the exposure to the beta. The last small wrinkle was a lot of this wasn't done with exchange drade of futures. It was done with total return swaps with banks. And if your counter party was Lehman Brothers, even if you handled things perfectly, where does your swap stand?
Right?
So as you can imagine post two thousand and eight, this concept which was I think if I'm corrected, I think it was twenty five percent of major US pensions and institutions were implementing portable alpha pre two thousand and eight. That that large, that it was a significant amount, and at least fifty percent of it when surveyed, we're looking to implement portable alpha. Uh huh post two thousand and eight, I mean, I think it was called a synthetic risk grenade.
It just the reputation was destroyed.
And synthetic risk grenade. That's a great ban a college.
Absolutely right, absolutely, and and so like many things you lived through two thousand and eight, the language was right, no derivatives, no shorting, no leverage. I mean that was on product brochures at that point, huh, people really didn't want to talk about this stuff, and so it sort of disappeared. Except there are still institutions that are doing this, and they've figured out ways that are much better operationally,
or they figured out other ways to get the leverage. So, for example, private equity, we've seen a huge increase in private.
Equity trillions, literally trillions.
Private equity returns are basically just levered public equity returns.
Uh huh.
So instead of now me saying, let me get my leverage by getting a swap with a bank, I can take my public equity get my leverage by taking my public equity putting it in private equity. If I put twenty cents in, it looks like thirty cents of exposure. And I can take some freedop capital and go invest
in a hedge fund. Now I don't ever get margin called anymore and ps on volatility laundering to steal a quote from Cliff Astness on the private side, And so people have figured out all these very clever ways, and I don't mean clever in a bad way, but clever
ways to keep portable alpha. Because it's a great theoretical concept that just had implementation issues in two thousand to re implement it very thoughtfully, and folks like Jonathan Clinton, who's the CIO of Delta's pension, credits it for taking Delta's pension from near bankruptcy to being overfunded in the last eight years. He gives full credit to Portable Alpha as being the reason why.
No kidding, that's really that's really interesting. So you mentioned private equity. We're not going to talk about private credit or private debt. But it's the same sort of continuum that Cliff Do I say, complains about volatility laundering. It's like, hey, if you don't get a daily mark or a tick By tick mark, volatility is irrelevant. We'll let you know what it's worth. Sort of sort of thing. But you've talked about systematic alternatives. How do you define systematic alternatives?
And is this the approach that anyone who wants exposures to aults should be using.
So this is where I have my own strong personal view. So system matic alternatives to me are active investment strategies that are implemented in a non discretionary manner. Right, Probably these way to describe systematic tends to be you're using computer models to make the decisions and implement the decisions on an ongoing basis. These tend to be things like strategies that will trade futures contracts long and short based on different signals. Those signals might be trend signals, they
might be carry signals. They might be value or momentum, and you're going long and short things like oil or gold or Japanese yen, or you might be trading them as spreads against one another. And the idea of many of these sort of systematic macro strategies is to use these signals to capture a lot of the macro trends that are unfolding that you know, your big macro traders
would try to capture in a more discretionary fund. What's really, in my opinion, attractive and appealing about them is that they tend to be very uncorrelated to equities and bonds over the long run, and particularly during a crisis, because that's where you often see the opportunities manifest for big strong moves, either positive and flight to safety assets or the ability to short and profit from things that are crashing.
Huh. Really intriguing. This kind of ties in with a quote of yours that I want to ask later, but I might as well bring it back to this risk cannot be destroyed, only transformed. Explain.
I don't think I'm the only person who has said this. In fact, I once found a very similar quote in an investment book from the nineteen eighty So this is not a quote that should be attributed to me. It's a general concept, and this is something I actually picked up in my graduate school studies when we were going
through this education of pricing structured products. And what became apparent to me is, in many ways, the role of the financial industry is to identify risk, extract risk, package it, price it, and transfer it to someone who's willing to hold it. That is what we do when we raise a round of equity financing. Right, you're transferring some risk to someone else, so that risk is never really destroyed. Everything you do, whether it's in your portfolio or investment
decisions you make, has a trade off. And sometimes that trade off is just an opportunity cost. Sometimes it's very explicitly higher volatility or lower downside. But everything we do has a trade off. There's really no free launch, right. So when I look at something like portable Alpha, I
say Okay. The opportunity is I don't have to try to beat the S and P five hundred by picking stocks better, which has historically proven to be largely a fool's Errand I can try to beat the SMP by saying, well, let me just get the SMP and I think gold is just going to be positive over my thirty year horizon. Let me just stack some gold on top. Okay, that's a win. Where's the risk? Well, again, I'm introduced. I'm using leverage. Leverage isn't inherently bad, but there are risks
that I've now introduced for making this trade off. And so yes, I get some diversification benefit, but there's some liquidity risks and operational risks I really need to be aware of. And so it's to me, it's it's trade offs all the way down.
And it's worked out for places like Delta's pension.
Funds Delta, there are a large number of public pensions as well that have used this ipers Ohio police and fire mosers. I mean, this is I want to say, like one of the and what's interesting is they don't
want to talk about it. Oh really, now, the public pensions, it's in all their public filings, so you can go find this right, but a lot of them don't want to talk about it because either hey, this is our this is what's working for us, and we need to beat our competitors right or again it just portable alpha has this bad label to it from two thousand and eight, and people don't want to see it, and so they're sort of finding ways to hide it.
So we'll talk about return stacking in a moment, but I want to stay with some of the research that you did, and let's talk about liquidy cascades, which our mutual friend Dave Natick has described a new lens on reality that I think people should be thinking about. I love that description. Tell us what your liquidity cascade work found.
So this was research I wrote in twenty twenty after coming out of the twenty twenty crisis, and it was born from the view that while there was a very real exogenous economic event that caused the market to sell off, the day to day of what I was seeing happening in markets seemed to be endogenous. In other words, there was so much volatility and there was so much mispricing that didn't seem to be a reaction to fundamental changes
the world. It just seemed to be, Oh, there's someone got liquidated and had to sell immediately, sell down a large levered position, and there's someone who couldn't meet a collateral call. And so it made me take a step back and say, is there something about the market structure, the way market micro structure has evolved over time that I don't understand that there are some of these maybe
lurking risks that we've implemented. And so there were three I'm gonna call them conspiracy theories for lack of a better word, that the hang out there as to what has broken.
The market rationalization rationalizations, Yeah, to.
Be kind to the people that believe them, And so the idea of the paper was I was going to explore them as objectively as I could. The big three as I saw them, were FED intervention and a decade of zero interest rate policy causing people to take on too much risk, forcing them up the risk curve there was, and then obviously the concept of a FED put being
tied in there. Then there was the right as a passive investing not just active versus passive in the type of price discovery that was happening, but truly how we trade indexed products at a market micro structure level was that changing stocks aren't traded individually anymore. They're traded as big baskets the way market makers are. There's now really just a handful of big market makers rather than a large cohort. Is that making markets more fragile? And then
the impact of derivatives? Right? And I think we saw this as an example for people with game Stop, where you had what I would call social gamma, this acceleration through Reddit of people buying out of the money call options to drive through leverage, the price higher because market
makers were forced to hedge. Right. Do you see that less specifically at game Stop, But do you see that at a grander scale when you have a huge amount of structured products being issued in Asia and Europe, or you have all these sort of uses of leverage among institutions? Have we gotten again to a point of fragility? And what liquidity Cascades ultimately argued was anyone who thinks it was just their one thesis was probably wrong it.
Now I want to just stop you for a second, interrupt you for a second and point out how often are big complicated situations, you know, Jacques cu'es it's that one thing. The world is much more complex than that. It's I remember looking at the causes of the financial crisis. I found dozens of them. When the inflation surge took up in twenty one and twenty two, like people wanted to point a finger, there were dozens of factors, including consumers who said, oh, that's fifty percent more. Yeah, I
don't care, I'm gonna buy one. Consumers drove inflation as much as fiscal stimulus and all these other things. So how how broad a conclusion did you reach that it's never just one thing?
To your point, I think people look into a world of incredibly complex nonlinear relationships and they want a single linear explanation and it's just not possible.
That's the narrative fallacy. They want to clean little storyline in a bow, and that's not how the universe.
Wor all of these things interact. And so what I came out of the research piece with was not my view. Actually the intro of the research piece, I said, I'm not going to tell you what my view is. I'm going to walk through this objectively as I can, and I'm going to paint a picture at the end, it's up to you as the reader to determine, for lack of a better phrase, how full I am right, you know, so.
What did you find out with those three facts? Or those three so the FED, passive and derivatives.
So with those three factors, what I ultimately argued was that they operate in somewhat of a cycle. Right, FED zero interest rate policy is in many ways, as explicitly stated by the FED, trying to move people up the risk curve. And as people moved up the risk curve, they were trying to find ways to harvest yield or save money, a move into things like passive thing, a move into tax efficient vehicles like ETFs. That we're having a profound impact on the way things are traded in
the market. You're having a consolidation of market makers that leads to potentially increasing fragility or or lack of liquidity. One of the things I thought was really interesting in March twenty twenties. People always talk about market makers pull the plug right right, markets go crazy. They're not running a charity. They're going to pull the plug when things aren't going well.
Or at least lower their their bidass spread wide them out, So yeah.
They're going to wide them out and they're going to thin the order book volume. What I thought was interesting that people don't often talk about is they're actually capacity constrained. They have a balance sheet, and there was I think it was Vertu during March twenty twenty that actually was trying to raise three hundred and fifty million dollars just so they could keep making markets wow because they had
run out of balance sheet. And you go, well, actually, if these institutions are so important to the way our markets function, should they have a line to the Fed?
Yeah, that makes sense, right.
I've never heard anyone talk about it, right, right, But if you need them there and there's only three or four key market makers left, right, we need to make sure that they have healthy balancees. They are systematically important institutions that.
They need a line somewhere. But the Fed's mandate isn't the smooth operation of the NICY. The Fed's mandate is low inflation and full employment.
So it's a little little struck things like that. And again I don't think any of them are the cause, but you start to see some of this fragility creep up, and then as people right are moving up the risk curve, They're trying to find ways to also protect themselves, so they're taking on more derivative strategies. We saw this massive boom and derivatives. We saw an adoption of things leverage
strategies with parity and trend following and alternatives. And again I don't look at the boogeyman and say the market sell off and it's risk parody's fault. But I look at I say, well, if risk parity and managed futures are selling off, and at the same time, you have all these massively levered positions via puts that market makers are having to hedge, all that can act in coordination
to make a sell off more violent. And then sort of you go full circle to the FED stepping back in lowering interest rates and kicking the whole cycle off. And so what I painted a picture of at the end, the reason I called it a liquidity cascade was I painted it was this empty Escher painting.
Of famous Wall the waterfall, and.
Then it magically climbs back up and each part of this it was the FED sort of is at the bottom of the waterfall, and then flight to passive alternative sort of investment strategies and the role of derivatives is at the top, and then some exogenous effect causes the market to crash, the crash becomes more violent, fed steps in and the cycle kicks off again.
So I have so many interesting questions for you. I'm kind of fascinated by your the way you look at the market structure and what's driving things, because for me, the thing I'm looking at during those various processes is, and you reference this earlier are is all the individual decision making that takes place within the context of some financial stress, which, as we've seen, tends to lead to cognitive challenges, behavioral problems, bad decision making. That human element
in the middle tends to react. You know, it's it's oversimplifying it, calling it fight or flight. But hey, that's what your lizard brain is telling you. And it doesn't matter if you're running a billion dollar hedge fund or pension fund. Most people are gonna go through the same sort of panicky response. It's really interesting that you're focusing on the structure and how does the structure accommodate the bad behave that we.
See you are right that there is absolutely panic and lizard brain and I don't mean that in any sort of derogatory way. If their survival instincts of actually it is what it is, I don't think they're irrational. I think ergodicity economics would argue you have to protect your capital to survive. What So I'll give an example here of where I think it's a very specific example, sort of like the market maker's example, but it's something that
happened in March twenty twenty that is obviously wrong. And so Vanguard has their mutual funds, and they offer ETFs as a share class of their mutual funds. So if you buy the mutual fund or the ETF, you are, in theory getting the exact same return because it's the same underlying pool of.
Capital minus the tax advantage of the ETF.
Absolutely yep, their bond fund. During March twenty twenty, there was a two day period where the ETF traded I believe it was up to a six or seven percent discount to the mutual fund. That's a little weird because it's the exact same pool of capital.
Right, So difference being you can only trade mutual funds. At the end of the day, you have to make a specific phone call to buy or or just reach out to whoever your custodian is.
Yep.
Whereas the ETFs are quoted.
In today, but even at the end of day M that discrepancy existed. It wasn't just interday that was. That was the NAB of the mutual fund versus the price of the ETF.
Which had a higher trading volume. I'm going to guess the ETF.
The ETF certainly had a higher trading volume, but the underlying problem is that the bonds weren't pricing. The bond market froze up, so when the mutual fund struck NAB at the end of the day, the NAB was based on ill liquid quotes of bonds that hadn't traded. The ETF was basically saying, we don't believe those quotes. We think the quote should be much lower, and we're going to price much lower.
That's right.
There's an interesting free option here. If you are a vanguard.
By the ETF seldomctual.
Funds well, so because you can't short a mutual fund. The way it would work is you would just always hold the mutual fund, wait for a crisis to come around, and then jump from the mutual fund to the ETF, right, and you basically pick up this free spread based on the fact that the mutual fund is priced incorrectly. Stuff like that shouldn't happen.
Why do you say that, I always go back and forth with this. It's not like computers and algorithms are running this. It's irrational primates who are pushing the cell or buy button.
Let me rephrase that. Things like that don't happen except within a crisis, okay, and they represent opportunity in a crisis because it is definitively mispriced, and if markets are efficient, there shouldn't be miss pricings like that. That's a very You shouldn't have two things that are literally the exact same basket attached to the same underlying trading six percent apart. Unless there's true limits to arbitrage here. You could argue you can't short the mutual fund and buy the ETF.
It's it's hard to arm that spread. But again, anyone trading any bond mutual fund could have jumped to Vanguard's ETF, waited for the price appreciation, and benefited. And again, in a crisis, there's so much information coming at you you might not have seen the opportunity. But I look at a lot of little things like that, and I go, markets mostly function correctly the vast majority of the time. But when you see that fragility pop up in a crisis, uh huh, just is it pause for concern about how
things are currently structured? Just a question.
So I'm not saying it's broken. So to response to that, first, hey, give the Nobel Prize Committee props for offering a prize to Fama and Schiller the same year. It's like, yeah, markets are mostly efficient. Fama is right except when they're not, and Schiller's right. So that's number one. Number two. I have a vivid recollection of sitting in a canoe with Jim Bianco in August of nine, and Bianca was the first person to describe the FED response to the crisis
as the first person I read, and this was really early. Hey, the FED has made cash trash. They want you out of bonds, they want you into equities. Maybe it's gonna take people a while to figure this out. But he was the first person to come up with Tina right and said, people are gonna have to stampede into equities. We're gonna have a rally, and I said, it's funny. I feel like the two of us are part of
the six blind men describing the elephant. Because to your point about mispricing, I recall saying to him, I don't know if you're right. I like that theory. But my day job as a market historian is whenever stocks are cut in half in the United States, that's a fantastic entry point. And if you bring up well, what about nineteen twenty nine. Yeah, you didn't get to the bottom till thirty two, but even down fifty percent on the way down to down eighty seven percent was still a
great entry point. And that's the exception. Every other time you're cut in half in the United States, you have to buy with both hands.
Well, and what's interesting to me there is you and Jim are discussing. I love your analogy with the blindman and the elephant. Jim is discussing a supply and demand concept, and you're discussing a fundamental view.
Right. I see the world through a behavioral lens. He's seeing the world with. There's the FED is going to cause a giant increase in demand for equity is regardless of what the supply is right, and guess what happens the.
Prices, and that'll drive prices up, and it causes many fundamental people right to say markets are overvalued, missing the fact that you had another market structure changed things like a four to oh one k that was almost non existent in the early two thousands. That's several trillion dollars.
Now you just have a stamp ped of buying every single month and people being forced into markets as a retirement vehicle, right, that is their savings account, particularly when cash is returning nothing, and you have a dramatic shift in supply and demand. And by the way, over the same cycle, you saw fewer IPOs, so you're increasing demand into public equities with fewer less supply.
Right at the same time, you have huge buybacks. Right. A lot of people don't realize the wilsh of five thousand is something like thirty four hundred stocks. It's like totally misnamed. And the past twenty years have seen Yeah, there's been a lot of stock issue in Silicon Valley, but overall, the size of the share float that's out there has shrunk another big and I don't know where what the endgame of that is. Can you do that perpetually. So I don't know what the deep public eyes public markets.
I don't know what the endgame of any of this is, Caniley, But I know you've had folks like Mike green On I think he was on even recently, who have strong views about what Passive is doing. I don't have particularly strong views in any direction. I just like asking the questions.
Maybe I lob out a little grenade and let other people fight over it, but I think they're fascinating and worthwhile questions because I think in many cases we just accept we have some of the most wonderfully functioning liquid markets in the world. We are truly privileged in the US to have what we have. I don't think it hurts us to ask are we overlooking anything? Is there any way in which we are unintentionally designing ourselves into a state of fragility?
It was pretty clear that people should have been asking that question in the mid two thousands and just had no idea the sort of miss aligned incentives and really complex structures that, along with some the really we got used to zero. But when Greenspan post nine to eleven took rates down to under two percent for three years and under one percent for a year that was really we hadn't seen anything like that for decades and decades and zero. No one knew how to deal with that.
And then once we started seeing negative you know bonds, like well, you lend us money and you pay us to hold it, like wait what? And I think that caused all sorts of problems around the world, and people just didn't know how to contextualize.
And to your point on behavior, I think something we talked about earlier were the sample size here are small. I think if you took the market to where it was a decade ago and said Fed's bringing rates back down, the world's bringing rates back down, people would look backwards with the playbook and say, we're going to just do all that again, right, and markets would not respond the
same way. They would probably do everything in an accelerated fashion, but you wouldn't get the same result because people's behavior would adapt to that previous sample. And so it's it's very complex of how these things work.
A little reflexivity in that. Although you could make the argument that in March twenty twenty, down thirty four percent and it felt like six weeks, people look back to nine and said, oh, I got to be a buyer because the last time we saw a big crash, the FED rescued the markets, or the FED did this and ultimately led to that maybe rescue was too over simple.
But isn't this why everything eventually gets arbitraged away? Don't the playback from the last cycle the playbook not work in the next cycle because hey, we've kind of figured this out.
I'm not sure we've ever figured it out, but again, I think a lot of this does get does get priced in. The whole idea of markets are they're supposed to be efficient information discovery machines, and they have proven to be tremendously powerful and efficient allocators of capital over the long run. It's the best machine we've gotten, so I certainly wouldn't bet against that machine.
Let's talk a little bit about your ETFs and return stacking. Starting with the first question is why pivot from pure research to managing assets? And why if you're managing assets, did you go into the ETF side of it.
The shift from pure research to managing assets, I think is one that a lot of people ultimately make. When you're just providing research, you really don't have any control over distribution, messaging. Often you don't have control over how your research is being used, and if you're the one doing the research, you often have the best idea of how it should be implemented, or at least you believe you do. It's not quite like selling data or raw data.
You're selling a manipulated form of data that you think potentially has some edge or some utility, and you want to make sure that gets expressed correctly. And then frankly, there's probably a little bit of ego in there, going Okay, I want to get closer to the action. I actually want to implement the portfolios that I want to implement. I think I've got some good ideas for bringing some
strategies to market. And so over time we went from will provide research search to will be an index provider too, will be a subadvisor, to we'll launch our own funds and I will say to my discredit I originally launched a suite of mutual funds right, which was for someone who grew up in the world of ETFs and was helping run ETF model portfolios. Talk about a dumb business move.
What motivated you to go mutual funds over ETFs?
So it was twenty thirteen, and what concerned me about standing up ETFs is at the time we didn't have firms like ETF architect or our friend West Gray or Title that were helping with the administration. My concern of setting up my own ETF was that I was going to have to handle all the inter date trading of the creation of redemption baskets. It was going to require me to hire a whole op staff that I candily didn't have the experience or know how to manage. And I said, versus the mutual fund.
Which is a little simpler, little clean.
Which is a little simpler, little cleaner, and there was a well trodden path of bringing mutual funds to market. So that was twenty thirteen, and again I just didn't feel like being the one who was going bush whacking to figure out how to do this. I should have.
How long did it take you to realize, Hey, ETFs are a more efficient especially if there's any sort of turnover. ETFs are a more efficient model, and I can make this work at a similar price.
So I absolutely knew from day one ETFs were a more efficient model. I think it probably took me two or three years to say I've chosen the wrong vehicle, not just from a tax efficiency perspective, but from an appetite perspective. Twenty thirteen, people really started to go, I don't even want to talk about mutual funds anymore. If
it's not in an ETF, don't talk to me. By twenty seventeen, twenty eighteen, we were having conversations with firms that said, we only invest in ETF's ETF model portfolios only. And by the way, I've got a whole spiel on this that I think that's just as misguided. Strategy and structure need to be aligned, and there are some strategies for which the ETF I think is definitively the wrong structure. It's a whole different conversation. But I ultimately said, I
am you look at the flows. You can just look at a map of the flows and say I am selling into a dying industry. I am in the wrong product wrapper. And so I ultimately made the decision to shut down every fund and restart the whole company.
So as opposed to just converting them, you went that way, the exit and the relaunch. Yeah, because part by twenty seventeen, WES was doing a number of ETFs, a number of other people and other organizations made it. I don't want to say painless, but less painful to stand up in ETF.
Absolutely absolutely, Yeah. I ultimately said, I think there are decisions I made wrong from a structure perspective, and I think there are decisions I made wrong from an actual product perspective. And this is where I think things can sometimes get a little weird in this industry where a guy like me who's a quant wants to always talk
about investment strategy. But I was listening to a podcast the other day, an old podcast from Patrick O'Shaughnessy actually, and he said this quote that was basically, an investment product is more than the sum of its returns. And what he meant by that is when people buy an investment product a fund, yes, they're often talking about the investment strategy in the returns, but there's also a utility that often we don't talk about in this industry. So
why are high dividend yield products so popular? All the math tells us we should not buy high dividend yield stocks. They are typically an underperforming style of value, and yet there are billions, tens of billions if not hundreds of billions of dollars in high dividend yield ETFs because people are expressing a utility that they just like getting that
dividend paid to them ever month. Could they synthetically create that their own dividend, Absolutely, but they're lazy for back of the lack of a letter word, and they like the consistency, and there's utility in that, even though it's from a return perspective suboptimal. And that's hard for people like me sometimes to look at and say, no, I need to teach you to do a better way. Let me educate you as to why you're wrong instead of saying no. That actually has really good product market fit
for what the end buyer wants. And so I think I had made some poor product design decisions.
So let's talk a little bit about what return stacking is, how it's similar and different to portable alpha. Let's start out. You wrote a really well received white paper on the entire concept of return stacking. Give us this simple explanation of what this is.
It's all credit goes to my colleigu Rodrigo Gordillo for coming up with the phrase return stacking, because I think it's it's a more generalized form, but I think it's much more approachable than portable alpha. Right, portable alpha, you need to understand what alpha is. What is porting do? If I say I'm stacking returns, I'm stacking the returns of gold on top of the SMP, you can probably
guess that one plus one equus two. It sort of sounds like math, and that's effectively what we're trying to do. It goes back to the problem we were talking about earlier of trying to solve this addition through subtraction issue with diversification. How do I get an industry that disagrees on everything except for diversification is good to add more diversification to their portfolio? Right? You talk to anyone and they'll say, yeah, all else held equal, we want more diversification.
Then you go look at their portfolio. It's basically the S and P five hundred in bonds and there's nothing necessarily wrong with that. But the question is can we go further to introduce diversifiers that can improve both the consistency with which we can achieve our outcomes and the return potential. And so return stacking at its core is trying to take the institutional concept of portable alpha and
bring it downstream. Because institutions to implement that concept have to buy futures and swaps and manage all these separate accounts. What we've tried to do is prepackage that concept into a suite of ETFs.
So, so you the white paper comes out, Wisdom Tree launches a product related to this. Did you have anything to do with that?
So back in twenty seventeen, you and I, I don't know if you remember this, You and I were going to Baron's round table, uh huh called what's next for ETFs? And at that roundtable, I said, uh oh, I said, I think what's next for etf are capital efficient ETFs. And the example I gave was buy the you know, instead of having a stock and bond fund, this fund could buy the S and P and overlay with treasury futures.
And so if you give it a dollar, it's going to give you, say, nine dents of the SMP and sixty cents of treasury futures, giving you a ninety sixty at one point five times lever at sixty forty. And the idea there is, okay, you can put two thirds of your money in that fund, get a sixty forty exposure, and then you can take that one third of your cash and do whatever. You can leave it in cash if you just like sitting on cash, or you can
invest it in alternatives implementing portable alpha. Jeremy Schwartz, who's a good friend of both of ours, showed that article around internally. It was. We had a whole bunch of Twitter conversations about it. Next thing you know, he says, Hey, Corey, I'm launching a product on this, and the Wisdom Tree and TSX fund was born.
I recall I recall Jeremy subsequently launching that. I hope they at least tossed you a bone and consulting something.
Jeremy had me on a couple of podcasts to talk about it.
There you go. I hope I didn't say anything too stupid at that roundtable. I can remember that up on sixty Avenue. Yeah, right, get by their offices.
That's right, it was. And I actually have been using my headshot from that pracle since then, which.
I got a couple of great photos from that.
So I didn't realize this is like a Pulitzer Prize winning photographer who Yeah, took our photos. They're the best headshots I've ever had, same saying, and finally I said, it's seven years later, I'm officially catfishing people with this photo. I don't look anything like this anymore.
Every now and then I will see something show up on a bio at some event for me and I'm like, dude, that's twenty years old. I'm not only grayer and twenty pounds lighter than then, but like, I look nothing like that anymore. It's like, wow, we found that online. So yeah, I know exactly what you're telling.
So I had to get rid of that one. So yeah, So that was the birth of the NTSX fund, and I was super happy to see Wisdom treat do that because I really do believe that this is a whole category of products that has not existed really before. There's a couple of select examples, but really should be a
whole part of the industry. Because again, Institute have used this concept for forty years and use it very effectively to be able to say to an investor, hey, I think a strategy like managed futures trend following adds a lot of value to your portfolio, and no longer do I have to sell some stocks and bonds to make room. I can let you keep your stocks and bonds, and I'm going to add a ten percent allocation on top.
When managed futures go through a lost decade like they did in the twenty tens, the investor will barely notice it and they'll be able to stay in it for when man features does well in a year like.
Twenty So that's the behavioral component of this. How does this differ just from straight up leverage? It sounds like we're turn stacking has a big leverage component.
It is. It is absolutely leverage. I think the idea here is, again leverage is a tool that accentuates the good and the bad. We want to be very thoughtful about what we're stacking on top. So if you're a sixty forty investor, I certainly would not say use this concept to stack more equities, You're probably just going to get in trouble. But if you can use this concept to stack diversifiers like commodities and gold, historically that hasn't
been an issue. And in fact, I would point to the Bridgewater All Weather Fund right.
Who takes the twenty five percent gold.
And takes this concept to the extreme and runs with significant amount of notional leverage with the idea they're trying to risk balance all the variety of asset classes. And it held up incredibly well during two thousand and eight despite having so much leverage. And it's because they're using leverage to unlock the benefits of diversification rather than using leverage to amplify returns.
Gotcha, that makes a lot of sense. So you currently are running five different return stacked ETFs. Do they each have a different goal? How do different combinations work? And what are we seven hundred eight hundred million dollars.
Just clipped over eight hundred million dollars launched I guess eighteen twenty months ago. So we're very happy and pleased with the growth, and I think it speaks to people understanding what we're trying to do in this new form of diversification, trying to build talking about getting a little bit smarter on the product side.
Mm hmm.
One of the things I think I underappreciated earlier in my career is that advisors and allocators want control in their portfolio. And so with this new suite, what we've tried to come out with is what I would call very much a lego or building block approach, where each product is very narrowly focused so that allocators can use them how they want. So I'll just give two really
quick examples. We have one fund that for every dollar you invest with US, we'll give you what is effectively a dollar of passive large cap US equities plus a dollar of a managed future's trend following strategy. We have another fund that for every dollar you invest with US, will give you a dollar of core US fixed income plus a dollar of MANAED futures trend following same MANA futures trend following on top, but one gives you the S and P one gives you bonds as the bottom layer.
So that would allow someone to say, I want to own both managed future and either I'm bullish and i want equity, or I'm conservative and I'm embarish and i want bonds.
I would go the other way, which is you're a very aggressive investor, you're let's say a growth client eighty twenty. You just have more equities around it's easier to potentially overlay your equities than it is on bonds. Or you're a very conservative investor, you just have more bonds around, or you have a strong view that you can add alpha in your bond managers. But you're never going to beat the S and P five hundred. So take that passive S and P five hundred and buy our fund.
You get the SMP back with the MANA features on top, because you don't want to do it with bonds because you think your bond manager is going to add value. So again I'm being non prescriptive in the products I'm bringing to market. I'm letting people say I like the concept of adding an overlay. How I want to express and where I want to express, and the size with which I want to express. That's a conversation and a dialogue we have when we consult with our clients.
So a couple of questions on that. First, who are the typical clients are these institutions? Are they arias who wants the sort of return stacking in their either their core portfolio or any of their satellite.
Hold Yeah, it's really funny, so you would think potentially with institutions, And we have lots of calls with institutions and they all say the same thing, which is, we love this and we also do it ourselves. We don't need to buy an ETF. Really, they're doing it the way they've historically done it, which is they have banking relationships and they manage the futures and the swaps, and
so they don't need a product like an ETF. So where we tend to see and have seen all the flows is independent arias who are saying, I'm trying to figure out how to get diversification. I like alternatives, but man, it is hard to say to my client for the fifth time when they point to that managed futures fund as a line item and they say, why in the world do we have this right? And you're saying, well, because diversification.
In the next cycle, right.
Brian Portnoy says, diversification means always having to say you're sorry. And if you are an advisor running a business and you're saying sorry to your clients too much, that's a great way to get fired. There's just real business risk there. And so what we're finding is not only I think, do we make a compelling value proposition of Hey, this is an interesting way of trying to add returns to
your portfolio. The portable alpha sense. Do you think managed futures generates two hundred three hundred basis points of excess returns over time. Why are you picking stocks? Just buy the S and P five hundred and add man futures on top. But for the diversifiers, they're going, this is a great way to introduce my alternatives without giving up all the beta and having that return hurdle issue and having that behavioral friction issue.
So you have US equity with managed futures, you have US bonds with managed futures. What are the other ETFs?
We have a US equity plus what we would call it a multi asset carry strategy. This is so managed futures is typically done with trend following signals. It can also be done with what's called the carry signal, which is you can sort of think of carry as your yield. What's the return you're going to get if the world doesn't change, and so carry signals can be powerful predictors of total returns. So it's just a different quant signal.
It behaves differently, trades a similar universe of currencies and commodities and equities and rates around the world. So it's long short just a different quant signal. So we have a US plus that we have a bonds plus that multi asse carry. And then the final piece is what I consider to be our most flexible portfolio, which is just you give us a dollar, We'll give you a dollar of as passively allocated as we can global stocks,
plus a ladder of US treasuries. And the idea there is not to say, let's stack bonds on top of equities in your portfolio. The idea there is to say that is an incredibly powerful capital efficiency tool that allows you to stack whatever you want. So let me give you a really quick example. Let's say you've got a
sixty forty portfolio sixty percent stocks, forty percent ponds. If you sell ten percent of your stocks and ten percent of your bonds and by ten percent of that fund, that ten percent of that fund gives you both the stocks and bonds back, and now you have ten percent leftover in cash with which you can do whatever you want. You could have it sit in cash and then sit in tea bills, and the return of that portfolio would
be sort of the same as your sixty forty. But hey, now you've got more cash on hand, you can do some interesting things about self financing. Actually, because you're technically borrowing from yourself. You can use that cash and you've actually just taken a loan based on and it's very
attractive financing rates. The embedded rate of financing in these futures is like T bills, So instead of borrowing from a bank, you can actually borrow from yourself, or you can take that cash and invest in something, hopefully for diversification or return. But as long as whatever you're investing in outperforms cash, you will have added value to your portfolio. So let's say you love managed futures as a strategy, but you don't like the way I implement Manch futures.
You love Cliff Assness at AQR, you love their fund, Well, you can buy my Global Stocks and Bonds fund to free up the cash to then invest in his Manch Futures fund. And what you've effectively done is kept your sixty forty hole and stacked his fund on top. And so you can now stack whatever alternative asset class or investment strategy you want with our tool.
Huh really really fascinating. The name of the company is the Return Stacked ETF Suite. There are five different ETFs on it. I have a couple of questions I've been saving before we get to our favorite questions, and let's start with something that I think is really kind of interesting. During the pandemic, you did a video with Jason Buck where you were discussing deep in the weeds research into NFTs and crypto and degenerate like I in fact, it might have come from nadding said, oh, you got to
watch this. This is hilarious in a good way, not a sarcastic way. What was going on with crypto and NFT trading during the COVID lockdowns.
So Jason Buck is a good friend of mine. He runs Mutiny Funds, and we started this podcast as he has u UN funds Mutiny Funds.
What wasn't there another pod? Maybe it was he who was hosting it was Pirate Capital.
Or Pirates of Finance, Pirates of Finance, So that was Jason and I started that during the pandemic work we weren't allowed out of our houses anymore.
I love that. I love that title of that podcast.
So that was a fun one for us where we just said, you know, that was the era of all right, on a Friday afternoon, let's grab a beer, chop it up see what's going on in markets. And for folks who weren't paying attention to the crypto markets at that time, it was an absolutely Cambrian explosion of activity. You had all these retail traders who started trading crypto, and and the available functionality of what you could build in crypto
really exploded. So you not only had NFTs, but you had all these we're called protocols or applications that were doing all this interesting stuff. And it was a fascinating world to explore, not only from the what does this mean for the future, but there were some incredible trading opportunities m hm for people who operated in traditional markets that you would see things and say that shouldn't be like that, that's wildly mispriced, and in any traditional market
that wouldn't exist. But okay, I'll put my money where my mouth is. And so there was a fun trading opportunity. I certainly wouldn't say I maximized it.
Yeah, but you're a computer science market structure guy, this is your sweet spot.
And it's just fun. Because it was almost by definition because of regulatory reasons, lots of parties couldn't get involved. You had a market that was being dominated by retail. I don't want to say I'll lower in flow, right, more momentum driven.
Low information voters.
Just the systems weren't set up. There were limits to arbitrage, and so you had these situations where you said, oh,
you can make a good deal of money here. And I had friends who dropped their careers in finance and said, I used to be a market maker for treasury futures and I'm now a market maker for crypto and oh now I'm retired two years later because the market's that inefficient and all I had to do was port the exact same skill set that was a blood bath in traditional markets eking for every bip and it's just you're just printing money. And it was a very limited window
that does not exist anymore. But there was this really fascinating window of both investor behavior and opportunity in what was developing and what it all could become.
So so I'm assuming you made a couple of shekels trading. Uh, we had.
There were some fun trades, right, there were some fun times.
How quickly did you realize that window was closing? And I'm assuming that was pre f X and SBFU and Sam Bankman freed and that that mayhem.
It was probably during the Luna collapse. Again, I apologize for folks who didn't track.
Luna is a stable coin that was supposed to just trade at a dollar. What's his name very famously got a tattoo, yes of it novograts and then suddenly the rug was pulled out and it turned out to not be all it was.
Yeah, you right, these stable coins which are away for people to transact in what are effectively dollars on the blockchain, some of which are actually backed by dollars and others of which are fractionally backed or backed by a variety of assets. And then you had what was called algorithmically backed stable coins, and I don't think there's any success
stories there. They all blew up, right Mark Mark Cuban famously lost a bunch of money in one of those what was called it was called Iron Finances, was what the it was called. And that you know, again, when you have nothing backing a coin other than a systematic strategy that's going to try to buy and sell the coin to keep it within a peg, it just.
Doesn't that sound like portfolio insurance From the eighty seven crash is nothing new old again? Is it just it's just amazing that, Oh yeah, we'll find a way to just hedge it as the market starts rolling off.
So you had all this abundance of hot capital in this market that suddenly evaporated. You had very loud players like three arrows capital that was massively over levered start to fall apart. And as that liquidity disappears, so with it do the abundant trading opportunities. And so that's where it started to become clear to me. It just the
game was over. It was a game of musical chairs, right, and the music had stopped playing, And I was like, I'm just going to get out of the room, right, because you know you can overtrade these things, no, to say the very least. And also it's not my job. I actually do have a day job.
Right, So that was kind of interesting. You're also located in Florida, in South Florida. What's it been like being a new dad in the midst of the west coast of Florida that really got shellacked by three consecutive everybody's talking about Helene, but what was a debbie over the summer really did some big damage and then the middle one, so it was like a triple hit. Yeah.
I mean, I live in the Tampa area and I moved there two years ago, and I should have known something was wrong when I originally from Boston and was moving from Boston driving down and it was a hurricane showed up out of nowhere, and I actually had to stop my drive halfway down and just hang out in
North Carolina. R just heh, well, well it's one of those they show up four or five days and you go, Okay, I'm watching the path and it became clear, you know, all my furniture is getting delivered the day before the hurricane's supposed to hit. I've got a pregnant wife who is accepting the delivery as I'm driving, you know, the car down and and it just I was like I should have left at that point. But most importantly, my family is safe. Our first floor of our house got
completely destroyed, my car got totaled. It's all overshadowed by how amazing being a father is. It's just it's hard to complain about any of that in the grand scheme of life of just you know, I got a new kid, and it's amazing.
What what's the rest of the neighborhood look like.
It honestly is pretty devastating. So down near the water, every single restaurant is just gone.
Just gone, just gone, like wiped off.
Wiped off. We had we had an eight or nine foot storm surge.
Yeah, so not quite sandy, but pretty close.
Pretty close. So you can imagine all these beach front tiki bars, you know, under nine feet of water, and then the tide goes out.
It's just nothing left.
It's gone. You know, if you had a two story house in our neighborhood, your first floor was gone and the second floor is what remains. For those who had single story houses, which is the majority, you know, everything ends up on the curb. And so driving down our neighborhood for the last I guess two months now, it's
just people's lives are on the curb. And what people don't tell you until you live this is that sea water is also mixed with sewage water, and so the whole place reeks, and all the plants die because they become so everyone's garden. So you're just driving around this place that looks like a trash hump dump as all the plants are dying and it smells awful. I mean, but aside from that wonderful place. Alert, are you gonna so you were you were renting?
Right?
Yes?
So are you gonna stay there? You can relocate? What's the thinking?
Well, you're asking the wrong person. You should ask my wife. I don't. I don't have executive power here. I think we will stay in the area. We really love where we live. Saint Pete is a wonderful area for us. We love raising our sun there for the moment. We'll see how it plays out.
All right, that's really interesting. All right, my last two curve ball questions for you. At Cornell, you played rugby. Tell us about that.
Yeah, so I grew up as a lacrosse player, got to Cornell, and I mean the lacrosse program there is phenomenal. I was never going to make the team.
I was, I mean a serious, serious program.
Yeah, and I've always enjoyed being athletics. So I was looking around what to do and.
Where else can I break bones? Besides?
Yeah, well this is particularly dumb because in high school I actually played lacrosse and got a skull fracture. Nice, So all the doctor said stopped playing sports. They wouldn't let me play soccer anymore because I couldn't head the ball.
Really yeah, oh so that's the serious skull frack. Oh yeah, I broke my nose playing soccer, Yeah, in a collision and just remember waking up flat on my back. But nobody ever said you should stop.
Yeah, I know. I had to get a spinal tap. I had had brain fluid leaking out my year. This was a serious one. So anyway, so I wasn't really supposed to play sports, and as I got to college, I thought about not playing anything, and there was a club rugby team, and I just said, you know, this sounds bad, but you're like, you're at an ivy league school. It's kind of like an it feels like an ivy leaguage sport. Was like, that would just be fun to go play rugby, right, And it was a ton of fun.
And it was incredibly stupid of.
Me, right, broken fingers and no.
I survived pretty well. So I was, what's what's you've only known me as I've been older. I used to probably weigh forty pounds less.
Oh really, I was.
Yeah, in college, I was a very thin guy, and so they put me way out in the winger position where I just ran ropping down the field and so I wasn't really massively in the scrums in the ring.
I gotcha. That's interesting. And and our final curve ball question favorite Dungeons and Dragons mind and why? And you could guess where that question is?
Yeah, I can guess for that one.
This is actually wait, let me give a little color. You're in a financial D and D game that's been going on.
For years, so this is funny. Actually, if you'll allow me, can I can I bring this into the first your last five question? Sure? Because I believe the first of your last five questions you ask every guest is what content are you consuming?
Right? What are you watching? Listening?
And the problem is with a rapidly expanding business and a young kid at home, I don't have time to watch anything. But what I have carved time out in my life for has been this Dungeons Dragons game. It's hard to say with the serious face, right, but there are seven of us in the industry who started five years ago and we play weekly and it's three hours and that sounds incredibly nerdy. But for those who have never played Dungeons and Dragons is really a collaborative storytelling.
Right game. We have an unbelievable guy who runs the game, who is just this imaginative world builder. So imagine, you know, if you like fantasy or sci fi, you can run it however you want. He builds these unbelievably complex worlds that we get to explore as characters, and he has a big narrative arc, but he's constantly adapting to how
we interact with the world. And then there's the randomness, which is when you try to do something, you're rolling dice and your success or failures based on the dice. So the dice play a role in the story. And so for me, that's been a really big outlet of not only fun with the guys, but that's a lot of content consumption in the sense of the story's playing out in front of me, but also I get to collaborate and be a creative part of the story creation.
So that's been a really special part of my life for the last five years.
So that'll be our first question. Because you're not really watching or streaming much, let's talk about mentors who helped shape your career.
So there, I will say this ties to some of the latter questions. I think one of the mistakes I made early in my career is not appreciating how much of an apprenticeship industry. This is, especially the more niche you go into markets. There's just wisdom and experience that it's hard to learn for yourself, and it's very easy if you don't have that wisdom to knock yourself out of the business from a performance perspective. And so I didn't. I didn't understand that. I wish I had had more mentors.
What I will say is on the business side, my father and my business partner are both phenomenal entrepreneurs, and I learned a ton on the business side from them. I will say I've been very fortunate reading and interacting with folks like Cliff Astness and Auntie ielman In who have been, you know, huge idols of mine and what they've contributed to the industry and just been very open to communicating with me. I would say, from an actual practitioner perspective, have been big mentors.
Really really interesting both of them. At AQR. Yes, what about books? What are some of your favorites? What are you reading right now?
So again, not a lot of time to read. I just got done listening to all Lord of the Rings on audio. I do it to a lot of audio books.
And how was that on audio? As a post?
So Andy Serkis, who played Gollam, who's a phenomenal voice actor, read all the books and he is so good at like when he did Gandolf it sounded like Ian McKellen.
Really, he's doing voices.
He's doing voices, and it's just you know, again, if you're not into that type of book, you're not going to enjoy it. But he brings it to life with such vibrancy that it's not someone just reading the book. It's like he is. He's singing the songs, he's playing the characters, he's giving it to you like a play. It was just really, I mean, I got through all three books very quickly, and I wish I had I
had more. So that's one I did just recently. And I tend to do audio books because it's easier for me when I go out for a walk or a run to listen to that than it is for me at the end of a day to say I'm gonna get through ten pages of a book and then fall asleep drooling on it.
I know what that is like our final two questions what sort of advice would you give to a recent college grad interested in a career in quantitative investment.
So I'll go back to what I just said, which was and I was interesting. I was just at a symposium at the College of Charleston, which is put on for their students, and I said the same thing to their students, which is, I'm loath to give advice. But my experience was I wish I had a mentor. I wish I had understood that for where I was trying to go, I would have gotten there a lot faster if I had found a hands on mentor and understood
that this is an apprenticeship industry. Whether you are looking to do deep quant research or looking to build product or run an ria, every side of it has so many complicated facets that you have to navigate, from the regulatory side to understanding the behavior of your clients, understanding the markets and the microstructure and who's operating in them. That trying to cover that all on your own, there's a great chance you don't survive it. And so to me,
I wish I take that back. I've had a phenomenal career. I'm very lucky. I wouldn't change a thing, but I if I was doing it another path, I would have said, Man, maybe I should have just gone to work at AQR for a while. That might have jumped me forward, you know, instead of stumbling in the dark for so long.
Except you would still be at AQR. If you worked at AQR, the you.
Know what, I'm firsall, they wouldn't have hired me. Well, they have a lot smarter people than me.
I'm kind of sad about the demise of Twitter because it was this, at least in finance and finn twit there was this ability to have conversations with people, whether it was in public or just slipping into someone's DM and chatting. That seems to have kind of faded away. But like the twenty tens was a golden era of I don't even know what else to call it, networking, mentorship, connections. Just hey, you're right working on this, I did some research on this. You might want to take a look
at it. Oh thanks, that's really like there was a very level playing field of not even mentorship, just encouragement from people. I kind of feel a little bit of a loss that that's gone away. I don't know how you like you were right in the thick of this, as well as so many other people we know in common.
I'm still very active on Twitter, but it's a very curated thing for me. What I find is, I like I'm I'm in groups, for example, of forty to fifty quants who can't disclose who they are and they don't want to share a lot publicly, but you've built up this trust with them that you can ask these questions of things you're working on and get feedback from people all across the industry in a way that I'm still
not sure I could find anywhere else. One of the things I've noticed is back in the mid twenty tens early twenty tens, the community was just smaller, and so you could have a lot of conversations in public. As Twitter grew and grew and grew, just the request for your time became more and more. It used to be I might have one some young person reaching out to
ask me a question. Now it might be twenty times the volume, and it's just it's hard to be as responsive and have the intimate connections I think you had when it was a smaller community. So I know a lot of people who there are Twitter has its problems, but a lot of people who bemoan the loss of that prior experience. I think it was a small community aspect that has disappeared, and it's hard to rebuild that unless you build your own WALLT.
Guying, There's no doubt that that's part of it. I've also found that I spend much less time in like the main open channel, and now everything is for me. He has been lists driven, whether it's economics or markets or I even create a create a separate list just for charts and put a bunch of guys who were technically oriented, and it like a lot of the worst aspects of Twitter go away when you're in a curated list of people who are like minded.
But you lose a bit of the serendipity discovery. Yes, exactly right, and so then you're going, well, I hope someone retweets something interesting so I can discover a new person. And they're absolutely trade offs. Two.
I mean, so it wasn't summer of twenty four, it was summer of twenty three. I went out to dinner, I come back home and there was a password requests made a change on Twitter that I hadn't make, and I go to say, this is a me, They've already given the account away to somebody else, like they're stupid. First of all, making two factor authentication an option just
so idiotic. And it took three months to get the account back, and I finally got it back, and some of our mutual friends said, hey, you're not going to recognize the place you missed, Like it's like when at the last inning of a baseball game when everybody files out and you're in there, you're in the bathroom and you come back and where did everybody go?
I'll tell you during that period I had some fantastic conversations with you over DM, so I you know, I miss whoever that was.
It's really kind of you know, it's it's so weird to feel like I never felt a loss when Facebook changed the whole to use Corey Doctor's phrase incation of places like eBay and Amazon and Google like it's annoying. I don't love what's happened to Apple, although they're still
functional useful for me. Twitter is the first one where it's like, man, this was really special in our space, and then it's just gone away, And you know, there are a lot of reasons to not be happy with Elon Musk, not the least of which are the never ending promises for products that don't seem to arrive with any sort of reasonable timeline. But man, firing eighty percent of the engineers and leaving a you know, a smoking hulk behind, it's really kind of disappointing. I understand why
people don't love Twitter. I still have this like nostalgic feel for when it was good. It was so good. It's all right, all right? And our final question, what do you know about the world of investing that would have been useful to know when you were first launching in eighth nine.
There's a phrase I have been repeating a lot in the last year and a half at my own business, which is, why are we playing the game on hard mode? Play the game on easy mode? I mean that both in the investment strategies we choose to pursue and the products we want to bring to market. I'm not going to talk so much to the products here, so I'm happy to go into that on the investment strategy side. I wish someone had just sat me down early in my career and said low breadth bets you don't get
to repeat a lot. Don't do those type. Don't try to time the market. I mean, like every young person I spent a whole of course, I'm going to be the one to crack the market and figure out how to time it. It's a dumb low breadth bet. You don't get to repeat a lot. It's like trying to flip the coin three times in your life and guess heads all three times. It's just very unlikely and when
you're wrong, there's a lot of damage. All right, So be smarter about the type of strategy you're going to pursue. By the way, the SMP five hundred is the hardest universe to try to actively pick stocks in. Maybe don't try to pick stocks there. Go play the game on easy mode where there's a proven opportunity, rather than saying having the ego to say no, I'm going to be the to figure it out. There are people who can
beat the market. But even if I'm smart enough to figure it out or can find that edge, why not find it somewhere where it's easier. And so I think for me, I wish earlier in my career someone had really beaten into me. Are you just playing the game on hard mode just because you want to? Or is there an easier way to do this? At the end of the day, you're trying to meet this objective. What is the easiest way to meet it?
Huh? Really interesting, Corey, thank you for being so generous with your time. We have been speaking with Corey Hofstein. He is not only the CEO and CIO of Newfound Research, but portfolio manager of Returned stack etf Suite. If you enjoy this conversation, well, check out any of the previous five hundred and forty we've had over the past ten years. You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever
you find your favorite podcast. And check out my new podcast At the Money, short single topic conversations with experts about subjects that affect your money, earning it, spending it, and investing it At the Money, in the Master's in Business podcast feed, or wherever you find your podcasts. I would be remiss if I did not thank the Crack staff who helps us put these conversations together each week. My audio engineer is Meredith Frank. Anna Luke is my producer.
Sean Russo is my researcher. Sage Bauman is the head of podcasts here at Bloomberg. I'm Barry Retolts. You've been listening to Masters in Business on Bloomberg Radio.