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this talk is by Andrea's canal andreas fqo now is the chief investment officer for acs asset management ezarik based asset management firm with a nine figure asset base starting out as a successful IT entrepreneur in the 90s he enjoyed a stellar career as a global head of equity in commodity quant modeling at Reuters before leaving for the hedge fund world having founded and managed multiple hedge funds mr. Cleto is now overseeing asset management and trading across all asset classes he is the author of best-selling and critically acclaimed book following the trend as well as the recently released stocks on the move you can reach him via his popular web site following the trend calm this is my third quantico event in the space of a year last year in New York and in Singapore half year ago most people the Quan Khan events talk about creating algorithmic trading models and that's what most of my colleagues out here are talking about today there are a lot of very good very talented speakers today talking about how to construct trading models how to improve upon them how to build better risk models there's a lot of value in that and that is what I usually speak about as well but today I thought I'd try something a little bit different I'm not going to talk at all about how to construct trading models I'm not going to talk about how to create the returns or any type of strategies anything like that I'm going to assume that you over you have already done that if you have listened to the other speakers you read the books you did your your research you develop your models you pay per trade of them you back tested them you run some money on it and you're confident in your results and now what do you do what's next so congratulations but the work is not over you might have a great strategy but that's not the end of the right here so as I see it we have a couple of options one we could look for a job use the code to show off the skills presented to employers and tried to join the industry or the old classic dream trade our own money be a professional day trader third option we start some sort of business now personally I have most experience in one of these three and that's where I'm going to spend the most time but I'm also going to look at the other ones so assuming we're looking to get a job in the industry there's some pros and cons right we have the stability of income that's a big one you don't get that with the other ones not the same way you get a salary you also get to learn from professionals on the job there's a great advantage but is its job in finance industry the same as people think it is well sometimes races sometimes is not as many of you probably know most people with a job title of trader do something very very different from the public perception of trader or even the retail trading community how they see people with a job title of trader these kind of people that you read about and see in the movies and all of these things they do exist but most of the time but many job roles are different so will you get to do what you want to do maybe those jobs exist but you have to be careful on that of course so will they steal your code there is this thing the thing that always comes up if I built a great trading model and I go and show my model and I talk about what I did are they just going to steal it and take it and leaving with nothing no they're not that's not how it works it would be really irrational for them to do that if you have really build something of value it would make no sense whatsoever to take the code and not take you one because it still takes a lot of research nobody in the right mind would just take somebody else's code and put money on it and run with it it takes a lot of research to understand it adapt it they need you for that and besides if you have created at once well you probably make something else giving a job off it makes a lot more economic sense and to steal your code so that that's not really a concern so how do you go about looking for a job in the industry well it can be a tricky subject and I face this problem as well of course like everybody so think back to late 1990s when I was young reasonably successful and some IT intrapreneur with a full set of hair seems like a long time ago now I wanted to get a job and I went through all the steps I did there we go I followed the rules I read all the books I read the trading books I read the career advice books I read the self-help books I read all of these things I made a plan for how to do it I researched who's out there what kind of firms is it well who do I want to work for who's gonna pay me the most all of these things I made a big list of all this companies I made custom CDs and cover letters for all of them this is before LinkedIn when you could you know customize your CV to whoever is going to read it you know I pity the people these days and have to have a public one so I wrote a custom letter to everyone but custom design and everything a lot of work goes into this I explain in each letter why I want to work for this particular company more than anyone in the world why do I want to work for poor why is my highest dream to work for Lehman Brothers or how can I personally add the most value to MF Global all of these letters lots of them I printed it on very high quality paper on this very thin one with watermarks on them put a little gold paperclip up in the corner put everyone in individual plastic binders I set out in the post a large number of this most of the firms here in this town this is how it's done the result of this was that none of them got back to me I guess everyone else read the same rules well that's not fair one did get back to me but that was even worse one full year after this exercise JP Morgan anyone from JP Morgan here I hold a grudge against you one year after this is our of 98 to something one year after I sent a letter they sent me back my whole pack of papers with the plastic binders with my little gold paper clips and everything in the post and that was worse than not getting an answer at all we don't even want to keep we don't even want to be bothered throwing away your papers this is thank you guys next step well first of all what I want to say what this is I'm probably the wrong guy to ask you about how to get a traditional job in the markets I never really had one so step two everybody starting out in trading once had the dream of being a professional day trader trading your own money for a living we've seen all the slogans in the books right you be your own man you eat what you eat what you kill and all of these things right well it sounds good on paper but it's not is really a bad idea the main problem is we have no base income we have no security that might sound like a cool thing on paper when you're no 22 but the lack of security drives you to take higher risks the higher risks it's what will kill you when I look at what retail traders do I find it amazing that they accuse us hedge fund guys for taking risk she would get fired taking half the risk I see on many but many retail people do so this is a concern the other the other problem is if you take out your earnings you take out your your games well you cannot compound your returns you will never see real growth because you have to take money out of the pot as an example let's say that we start day trading and I have no idea how much most hobby traders can come up with to start trading but I was told yesterday maybe my numbers were slightly unrealistic what do I know but let's assume you find a hundred thousand start trading and I would deploy our algorithm at reasonably high risk because we need the income year one we have a great year we get 40% return on the first year hypothetically a 40% is an excellent year if you think 40% is a bad return well then you're in the wrong business I hear Las Vegas is nice this time of year that's probably a better place to bet your money if you're looking for higher returns to put it into context the classic saying warren buffett is investment legend for compounding at slightly over 20% for a few decades and he's a billionaire because of it obviously you can get higher than 20% any given year but not on average not on a decade not on two decades 40% is a great year there will be over your average so 4% return well we made 40,000 profit can you live on 40,000 I'm gonna assume that I never lived here in New York I'm going to assume that in New York very much like back home in suruc 40,000 is not going to pay your rent see you always move to another beautiful metropolitan American city like Detroit maybe you can get a place there okay let's keep trading yeah - we have another good year we'll make 20% return it's still a good year but we started out with a hundred thousand again because we couldn't compound the returns we had to take the four thousand ouch so we want to make twenty percent to twenty thousand return twenty thousand is easier enough to live on in Detroit I wouldn't know I've never been there but certainly it's not a fun income but so far we've made money what happens when we lose money if you tell me that you never lose money I'll tell you that you miss something everybody has losses the only people who never loses money are the liars we all have losing years sometimes several losing years in the role this happens be very careful with anyone who says to never lose money so we have this happening we lose 30 percent in a year now 30 percent is not out of proportion here we made 40 percent we made 20 percent losing 30 percent is absolutely in line now we have a problem first we got no income whatsoever second our base is down to 70,000 which means we lost money next time if you could trade again we have a lower base to trade from we have no income at all we can't pay the rent cars getting repossessed your wife is leaving you your hungry kids are screaming for food and you know the job in telemarketing sector is looking increasingly good this is a career killer and that is a problem this happens to almost all day traders this is why I discourage this because you get you get pushed to go for the high returns and that's what leads to disaster sooner or later maybe it's five years maybe 10 years sooner or later you get the disaster maybe you get lucky you make a lot of money in a few years and you stop doing it but it's like spinning the roulette wheel winning a few times and walking away so look at the alternative let's start a business instead I say we go out there and we find some investors I'm gonna touch upon soon how we can do that to how we go about that but so we go out there we find some people with money we convince them of the strategy we explain the strategy to them explain the possible drawdowns the gains they can achieve and we raise 10 million bucks now now that we raise money we get income because we can take a base fee and a performance fee the two-and-twenty model lists its dead or at least dying but say we an upstart manager we charge one and ten hero 1% base fee and 10% performance fee fair enough now we can afford to trade more responsibly now we can lower the returns and lower the volatility and be more responsible so let's cut the volatility in half cut the volatile gate in half and we aim for exactly half of the drawdown half of the risk first year looks a little bit different let's go back to the same 3 years again hypothetical years instead of the 40% we made before we're just making 20% your clients will most likely be happy with 20% this is a good return over the over long time extremely few people achieve 20% on average it's a good year so now we're making a hundred thousand in management fee and we'll make another two hundred thousand in performance for you plus twenty thousand personal gain and now we can approve them now we can afford to live in a nicer place like I don't know Jersey yeah - we start out much more much more money now we have almost 12 million to begin with because there was no need to take out any money compounding as work much higher base remember all fees are calculated based on on the value of the portfolio we're holding now we have 2 million more almost before we made 20% the second year hey whoa maybe 10% it's still a good year it's not a great year maybe you don't open the champagne bottles but it's a good year it's ok everybody's happy with 10% more or less especially these days so here we make 117 thousand in management fee and the same in performance fee we can still pay the bills and survive on this I guess in most places I'd assume plus the 20,000 personal gain of course but what about the loosing year the third year we lost 30% before here we're going to lose 15% minus 15% is not a fun year your investors might not be very happy but it's not out of proportion if you properly explain the strategy what's going on the reasons why this happens from time to time and it will happen pretty much all strategies you probably keep the client you get a couple of phone calls a couple of lunches you explain to them if they trust you they trust your strategy they probably stay with you you still get paid a base fee you can still pay your expenses and you're still in business the point being that this is not a curriculum it's not a career killing event before you trade your own money there is a career killer that looks in losing year this is not you live to fight another day this is fine of course we lose 20,000 our own money but we got almost 100 yeah we got over 120,000 in fees and this is what I'm saying that the dream should not be to be a professional day trader and trade your own money I see it as an irrational dream you should if you want to have a dream you should have the dream of trading other people's money along with your own you can still trade your own the same way so getting the pieces together a couple of important things obviously the most important thing is get proper legal advice this is a minefield of a business I'm not going to pretend to understand American regulations because I have never been regulated in America your penis is manager on our side of the pond as we say things are getting a little tricky on the regulatory side expensive and tricky it's a whole different world from 10 years ago I don't know how it is over here my advice is just look into your situation I'm guessing it's different state to state maybe it even depending on asset classes which clients you want to target and so on you need independent advice the last thing you want to do is go out and start doing it and find out later that you were in violation of SEC regulations and your career is shut down find somebody who knows this pay them and get the proper advice then use your practical things of course you have to look at do you want to manage accounts do you want to have some sort of pooled vehicle you need to set up in different jurisdictions again you need proper advice it all depends on where you are and what you are doing therefore I'm not getting into more of this Oh one less advice of course when you budget for setting up something like this and never budget with it before the performance leader I showed you before your operation must work lost performance fee you will not get it every year don't assume you've gone to average ten percent and therefore you need the ten percent to pay the bills if you come if your operation cannot run without performance fee you have a problem but it's not for everybody there are a couple of valid reasons and less valid reasons why it's not for everybody one thing is of course you don't want to run a business you don't want to deal with clients reporting and these certifications regulations all of these things well that's absolutely fine you don't want to do it you don't do it just be aware of where the economics are that's the important thing another argument is that you don't want to risk other people's money but that doesn't make sense to me because if you're not confident enough in what you can do if you don't believe in your own methods you know your own approach then why would you risk your own money I guess the biggest heard of most is how do we find this 10 million bucks nobody knows this to begin with yet a lot of people do it it's a skill to learn I'm
going to talk more about that but in the end that is of course the biggest hurdle and it's just something people need to get over if you just decide upfront that you know I'm just an invisible guy somewhere trading out of my bedroom who's gonna take me seriously well everybody started somewhere learn a skill regulations again is one of the most valid reasons for not doing this especially in Europe it was much easier when I started out doing these kind of things now it's much more tricky it's doable but it is much trickier finally very very balancing scalability so maybe you've been trading with excellent results on your twenty thousand bucks account and you have three four five years some great track record real trading on your account that's great but are you sure you can take that same strategy and deploy twenty million and still have it working maybe maybe not but it's something you need to take into account when even when you model when you build your models is it possible to deploy real capital on this or are you stuck with a small amount for instance you need to look at liquidity of the markets the frequency if you're doing intraday scalping for instance you're relying on exact executions maybe it's not possible to do a lot your scale there are also some things in in back testing engines which tend to be a bit deceptive such as short they build it too short for instance in most back testing engines you can short anything in any scale with impunity with no cost at all reality doesn't work like that if you want to short something somebody has to lend it to you you have to locate the shares locating shares well if you're shorting Apple you probably find but you might soon run into obstacles where you're not able to locate shares in the right in the size you need and of course it can be called back at the roll at the last at the worst possible moment and you can't really model for that and shorting stock that's not free of course they're they don't they don't lend it to you for fun realism it's a very real thing all your results realistic and this I'd say it's one of the most important points I get a lot of presentations from both professional managers and up-and-coming managers who want to get into the business in the difference is usually the people who are not yet in the business percent numbers which are absolutely outlandish which turns out to be just a red flag if your simulations look too good to be true they most likely are I don't mean that to criticize your strategies I just mean that I see too many things that are just curve fitted or luck we do the questions after sorry because it's because of the recording sorry Pepa tasks after what what a quite often see is strategies which don't they have no predictive value they are just numbers fitted to a data set to show high returns and there's far greater than anybody has ever done in reality and that is a red flag if you have no losses you have a problem everybody has losses expect larger losses and your back test shows and if your back test us and sho enough losses well you're probably dealing with a hidden skew strategy a hidden negative skew strategy there is that sooner or later you'll get stuck the common industry analogy is that you're picking up pennies in front of a steamroller it might work for a while you win every time you have a high heat ratio 90% of your trades you win that you keep moving up up up and sooner or later maybe just hasn't happened yet you get your hand stuck under there and everything is gone Sharpe ratios popular measurements this is something that people really don't want to hear but a sharp ratio of over 1 for systematic strategies is very unusual it is possible but it's unusual over time Sharpe ratio over to I'm not saying it's impossible it's just very very very unlikely if you show me a Sharpe ratio of 5 I'm not taking that seriously you show me double-digit Sharpe ratio and that's not worth continuing the conversation over people are obsessed with extreme numbers this is not how the industry works we are not looking for extreme numbers now if as this silly example and slide behind me if you come and show somebody that you have a strategy which compounds at 50% you have 5% maximum drawdown a Sharpe ratio of 15 then we know with mathematical certainty that we're dealing with one of three scenarios one is outright fraud we have a criminal here who wants to steal money it's possible but let's assume you're not trying to defraud me here so second option we are looking at some curve fitted data with no predictive value or of course a miscalculation of Sharpe that's a common one if you for instance you will do a short gauge calculation on amongst the data you go through the roof obviously and it might sound funny but people do that outside people who are not yet in the business tend to do that sometimes because it shows silly levels of Sharpe those are the first two options this 3 I'm sorry we told you we're looking at three alternatives the third possible alternative is that we are dealing with individual who has financial skills orders of magnitude better than anybody who's ever lived we are dealing with somebody who claims he can run 100 meters in in two seconds you guys run 100 meters here just tells European perhaps you're on 100 yards make sure you're presenting realistic numbers or nobody's gonna let you through the door can you explain your L goal do you understand what your what your what your model is what it does I'm using model and L going to change simply here I prefer the world word model myself I'm not saying you need to explain every single rule but if you don't know what your model will it does which part of the sector doesn't belong what Mark is phenomenon doesn't exploit if you can't explain this and most likely what all you have is a bunch of indicators which happen to show a good value on this particular data set its curve fit the data again with no predictive value you have to be able to explain what you do and most likely well we're almost almost complete certainty other people are doing almost the same as you're doing it might seem unique when you build it but other people have done something similar but maybe you have done it slightly better and that's great but then you shouldn't explain it that way I'm doing basically the thing that these guys over here are doing I just figured out the way to do it slightly better I improved these parameters of it I'm a better risk management thing either this covariance matrix approach to the handle the risk better explain what you're doing where do you fit in and explain how you improve on something that exists because if you tell me that you invented a whole new genre of trading well maybe you did but it's low probability of that that doesn't happen very often so you need to explain the real-world reasons not just that you built a bunch of lines of code and the output a great track record in the end why does it do that why should we trust is to continue in the future and again it's not a matter of giving the exact code but you have to give the logic of what you're doing this is the point that it's the other one other points are obvious to a lot of people probably most people in the room but this point might not be you have a clean strategy or not if we're just assigning a trading strategy it's often tempting to say that these three seemingly unrelated strategies have negative correlation to each other if you combine this together we build a stronger portfolio right so then we go and tell the investor that I'm combining this mean reversion model with this momentum model with you know this fundamental model and together as a portfolio they're performing much better right we're improving in numbers that makes mathematical sense it's tempting to do that but you have to consider who you're pitching to here if you go and talk to a CEO of a larger shop he needs to put you in some sort of a box in a sector he's got an allocation to various sectors and it's his job to combine those if you say that I've done this already you're saying I'm doing your job for you it's not much better pitch to tell them you know I have this three four strategies they're unrelated it worked great together you can buy them separately you decide the allocation you have clean building blocks most of the really larger shops prefer the building blocks they can combine and mix and match the safety see fit maybe they're like one of your strategy is not the other three transparency back to that one again one thing that is very clear in the businesses that the whole black box way of thinking is really dead you cannot go out and say that just give me money I'm gonna input in I'm going to put this into my magical money-making machine and you get profit out on the other side I'm not going to tell you what I do because it's complex math and you wouldn't understand its proprietary it doesn't work like that anymore sometimes I wonder if it really ever did explain what you do show as much as you can if you can show the source show the source why not they're not going to steal it if you can show daily performance if you can show report automated report every day even with exactly what position do you hold what your locations what your your your daily returns the more open your the more your show the more you can build a trust and in the end this is about trust nobody's gonna give you money because they think you just because they think your strategy is good they're going to give you money to think that the can trust you trade examples important one show some trades short visually print some charts show why you enter an exit and why don't be afraid to show these things they're not going to say that this is a smart guy as a good system we're gonna steal it to the important things kept racing kept racing meaning sales in the business how do we go about it well the first thing to realize is that nobody likes this and that's just fine if you have no idea how to go about selling that that's fine nobody knows few people know anyway nobody likes cold calling I'll call somebody up and ask for money well most it goes against how most people think and most of us here well we like math and numbers we like code we don't like calling strangers and ask for money the most important advice I can give here is don't make yourself known as the annoying guy and all too many do if your approach is to send 500 LinkedIn messages LinkedIn requests and then sign everybody up to your spam list that it's not a good idea nobody is going to buy that way in the end most of us open LinkedIn once a week and you know click unsubscribe to you know 15 emails and you're not gonna sell this way we're not selling vacuum cleaners here it's not how it works you're building personal trust nobody's going to look at just the email without knowing who you are and buy something be honest about what you're looking for a classic one is again often LinkedIn messages saying something like when do you have time to discuss synergies between our firms and it's a guy in a basement I don't mind talking to the guy in the basement trading if he's smart but if you start that conversation that way it's probably not an individual that I want to speak to if it's just you and your trading strategy that's fine and be open with that if you want to sell something sell it don't say that you're you're looking to discuss synergies it's nobody wants to hear that tell me what you want you're much more likely to start the conversation if you just upfront about why you're contacting the person what do you want to achieve with this most importantly don't expect to get a ticket that's not the goal here when you contact somebody again we're not selling vacuum cleaners you know you're not doing a hard sale and hoping to get you know somebody to say yeah you know sounds great I'll take ten million please what you should look for is build a relationship you want them to remember your name you wanted to remember it in a positive way if you start a conversation that's you achieve the goal if you get them to agree to be on your mailing list that you do need one that's that's a win if you get him to just remember you go for lunch once in a while now you have somebody in the business who remembers your name in a positive way maybe that's not the guy who's going to invest but maybe your name comes up in different context the business is quite small after all your name is going to come up somewhere and you have people who remember you in a positive context yeah I spoke to judge guy since responsible don't be disappointed if you don't make a sale get to know people that's worth about now when you present I don't mean present as in talk in front of people necessarily but when you make your material and present your strategy it's a very good trick steal from the competition study what they do find out find out who is active in your space and there are people active in your space find out who the big ones are there are probably hedge funds trading shops banks who knows who are doing what you want to do hopefully you can do it better but that's not the point there are other people doing something similar like get their marketing material go to their website sign up to their their newsletters get their fact sheets you do need a fact sheet there's an important one even if you have no investors you have no realistic hopes of getting investors to the next year well start doing a monthly mailing list with a fact sheet it creates some sort of paper trail a record make it look okay just make it look like you didn't just do it in Microsoft Word in five minutes but this is not really it's not really rocket science factsheet look usually something like this these are real ones which I hopefully anonymized enough so that you will not see who it is because they're probably confidential what I want to show here is they don't have to be really beautiful but they have to contain a certain set of information almost all fact sheets have the same basic information and this information you can find out easily by just subscribing to a few of them you have your description of the firm or yourself if it's just you which is fine description of the idea the strategy the monthly table of returns couple of graphs showing performance may be some allocation attributions there is performance numbers it's really standard stuff it's easy to do step one start making one of those maybe in a year from now you run into the guy who might might want to give you some money and now you have a year worth of fact sheets to show it's an important thing in appearing professional so by doing one of these and the mailing list you come a long way of having something to having something real to show suddenly it's not just trust me with this Excel spreadsheet I just sent the one you could have modified yesterday to fit numbers you want to show right here you have something that you can show that this has been sent out every month for a year two years whatever it is so you have something more tangible there is one more document which I would say is the real wealth of information to learn about the business the ddq most people probably never read a ddq because it looks well boring DBQ due diligence questionnaire is usually a standardized document that the very large firms have some medium firms but absolutely very large ones it is often it is often over 50 pages thick like a pamphlet full of questions and answers hundreds hundreds or questions and answers on every category on your your legal setup on your your the background of the other people storing it every single detail every disclosure it talks about things of the off-site backup for instance which obviously don't need what happens if the house burns down what do you have a separate separate location where all the traders show up the next day your risk management your insurance your function functions are the auditors all of these things now obviously you don't need as a start-up managers you don't need most of these things but read it because this document contains a wealth of information to understand how it works on the sharp end how the big boys do it how do you get hold of this well it's easy call them hi I'd like your marketi
g material fair enough don't bother the medium term guys I'm a medium medium size guys don't don't bother the idea the smaller ones that that's not very game but if you call if you call a hedge fund called a sales guy at the hedge fund with 15 billion on the management this absolutely fair game call them as for a ddq as for the documentation has to be on the mailing list now you learn the terminology you'll under how they do things obviously you can never compete with them well not in a while in a way but but learn their terminology and learn what it takes in terms of strategy explanation of strategy learn how mistakes or not you might be surprised to see how much they actually explain about their strategy the risk management is usually quite detailed because again black box thinking is long gone they're not going to show you the source code they're not going to show you exactly how the enter and exit trades but there will be a wealth information you can probably learn a lot about the trading strategies and their approach to this as well by reading through these documents now this entire process and this is an important thing it takes time it's all about building long-term trust you will not be able to get out well most likely and get most likely he will not be able to get in allocation from absolutely nowhere some people might be extremely lucky I confess to have been extremely lucky I would explain how I got my first larger allocation but frankly so it's unlocked dependent that it's not going to help anyone anyway I guess my philosophy is this that you might very well be lucky dependent but you also have to be in a position where you can take advantage of that luck when it comes and you can increase probabilities of outsized events or Bob fat tail events and the positive side happening around you what's the old American expression you can't win if you're not at the table you have to be prepare it you have to be you have to be there and be in the game and be prepared for opportunities to present themselves nothing will happen unless you go out there you make yourself visible in a positive way make people understand who you are and something will happen hopefully I believe I am probably slightly ahead of my schedule so that means probably more time for questions which is difficult for me because well then I have to answer ad hoc things instead of my prepared presentation but I am just going to leave this here with a brief explanation of this or my two books which I hope somebody goes out to buy as well as a friend from last year's presentation if anybody was here done I had a slightly more frivolous talk near ago where I spoke about random stock strategies in form of the proverbial dot throwing chimp and this is my assistant for that presentation by that I believe I am finished and I'm happy to ask any questions [Applause] so the question is has to repeat the questions for the sake of the online audience the question is as an undergrad student whatever what do you do to get into the business well make yourself known how you make yourself known it's very personal but figure out what can you do to make yourself visible maybe it's about starting a blog somewhere make yourself visible that way that's a good way a blog yeah if you say you done your research right you've done a lot of research on quantum models and all of this you think that you have something of value but who knows about it right because you know undergrad and nobody knows who you are well start a blog make it professional make people read it now suddenly they remember you not justice you know the random undergrad student now you're the guy who's running that blog that everybody's reading and you're writing intelligent things about quanta trading in risk management whatever it is that you're into and now suddenly things of the internet you gain some visibility are you not getting money for that this is just your personal marketing nobody's gonna pay you for the blog but they're gonna remember your name if you do it well so do something like that but again it's very personal it depends on what you do and what you know what you know I believe the next one was sorry over there so the question is it doesn't matter a geography where you are based and is it easier in Switzerland is it easier in Switzerland for me it was probably harder I'm not Swiss which means I am on the eternal outsider I'm a foreigner here I'm a foreigner in my own country and unforunately much everywhere that might make things more difficult is it easier for locals or - no I mean this is New York you have assets here you have a lot of investors here it's a financial center of the world I don't see why it should be more difficult in New York now obviously you based in I don't know cancers actually stop making fun of American cities because frankly I never been to most of them but nobody seemed to be upset yet anyway obviously Midwest somewhere and I don't again I don't know I'd assume that there's not such concentration of asset spaces over there unless you're in Omaha Nebraska yes but you have to be what the money is yeah sure then again maybe yeah sorry yeah yes so the question is how are the how is the regulatory environment changing info for the worse I know the Swiss environment better than and what else of course but what has happen is it used to be highly unregulated the government stayed out as long as there were no real problems that is not the case anymore a lot of a lot of fund managers for instance ten years ago you could legally I guess a lot of people did it and right in the open anyway so it's probably legal I saw a lot of companies who set up a hedge fund shop in the BVI's as a management company in the Caymans advisory shop on shore so you get you know you pay your taxes you do all of these things but you're not regulated to do anything that is impossible today at least in Europe a lot of companies did that 10 15 years ago not possible now now if you're managing over over 100 million in Switzerland in infant vehicles you're going to face very high compliance costs in three four five hundred thousand a year on things that you maybe you need maybe you don't but you go on a whole different regulation costs are going up dramatically compliance it's not just the before it was mainly about the anti money laundering and know your client now it's a lot more it's getting complicated and expensive yes yeah so the question is if you have a good track record how can you get it audited or verified somehow like you can prove that it's real short answer is I don't know your bank statements I'm not sure yeah bank statements basically the bank or brokerage statements of course but having SS in a company you can hire to just do the audit thing quite possibly I've never done that sorry I confess to having been lucky to get in to begin with and therefore I haven't gone through many of the hoops that I'm talking to you about but it is things that I see out there every day so I'm spoiling that way but how do you go about it well you have to somehow prove it depends on where things are misstep one is of course if you don't trust you you don't get any further anyway you need to build your personal trust before they come to that step that question will come much later don't yes always yep hmm don't underestimate the chimps I'm going to tell them no it's the question is how important is luck compared to skill in the business and luck is well I'd rather be lucky than good of course I know I cannot the only thing I can tell you for sure is that about 85% of all statistics is made up on the spot for my point of view well I know a lot of people who are objectively much smarter than I am who have achieved less in their career now does that make me smarter lucky I'd I'd say that makes me very lucky it's not about it's not only about who the smartest guy in the room is there's a lot of knock right place the right time get to know the right people and get things done but again being lucky alone doesn't help being smart alone doesn't help you need some sort of combination of it what I'll say luck is more important than skills yes yes yes so the question is legal bills can be well substantial for securities lawyers and how do you how do you deal with this well unfortunately dealing with lawyers mostly involve pay them and pretend to be happy about it it's it's a tricky situation you could say well I read on the internet that you can do these things and I just set us things up and go for it and some people do I would not recommend it maybe you get away with it maybe you don't we're back to the luck factor again some people do and they make enough money to well pay the lawyers later and fix whatever they violate and in the first place but it's not a it's not a viable strategy that's more of the old day the cowboy business we had in the hedge fund industry 20 years ago a lot of people did that but these days again I don't know your side of Atlantic but my advice is don't mess with the regulator's because they have no sense of humor anymore yes yep oh that's a tricky one so the question is how do you once you start getting visible with blocks and so on what how do you leverage that to the next step to money it's something very personal and again we're back to the lock unfortunately because all you can do is make yourself visible and hope that decent things happen around you they often do you get the right people to remember your name in the positive context and then you have to go out there and try to contact people get to know people what else can you do well one obvious trick is I've heard that you write a book and that might help how are we on I'm looking for my yeah here we go podium yeah I seem to be good okay yes it's one of those questions very very much depends on I once got criticized in the interview journalist told me that my answer to every question was it depends but it's a complex world it's hard to say anything absolutes there are no rules really you need to be confident in what you're doing you need to have enough back tests hopefully real tests to be personally comfortable comfortable with it because if you're not confident in what you're doing yourself you're not gonna be able to sell it properly or at least you shouldn't call it and sell it if you're not sure if you if you get that break you you get in front of the right guy and he trusts you he invests and you have something which you were not sure about in the first place well maybe maybe you should fix that first how much is needed up to you and the person person listening what they might need but enough to know that nobody knows enough to be reasonably sure that your model actually works I'm sorry unless what in options Wireless options so the question is incorrect why there are why there are less options trader divided by the head no oh okay I I see I see why do people buy mutual funds and not hedge funds it is a tough one to answer and guess we're back to my friend mr. bubbles over here which I spoke about last year why one of my points last year was about how the mutual in mutual fund industry has been underperforming pretty much since it was created and yet they command a massive asset base is there anybody in here who doesn't own any mutual fund through your pension through your pension holding or anything well it would be unlikely okay so one hand fine I give you that everybody wants more mutual funds direct or not by their own personal choice or not we're all kind of in it somehow branding I suppose marketing Air Force banks you can show mathematically that you have approximately 20 to 15 percent probability of actually achieving the SP index by buying a mutual fund tracking it over time because only 15 to 20 percent of all mutual funds managed to beat their benchmark or or match it so you have eighty percent probability of missing yeah it's odd but that's how the business works it's not rational but I was a post brand recognition then it's also of course very dangerous to say that the solution is hedge funds because well some are good some are bad some I wouldn't touch with a 10-foot stick and some are absolutely great so it's a diverse field hedge fund has no real definition anybody can start anything in called the hedge fund there's no formal definition of what that is it's just something that is not a mutual fund yes I think I'm sorry oh sorry about that the question is whose what is a what is the amount of funds that are players out there who are looking for this type of say retail originated strategies instead of just using their own few I mean you can't go to a hedge fund shop and say that you you want to sell them and Al Gore that would be a little bit over the top that's probably not your your target audience if you go to Wynton and say that I have developed my own model well sure we got 200 PhDs I don't know what they have and they're doing that for a living right yes wrong targets what you're looking for is most likely to begin with and the very first step you're probably looking for high net worth individuals who who we can build a trust with somebody who trusts you personally you get to know them second you're looking for smaller as the management houses maybe it's one guy maybe it's five but they're managing 10 15 20 hundred million but still a small shop they might be open to ideas third you might be looking at family offices particularly the so called smaller family offices that only have I don't know half a billion or something these firms might be more open but if you go to a shop that does it for a living well maybe you can get them to to hire you if you good enough but to go to a big quantitative hedge fund and say that they should license your strategy and invest in your firm well that's a little bit unrealistic they have their own internal infrastructure to do the same thing so you're saying that what you guys do for a living and spend millions in doing I can do better you want you you want to go to somebody who is not yet doing that exact same thing yes yes what is the question is what is a realistic Sharpe ratio well I know a lot of people might think this is shocking but if you can't make sure that you have you have annualized return of 15% the maximum drawdown of 25% in a sharp ratio point 85 well maybe we can talk about that maybe it's realistic maybe it's good maybe it's not but you know it's it's something that maybe we look into if you come and show that you have a sharp ratio of three well most like the not maybe in your back test yes fine maybe in a shorter time period but realistic slightly under one if you hit one or above that's great okay the question is about the time allocation to the various areas of developing models managing models allocating to others well my particular shop we're a devastation backstory and a strange way of doing things perhaps there is not entirely in the standards we are in large part family office in ourselves a smaller one but we allocated we do a lot of different things and from that point of view is difficult to talk about that per se but in general terms if you have a shop a clean shop that which guess we used to be once to do pure algorithmic trading well that's what you do you develop the models you try to improve upon them you have people who try to develop and enhance them you have to follow up of course you have the the portfolio analysis ongoing real-time and daily going over the numbers reporting there are a lot of components how to give you a percentage but there's a lot more work going in in the end and it might look I should mention the slide I had early on with the nice income we saw with the 10 million I guess I skipped a few things and that's why I ended a little bit early one point is obviously that all of that money if you do it as a business it's not just pure profit you might get this revenue but you have costs to run in reality I would say my example here shows ten million to start a business in reality you probably need much more depending on you know how much income you need what kind of cost you have your regulatory set up and all of these things it used to be very possible to start a hedge fund with 10 million bucks but there was 15 20 years ago today I would not recommend try tha
you might be able to do it as individual mandates so you need the whole setup around it managing the business the employees the auditors the custodians there are a lot more things to care about and to pay for them it might look on a simple slide not to say you hopefully you you make sure that you have enough time to do what you want in the end and if not you hire people to have to do it alright thank you [Applause]
