MiB: The Darwinian Struggle for Alpha

Hedge fund are in a Darwinian struggle, as the cost of succeeding has increased in terms of technological processes and human capital. The industry has become a “Winner take all” competition, with a high concentration of alpha, and mostly also-rans.

So says Luke Ellis, CEO of Man Group, a global active investment manager, with $104.2 billion in AUM. Man Group is the world’s largest listed hedge fund. He previously built and ran the equities derivative business at JPMorgan, and after that, built the fund of fund business at FRM, where he was Managing Director from 1998 to 2008.

Ellis says his childhood love of horse racing and poker led him to alter the way he thinks about risk. The statistical advantages and disadvantages in gambling and investing are remarkably similar. His interests ed him to earn degrees in Mathematics and Economics from Bristol University.

Note that our conversation was recorded on Tuesday, June 9th, before markets took an 11% hit — and you can hear Ellis’ explain why he thought the market run up had gone too far too fast before that min-crash.

5 different investment engines drive the Man Group, including a private single-family rental strategy. He credits the firm’s quantitative approach and discipline as helping them through this period.  The firm’s investments are about 60% hedged, and 40% long-only. The long-only portion fell with the markets, but the hedged portion gained enough to allow the firm to dramatically out perform during the drawdown, across the entire firm, when the markets bottomed, Man was down only 11%.

His favorite books are here; A transcript of our conversation is available here.

You can stream and download our full conversation, including the podcast extras, on iTunesSpotifyOvercastGoogleBloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Jeremy Siegel of Wharton School of Business, Wisdom Tree, and author of Stocks for the Long Run,  discussing valuations and asset management under lockdown.



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