January 7, 2026 • 33 mins
Launching a multi-strategy hedge fund has never been tougher. Giants such as Millennium, Point72 and Citadel dominate the space, while spiraling pay and a fierce "war for talent" have pushed entry barriers higher than ever. So why leave a top role at one of the world’s biggest funds to start a rival?
Jonathan Xiong, CEO & CIO of Arrowpoint Investment Partners and former co-CEO of Millennium in Asia, joins John Lee on the Asia Centric podcast to answer that question. With more than $1.5 billion in assets and growing, Arrowpoint is one of the most significant launches out of the region in recent years. Xiong discusses the difficulties of starting a multi-strategy fund, the hidden dangers of the "cost pass-through" model, and how he stood out from the crowd by identifying a unique gap in the Asian market.
This episode was recorded in December 2025.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Launching a multi strategy hedge fund has never been tougher.
Giants like Millennium, Point seventy two, Ballyosny and Citadel dominate
the space, while rising costs and a war for talent
push barriers to entry higher than ever. New entrants face
daunting challenges like escalating pay feace, competition, and the need
(00:22):
to stand out in a crowded market. So why would
anyone try to start a multi strat hedge fund? Now
you're listening to Asia Centric from Bloomberg Intelligence. I'm John
Lee in Hong Kong. Today we have a guest who
did just that is Jonathan Schong, CEO and CIO of
Arrowpoint Investment Partners, one of the most high profile and
(00:44):
significant hedge fund launches out of Asia in recent years.
The fund currently has over one point five billion dollars
in assets under management and it's growing. Jonathan, Welcome to
the show.
Speaker 2 (00:55):
Thank you for having me.
Speaker 1 (00:57):
Jonathan. Before you launched Arrowpoint last year, you were the
co CEO of Millennium for six years in Asia. Why
did you leave one of the world's biggest hedge funds
is to start your own business.
Speaker 2 (01:10):
Funny you mentioned that a lot of people ask me
the same question. It was one of the obviously the
premiere place to be in multi strike hedge funds, but
for a few different reasons. I think the first thing is,
if you're given an opportunity to start something of your own,
it's a daunting task, and a lot of people, I think,
don't take the leap of faith because you know, failures
are like a difficult thing to take. But I think
(01:31):
if you take a calculator risk, as we do all
the time in trading and risk taking, I think if
you have the ability to do so and the backing
to do so, I think it's probably one of the
best challenges. It's like an experience you can't even purchase
in life. I fortunately was given that opportunity or I
thought I had a good enough calculated risk to make
it work, so I decided to take the leap of faith.
(01:54):
The other aspect, though, I think at the time, when
we launched back in twenty twenty, for we realized that
there was a gap here in Asia. I think a
lot of funds here in Asia kind of evolved into
a multistract to be competitive, you know, with the full
cost pass through model inside a multi strat being able
(02:15):
to pay payouts and being able to hire your talent.
It's a difficult space to continue as a single strategy fund,
and hence you have to basically evolve into a multistrat.
But there really wasn't one that actually started day one
as a true multistrat, you know, trading equities, quant commodities,
fixed income, macro RV. And I think obviously, with the
(02:37):
experiences that my partners and I have learned over the
years being inside one of the premier multistrats, I think
we were quite well equipped to do that, and I
think we do offer something that's unique for a lot
of individual portfolio managers and traders who actually want to
be with the local firm, but with an institutionalized manner
(02:58):
of running like a hedge fund, like a Globe.
Speaker 1 (03:00):
Okay, so let's go into the details of how you
study the fund. So, like I wanted to talk about,
like when you decided to start your own fund and
leave Millennium, when you met with asset owners to raise money,
what was the experience like going in and saying I
want to start a multistrap fund.
Speaker 2 (03:19):
Oh Okay, that experience is probably exponentially more difficult than
a single strategy and the reason for the same exponentially
difficult is because you have effectively multiple dimensions that need
to come together simultaneously at the same time. And what
I mean by that is, do the investors actually one
(03:41):
trust that you know how to do what you're saying
that you would do, and are there portfolio managers and
traders that would come with you. Because the talent is
what drives the return of the firm, They're not going
to go back something that doesn't have a legitimate, you know,
infrastructure or the talent to deploy the care capital. The
tricky part about that is on the other side, when
(04:04):
you're talking to people that you want to recruit and
join you from day one, their thinking in their mind
is the capital actually stable and is the capital actually
going to be there. As you probably have done sessions
before on the war for talent, the sitout periods could
be six to nine months for people to join, so
before we start, literally people had to resign from their jobs.
(04:28):
At the time, we didn't even have the capital. And
to be honest, we spent our own capital building up
the infrastructure without knowing whether investor capital was going to
actually come in. So this is one of the things
that I mean is it's a calculated risk, but the
risk could be binary, all or nothing.
Speaker 1 (04:48):
I want to ask a really stupid question, but if
you meet a insurance company or a pension fund or
a Solin wealth fund and they say, Jonathan, I promise
to give you one hundred or two hundred million dollars, yes,
it actually comes to start, they do. They sometimes renege.
Speaker 2 (05:04):
In our particular case. You know, let me take a
step back in the world. There's probably maybe my guess
is like fifteen real institutional investors that can allocate to
you on day one when you have nothing. Okay, this
is their bread and butter. It's what they do. I
(05:26):
would say, the anchor investors that we have, this is
something that they've done and they have a business behind this. Okay,
So they were very transparent along the way, obviously not
promising anything, but it's something for us to gauge whether
this is going to move forward or not. So when
I look back, I literally don't know how we actually
(05:50):
put all this together because you literally had to show, Okay,
here are the people that are going to join us
on day one, here's the infrastructure that we're going to
have ready on day one, and then there's a whole
set of hurdles because these are very institutional lines investors
that you have to clear as far as due diligences
go before the money actually gets seeded in. So I
(06:10):
would say we didn't have experiences of that because they're
in that business. So they were very transparent, very supportive
all along the way, and if something was to go
wrong in the beginning, they'd probably let you know fairly
early on and not to drag you on so that
you can make a rather calculated decision whether you want
(06:31):
to proceed or not going forward. But it's one of
the most difficult things because your run ray payroll. By
the time before we launched, we have fifty people on
the payroll in two different offices in Singapore and Hong Kong,
and you're thinking to yourself, like, Okay, if the capital
doesn't come in, you're still going to have to pay out.
Do you go one more month or one more month?
And it's quite quite a bit of a preasure knock
(06:53):
on would like, we were very fortunate that it worked out,
but you know, there's obviously a non zero probability that
things could not have planned out.
Speaker 1 (07:01):
Now you have a blue chip of investors. Now, you know,
according to a lot of press reports, you have Singapore's Tamasic,
you have Canadian Pension or CPPIB, and you also have
Blackstone as some of your core investors. Was your experience
running Millennium was that helpful? I'm sure it was.
Speaker 2 (07:19):
I mean, obviously, if I was someone that was running
a tech company and I want to start a multi
trid fund, that obviously you know it wouldn't be relevant. Experience.
So that experience, and I think it's also it's a
lot about the individual, but I don't want to say
to myself, it's also about the team that you're putting together.
It's all about your vision of how this is going
to play out. If they don't really sponsor that and
(07:42):
they don't see that vision planing out, or you know,
the investors find that there's quite a bit of risk
on their side, then they may not actually sponsor you.
So I would say it is experience, but it's also
what you're delivering and bringing to the table if I'm
just a another multi strat at that time. By the way,
there was a lot of launches going on at that time,
(08:02):
so we were competing for capital with a lot of
you know, different launches, and if you didn't have something
that was unique filling a gap that investors were looking for.
I think that also is a I would say, a
variable that investors need to consider. It's not just the individual.
In the multistrat world, fifty percent of the success comes
from do you know how to run the business right?
(08:25):
The other fifty percent is the investment side, where traditional
single strategy funds are typically is about like eighty ninety
percent the investment and trading side. But in running a
multistrat like there's hundreds of variables you have to optimize
for all the time and they're moving all at the
same time. That is the part that is tricky that
(08:46):
it takes extra care and due diligence for investors' sponsor.
Speaker 1 (08:50):
Asia Centric is produced by Bloomberg Intelligence. We're more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class rece Our coverage spans
two hundred market industries, currencies, commodities, and industries, as well
as over two thousand equities and credits. To learn more
about Bloomberg Intelligence, visit b I, go on the Bloomberg
(09:12):
terminal If you like what you're here, don't forget to
subscribe and share. Can you give us some examples of
some of the difficulties that you know, Like maybe an
entrepreneur or you know, someone who was a star portfolio
manager then decided to create his or her own multistrat.
What would be some of the difficulties that they may encounter.
Speaker 2 (09:33):
Yeah, okay, So one of the most difficult things of
a multistrat is the cost. Okay, Right, You're hiring a
lot of teams, the investors bearing the cost and wearing
the cost in the beginning. You know, what benefit do
they have in return? And are you going to be
successful in cost pass throughs? Multistrats is probably going to
be one of the most expensive propositions to actually seed
(09:54):
or to anchor as an investor from day one. So
I would say the challenge which comes in is how
do you optimize cost relative to getting the right talent
relative to the infrastructure you have to build? So you
(10:15):
probably hear I mean there's been articles. I'm not saying
anything that's not non public, but you could see some
of the articles before of multisrat cost pass through funds,
cost skyrocketing and getting into trouble.
Speaker 1 (10:29):
For the benefit of the listener, like cost pass through.
That's when you pass all the fees the costs onto
the investor base.
Speaker 2 (10:37):
Right, Yeah, So we don't actually have a management fee,
so the expenses of the fund are passed back to
the client and also the portfolio managers payouts and so
forth are also to the client. We only collect a
performance fee. Okay, okay, But the problem with that is,
like the infrastructure and the netting cost and the sign
on costs for hiring this war and talent that you're
(10:58):
talking about could get quite expensive. So the investor doesn't
just want to hand you like a blank check and
you go off and do what you want to do
and incur all these expenses. So in the beginning, balancing
the cost with what it takes to get a portfolio
manager on board, with how big do you want your
business to be in the beginning, and gradually growing that
(11:20):
relative to you know, skipping right to the to the
premiere is very key. So our anchor investors had like
a significant amount of experience learning what is to do
and what is not to do, so they were actually
extremely helpful in guiding us into what are some parameters
(11:41):
that they've seen would fail and what would some parameters
that would be lead to success. And they're letting you
do as an entrepreneur what you want to do, but
they're just guiding along the way. That was actually extremely helpful.
We know from our previous experience with firms, but they've
been so established, right, like you're not starting from day one,
Like we didn't have to go take an office and
(12:03):
like you know that kind of stuff from day one.
So it was very helpful to take the guidance from
our anchor investors. And I think you definitely need that
as a as a multi strat launch, just to see
the landscape and pictures that they've seen before they like
a traditional headphone manager would not have seen.
Speaker 1 (12:17):
That's quite interesting because lots of people outside the industry
think it's all about getting returns, but it's actually more
about well, it's heavily skewed to also managing the business,
managing the cost from day one.
Speaker 2 (12:28):
Oh absolutely, So that's why the multi stride is so difficult.
Like you can get the returns. I mean, anybody could
go buy returns. You could go, you know, I'll give
a portfolio manager some ridiculous deal. But the IRR in
the long run of that particular deal may not actually
be positive, but it's hard for you to see that
(12:49):
right in the beginning. So that's why if you don't
manage this optimization process correctly between the cost and the
deployment of risk and capital, then it becomes a very
difficult exercise. And then you have to also understand like
if you were a fund and you just started either
in the equity space or in the macrospace and you
haven't seen the other side of the assa class, that's
(13:12):
a difficult proposition. Where As the organizations that we were
from before, the amount of i would say volume, and
just the amount of strategies that we observed, and we
understand it's exponential in Asia. There's no other place like it,
like meaning we've seen every single potential strategy possible, and
(13:35):
that gives us a lot of experience and understanding what
works and what doesn't work, and how to put that
infrastructure together as well.
Speaker 1 (13:40):
Now you've referenced the difficulties of some of your competitors,
like some new funds that have started, and there's been
a few collapses as well or shutdowns quite famously, like
Isler Capital recently shut down. One of the reasons was
this cost overrun issue. Can you explain, like, is it
just wages salaries? What other costs could you find there?
Speaker 2 (14:02):
It's a lot has to do with like your fixed
based cost. Right, So let's let's just say typically a
hedge fund charges you one and a half and you know,
twenty percent or two and twenty management fee and a
performance fee and a cost pass through. That number that's
two percent fixed can be much higher because you know,
(14:23):
you need to employ a lot of people. You know,
teams have analysts, you have multiple teams. But the one
aspect that's also difficult to manage is netting cost. So
netting cost is something in our world in the multi
manager space is basically, for every dollar that a team generates,
we capture let's call it eighty cents, because you have
(14:46):
to give a payout to that particular training team. But
every dollar you lose you absorb one hundred percent. Right,
So this netting cost of you know, the amount of
profitable teams relative to nonprofitable teams has to be managed
very well, and that's why draw downs and so forth
have to be managed in a particular way to control
(15:07):
for this particular type of netting cast. This doesn't exist
when you're in a single strategy fund because it's one
large portfolio manager taking risk.
Speaker 1 (15:16):
I'm want to give you this that and this sort
of went viral when it came out. Now, Ballyosny there
twenty twenty three fund had fifteen percent gross gains but
only two point eight percent net for investors. Now they
had seven hundred and sixty eight million dollars of pass
through charges. That's quite a phenomenal number. Now, I know
(15:38):
you can't talk about like your competitor, No, I mean
I'm not.
Speaker 2 (15:41):
I'm not mentioning like Ballyasni or any aspect, but it's
completely conceivable. Like when you mentioned those numbers to me
and how that happened, I can actually see how that happened,
and it can happen to the best of them. Bally
Asny is one of the obviously premiere firms, and you
know even they've been running the cast pass through model
for or quite a bit of time, and this can
actually happen. So even for very seasoned firms, this can
(16:04):
actually happen. So this is why I keep stressing that
it sounds simple. Hey, investers, give you a lot of money,
you go ahead and hire a lot of portfolio managers,
but then things could go very wrong when you even
generate decent returns. So one of the things you asked
before is my experience of my previous shot matters. Of
course that matters, because like you can't just step into
(16:27):
a thinking that you would be able to do this,
because there's a lot of different ways that this process
should be run that you just can't learn overnight because
those mistakes will be very costly. This is something people
have learned over twenty thirty years of their experience and
have collected over that period of time. So you need
to be very calibrated on what you do, and everything
(16:47):
has to be nine to twelve months forward. Just imagine
how difficult that is, like from the hiring perspective, from
the growing perspective, from like expansion, it's an extremely difficult exercise.
Not to mention all the risk side of the equation
that you have to manage for all the trading, right,
that's even more difficult. So it's not as easy as
as it seems.
Speaker 1 (17:05):
You mentioned this earlier on, But how does erpoint attract
and maintain the talent? Because there is this talent more
going on.
Speaker 2 (17:14):
Yeah, So I think firms have their own way of
doing things. One obviously, we're an Asia based firm. To me,
one of the reasons why I think there was a
gap here was that that is a competitive advantage. And
one of the reasons for that is because as the
geopolitical tensions get bigger, the divide will continue to get bigger.
(17:36):
And as we have seen publicly, something goes wrong with
a global firm, you know, Asia is one of those
places that they tend to look to first to cut
back on because it's a fragmented market. It typically doesn't
generate that much revenue for the global fund, right Like,
(17:57):
it's a small percentage relative to what is being generated
in Europe or the US, So it's an easy place.
The cost is a little bit higher to run here
because just think about all the different markets that don't
conform to one particular standard, so it's quite difficult to
do here. So I think it gives comfort to the
portfolio managers of people that we're attracting that we're Asia
(18:17):
based firms, so we live and die by what we
do in Asia.
Speaker 1 (18:20):
So your boss is sitting in Singapore rather than someone
in New York, to London.
Speaker 2 (18:25):
That's I mean, it may not seem like a big deal,
but that's a big deal to be honest. Like, before
moving to Asia, I've always worked in New York in
the US and the West Coast. I never felt that
because those were always the head quartered office.
Speaker 1 (18:35):
Yeah sure, but.
Speaker 2 (18:36):
When I came here, like you could get a sense
of like there is an additional checks and balance of
the headquartered office. Obviously for an Asian firm. If we
expand somewhere else, there's going to be that check and balance, right,
Chinese firms will have checks and balances in the US
as well, it's the same. So that's one area that
allows us to attract talent. Two is also I think
you have to be competitive. Like if your commercial aspects
(18:58):
are not competitive, then you know the portfolio manager's gonna
be like, okay, so the local support, maybe I'll just
take my chances at the other firm that okay, everything
could work out at the global place and at least
I'm not losing out on any opportunity costs.
Speaker 1 (19:11):
Right.
Speaker 2 (19:12):
So two, we have to be competitive. So that's another
aspect that was hard to find here, right, because to
be competitive means you have to be at market rates
with global players. You have to have a full cost
pasth throty in order to do that right, and like
you have to understand how the numbers have to work
in order for this to play out. And then last,
but not least, is I think we've established that or
(19:34):
it's one of the things that we do want to establish. Like,
you know, multi manager firms can't get into a place
where you have the set of risk guidelines. No matter
what happens you touch then you just liquidate and you
have to stop out. Now for us being in the region,
we can sponsor risks that we understand, we believe much
(19:56):
better because sometimes there's people not sitting in the each
of making those tap out decisions right and the PM.
You know, it's difficult enough to run risk and sponsor risk,
it's even more difficult to have to explain to someone
or have the uncertainty of whether someone's sponsoring that risk
when it gets to be really difficult. Okay, that that
(20:18):
I think is a big deal for portfolio manager. So
for us here, I think we take pride in that. Like, Okay,
if a portfolio manager goes through a difficult time, not
the first reaction is just cut. We want to understand
what went wrong. We want to understand like the process
in their thought process, and is it just a short
(20:39):
term market, you know, potential liquidit event or is it
really they got something wrong and we have to go
through the exercise. Now, at some point you have to
go through a risk management exercise, right, I think just
can't bleed forever. But what I noticed in Asia is
that you know, obviously when trading the US, like it's
very liquid, things get arbitrage backed very quickly. The dislocations
(21:01):
disappear in hours, maybe days. In Asia it could take
like weeks, It could take like three to four weeks.
So there was dislocations here in Asia that were very
clear back in April after the liberation day, after the
ninety day reprieve, that dislocation in the US completely got
(21:22):
repriced back, but here in Asia it's still stayed out there,
lingering for like weeks on end. And partially because of
that is lack of risk capital, lack of liquidity, and
lack of arbitrators in these particular markets that you have
in the US, markets that you don't really have here,
So you need to be a little bit more patient.
But what that might mean is just a little bit
(21:44):
more vawl. Right, So like in Asia, the alpha opportunities,
in my opinion, are more apparent, but you have to
be able to withstand a little bit more.
Speaker 1 (21:53):
Vall Okay, because it makes sense because it's a lot
as much liquidity in certain markets as in the US.
Speaker 2 (22:00):
Yes, yes, yes, there's the aspect. Then there's the other
aspect of effectively, each individual market here in Asia you
could think about, it has their own government, geo politics, risk, right,
capital controls, risk onore, offshore risk, cross border risks. Those
things all have to be managed, I would say in
(22:20):
a manner that you don't typically see somewhere else, right,
because there's certain markets that you know overnight, they won't
recognize the NDF that's been trading forever, you know, things
like that. So I think that also may be a
deterrent for some global firms to say, is the profits
and the dollars really worth it for this kind of
noise or this kind of risk that I'm bearing here
(22:41):
that it's hard for me to sponsor. Whereas and then
it's shown time after time, certain firms will come into
the region and then after a while experience hasn't been
so great or it's just like, okay, just too much
dual political risk, I'm going to be out. That would
give us the ability to say we're here, we know
how to manage these risks. Rek a sponsor, We've been
(23:01):
through it before. Back to your question about how white
talent would come to a firm like US or other
local firms.
Speaker 1 (23:06):
Just when you were raising your fund or when you started,
Asia was just starting to recover, like twenty twenty three,
beginning parts of twenty twenty four. Remember people were saying like,
for example, Chinese equities, especially in the tech sector, were uninvestable. Yeah,
you know a lot of asset owners were selling out
of their positions in Chinese companies. What was the reception
(23:29):
for raising money for Asia based fund? And is there
interest now for to invest more in Asia?
Speaker 2 (23:36):
So when we were raising there were two headwinds. The
headwind was like does the world need another multistrat? Yeah,
that's probably the bigger headwind. Actually, the Asia angle was
a little bit more interesting for people because the multi
strat launchers at the time in the US I showed
up to the I think the breakers in Morgan Stanley
and in Florida doing launches and I just didn't realize
(23:59):
the kind of like I wouldn't say allergic reaction people
to have like another like a multistrat and yeah, but
then when they actually heard about the Asia angle, there
was like, oh, Okay, that's interesting because like that's not
exposure that may have More recently, it's gotten even more interesting. Obviously,
Korea has done extremely well, Japan has caught a lot
of attention. Some people are coming back to China and
(24:21):
Hong Kong, all the IPOs and ecms coming out of here.
Ai being really competitive, and I think that's obviously bodes
well for us and wanting to come back to Asia.
And one of the things that's interesting about Asia multi
strat is sometimes for allocators, they may not have resources
to allocate to individual funds here in Asia, and they
just want to give it to a manager to basically say, Okay,
you give me the comfort the universe of what is
(24:41):
in Asia, and that's my exposure.
Speaker 1 (24:43):
Okay, I love what you just said. Does the world
need another multistrat? I might use that as a title
of this podcast.
Speaker 2 (24:50):
Now.
Speaker 1 (24:50):
Look, according to a Bloomberg News article, your fund returned
to seven point three percent for the first eight months
of twenty twenty five. Just headline numbers, they look fantastic
for your first year. You're looking to raise money in
the first quarter of twenty twenty six, so that's an
extra four hundred million. You know. Firstly, like congratulations, you know,
(25:10):
can you talk about like what strategies did well for you?
Was it maybe like for the listener, was it a
certain country, was it career? Was it equities?
Speaker 2 (25:20):
I mean, in general, I think we did quite well
in cross assets and cross strategies. Okay, so both equities
and fixed income did extremely well. We were still building
out our commodities business at the time, so the contribution
wasn't it didn't detract or tracked. And then for the
(25:41):
quant side of the equation, it's also ramping up, so
towards the end of this year, our quant and commodities
books will be more meaningful. But yeah, it wasn't really
concentrated in one place. It was pretty spread and that's
the intention is not to have over concentration in a
particular country or strategy or area as a multi strip,
because you never know what might be the next thing.
(26:03):
One thing about us raising capital is that it's very
important and this is also very different from a single
strategy manager, especially when we're starting out right, Like, it's
not so difficult when you're like a more established multi
stripe because you have a capital deployment plan or like
it's just easier to do because the capital you raise
is a smaller portion of your overall AUM. But for us,
(26:24):
if you're going for let's say one and a half
to two and a half billion dollars, that's a significant
increase or like you know, so just imagine if we
have let's just say one and a half billion dollars
or whatever the AUM number is, and all of a sudden,
we double that. If we don't have the portfolio managers today,
then that by definition, our risk gets dropped by half,
and then our vall gets dropped by half, and our investors'
(26:46):
returns get diluted. So we only raise capital when we
have forward hired and we know that deployment schedule will
keep our for looking fall at the same pace.
Speaker 1 (26:56):
Okay, so you're raising four hundred million dollars in the
first quarter, so you must be out there they're looking
for more forward.
Speaker 2 (27:02):
We've all forward hired, meaning there's people joining us probably now.
July twenty twenty six, we're hiring for. My guess is
you know, joining in Q three, we have strategies in
development like quant strategies and so forth that's been in
house for a while, but now need to deploy in
(27:22):
Q one of next year, so that all has to
be matched. So yeah, we've all basically have to do
forward hiring. As I mentioned this before, that's just one
of the hundreds of variables you have to optimize for.
Not to mention the cost, right, like everything you're doing
on a forward basis in order to.
Speaker 1 (27:38):
Make rather than just what I mean, rather than just investing,
that's what I'm actually running as managing.
Speaker 2 (27:44):
Paper, so exactly. So fifty percent of this exercise is
running a business and fifty percent of this exercise is
the investment of making sure the diversification is right, the
risk management process is correct. You know, how you construct
the portfolio is correct, like you're liquidity management framework is great.
That's why the cost is quite high because the management
side can become expensive.
Speaker 1 (28:07):
Look, just to take this discussion to another another direction,
there's probably a lot of people listening to this podcast
and saying I want to be a HDGE fund manager.
Now they've seen TV series trillions billions. Oh sorry, it
was a billions billions. They've seen the HBO series like Industry.
Some people might have seen Wall Street. But how difficult
(28:29):
is it to actually be a hedge fund manager in
a sort of like a pod shop because the risk
limits are so tight and there's all these stories that
you know, some of these you know managers only last
for a few months or one or two years.
Speaker 2 (28:43):
So I would say it's one of the most difficult
and gut wrenching jobs. I have to say, everybody's fortunate
in the area that we are in to do what
we do right, because there's a lot harder fields of
work out there. But this is just psychologically like a
different exercise, physically demanding in a sense that like I
personally think you need to be in quite good shape
(29:05):
and health to do what you need to do, because
it's it's like you're going into combat every day. Now,
why is that hard? It's hard because like traditionally, if
you get the trade or the investment right, that's already
hard enough as is right, But not only do you
have to do that, you have to map out the
path of how you get that trade right. Let me
(29:26):
give you a perfect example, mat just I'm just gonna
make stuff up. So I believe this stock is going
to go from forty dollars to sixty dollars. Every person
in the world will be like, great, let me buy
that in our world. Hold on a minute, if I
buy this, what if it goes to twenty and then
(29:47):
it goes to sixty, I'm not going to be able
to hold if it goes to twenty. So even if
you know with perfect foresight where it's going to end up, like,
how you get there is like a very difficult path.
So managing how to get there is the multistrats kind
of I would say value added exercise of trading around
(30:09):
to make sure you stay within your risk limits. You
don't create draw downs, but you still ultimately get to
the place that you need to get to. That that's
why it's so difficult, and that's why alpha is being
highly paid for in this space because investors are looking
for alpha. Now, what's interesting is that over the years,
(30:29):
let me use to take stuff over like thirty years,
twenty thirty years, some of the stuff has become a
little bit like a risk premium, right, and when it
does that, your alpha gets eroded. It becomes a risk premium.
Now the volatility increases. Okay, so then now you have
to augment what you do in order to maintain the
(30:53):
sharp or to maintain the draw down that is acceptable
to the platforms or the hedge funds because doing exactly
what you were doing thirty years ago, and I cou
assure you you're not going to be successful because your
drawdowns are going to be you know, significant, because it's
become like a commoditized product. So that's the even harder part.
Speaker 1 (31:12):
Jonathan, would you if we could go back in time,
would you do this all over again?
Speaker 2 (31:17):
I would say yes, okay. And the reason why I
just say that the experience of building something on your
own as challenging as this. It's one of those experiences
that you can't even buy with money. Life is all
about experiences, right, Like you try to gain wealth so
you could experience different things in life, you know, right, Like,
(31:38):
that's what it is. This experience is not something that
you can actually purchase with wealth. So how many of
those things they actually exist in the world. And one
of my mentors back in my GS days, like basically
he was like, this is one of those opportunities that
you're going to have to take. It's going to be
the most difficult, it's going to be the most challenging
and most to be the most rewarding, and it's going
(31:59):
to be the best experience of your life. And they
basically said, like, don't worry about the opportunity cost of
what you're going to leave behind. You know, you should
always think about that. This opportunity to prenangia doesn't come often.
And I would say it's probably been the best advice,
and I would do it over and over again, but
there's difficulty times like I you know, it took a
(32:22):
while for me to have to convince my wife and
then she's she's been through this roller coaster with us
to the points of like, you know, before we were
about to get funded, I mean, all right, I think
our anchor investors know this. Like a week or two before,
we didn't even have a bank account, you know, when
you're like, oh my god, like we can't even for
other reasons because there was things that we had to
do before this and that, But like just going through
(32:44):
little experiences like that and how you solve it as
a team and the people that you start the firm with,
the partners that I have. I think it's one of
those experiences that you would cherish and you would do
it all over ten times, all over again, even knowing
how difficult it is. What I do things differently. Obviously,
there's a lot of lessons I learned. I look back
hindsight certain things I should have done, certain things I
(33:06):
should have not done. But that's just part of it,
and you recalibrate and you learn, and hopefully you adapt
fast enough to grow this very competitive environment because the
failure read is high. It's difficult.
Speaker 1 (33:19):
Well, Jonathan, exciting times. It's been a fantastic discussion. Thanks
for coming on.
Speaker 2 (33:24):
Thank you for having me.
Speaker 1 (33:25):
You've been listening to the Age Eccentric podcast from Bloomberg Intelligence.
I'm John Lee in Hong Kong. You can listen to
all our episodes on Apple Podcasts, Spotify, or whereview listen.
This podcast was also produced and edited by Clara Chen.
Thanks for listening.
Launching a multi strategy hedge fund has never been tougher.
Giants like Millennium, Point seventy two, Ballyosny and Citadel dominate
the space, while rising costs and a war for talent
push barriers to entry higher than ever. New entrants face
daunting challenges like escalating pay feace, competition, and the need
(00:22):
to stand out in a crowded market. So why would
anyone try to start a multi strat hedge fund? Now
you're listening to Asia Centric from Bloomberg Intelligence. I'm John
Lee in Hong Kong. Today we have a guest who
did just that is Jonathan Schong, CEO and CIO of
Arrowpoint Investment Partners, one of the most high profile and
(00:44):
significant hedge fund launches out of Asia in recent years.
The fund currently has over one point five billion dollars
in assets under management and it's growing. Jonathan, Welcome to
the show.
Speaker 2 (00:55):
Thank you for having me.
Speaker 1 (00:57):
Jonathan. Before you launched Arrowpoint last year, you were the
co CEO of Millennium for six years in Asia. Why
did you leave one of the world's biggest hedge funds
is to start your own business.
Speaker 2 (01:10):
Funny you mentioned that a lot of people ask me
the same question. It was one of the obviously the
premiere place to be in multi strike hedge funds, but
for a few different reasons. I think the first thing is,
if you're given an opportunity to start something of your own,
it's a daunting task, and a lot of people, I think,
don't take the leap of faith because you know, failures
are like a difficult thing to take. But I think
(01:31):
if you take a calculator risk, as we do all
the time in trading and risk taking, I think if
you have the ability to do so and the backing
to do so, I think it's probably one of the
best challenges. It's like an experience you can't even purchase
in life. I fortunately was given that opportunity or I
thought I had a good enough calculated risk to make
it work, so I decided to take the leap of faith.
(01:54):
The other aspect, though, I think at the time, when
we launched back in twenty twenty, for we realized that
there was a gap here in Asia. I think a
lot of funds here in Asia kind of evolved into
a multistract to be competitive, you know, with the full
cost pass through model inside a multi strat being able
(02:15):
to pay payouts and being able to hire your talent.
It's a difficult space to continue as a single strategy fund,
and hence you have to basically evolve into a multistrat.
But there really wasn't one that actually started day one
as a true multistrat, you know, trading equities, quant commodities,
fixed income, macro RV. And I think obviously, with the
(02:37):
experiences that my partners and I have learned over the
years being inside one of the premier multistrats, I think
we were quite well equipped to do that, and I
think we do offer something that's unique for a lot
of individual portfolio managers and traders who actually want to
be with the local firm, but with an institutionalized manner
(02:58):
of running like a hedge fund, like a Globe.
Speaker 1 (03:00):
Okay, so let's go into the details of how you
study the fund. So, like I wanted to talk about,
like when you decided to start your own fund and
leave Millennium, when you met with asset owners to raise money,
what was the experience like going in and saying I
want to start a multistrap fund.
Speaker 2 (03:19):
Oh Okay, that experience is probably exponentially more difficult than
a single strategy and the reason for the same exponentially
difficult is because you have effectively multiple dimensions that need
to come together simultaneously at the same time. And what
I mean by that is, do the investors actually one
(03:41):
trust that you know how to do what you're saying
that you would do, and are there portfolio managers and
traders that would come with you. Because the talent is
what drives the return of the firm, They're not going
to go back something that doesn't have a legitimate, you know,
infrastructure or the talent to deploy the care capital. The
tricky part about that is on the other side, when
(04:04):
you're talking to people that you want to recruit and
join you from day one, their thinking in their mind
is the capital actually stable and is the capital actually
going to be there. As you probably have done sessions
before on the war for talent, the sitout periods could
be six to nine months for people to join, so
before we start, literally people had to resign from their jobs.
(04:28):
At the time, we didn't even have the capital. And
to be honest, we spent our own capital building up
the infrastructure without knowing whether investor capital was going to
actually come in. So this is one of the things
that I mean is it's a calculated risk, but the
risk could be binary, all or nothing.
Speaker 1 (04:48):
I want to ask a really stupid question, but if
you meet a insurance company or a pension fund or
a Solin wealth fund and they say, Jonathan, I promise
to give you one hundred or two hundred million dollars, yes,
it actually comes to start, they do. They sometimes renege.
Speaker 2 (05:04):
In our particular case. You know, let me take a
step back in the world. There's probably maybe my guess
is like fifteen real institutional investors that can allocate to
you on day one when you have nothing. Okay, this
is their bread and butter. It's what they do. I
(05:26):
would say, the anchor investors that we have, this is
something that they've done and they have a business behind this. Okay,
So they were very transparent along the way, obviously not
promising anything, but it's something for us to gauge whether
this is going to move forward or not. So when
I look back, I literally don't know how we actually
(05:50):
put all this together because you literally had to show, Okay,
here are the people that are going to join us
on day one, here's the infrastructure that we're going to
have ready on day one, and then there's a whole
set of hurdles because these are very institutional lines investors
that you have to clear as far as due diligences
go before the money actually gets seeded in. So I
(06:10):
would say we didn't have experiences of that because they're
in that business. So they were very transparent, very supportive
all along the way, and if something was to go
wrong in the beginning, they'd probably let you know fairly
early on and not to drag you on so that
you can make a rather calculated decision whether you want
(06:31):
to proceed or not going forward. But it's one of
the most difficult things because your run ray payroll. By
the time before we launched, we have fifty people on
the payroll in two different offices in Singapore and Hong Kong,
and you're thinking to yourself, like, Okay, if the capital
doesn't come in, you're still going to have to pay out.
Do you go one more month or one more month?
And it's quite quite a bit of a preasure knock
(06:53):
on would like, we were very fortunate that it worked out,
but you know, there's obviously a non zero probability that
things could not have planned out.
Speaker 1 (07:01):
Now you have a blue chip of investors. Now, you know,
according to a lot of press reports, you have Singapore's Tamasic,
you have Canadian Pension or CPPIB, and you also have
Blackstone as some of your core investors. Was your experience
running Millennium was that helpful? I'm sure it was.
Speaker 2 (07:19):
I mean, obviously, if I was someone that was running
a tech company and I want to start a multi
trid fund, that obviously you know it wouldn't be relevant. Experience.
So that experience, and I think it's also it's a
lot about the individual, but I don't want to say
to myself, it's also about the team that you're putting together.
It's all about your vision of how this is going
to play out. If they don't really sponsor that and
(07:42):
they don't see that vision planing out, or you know,
the investors find that there's quite a bit of risk
on their side, then they may not actually sponsor you.
So I would say it is experience, but it's also
what you're delivering and bringing to the table if I'm
just a another multi strat at that time. By the way,
there was a lot of launches going on at that time,
(08:02):
so we were competing for capital with a lot of
you know, different launches, and if you didn't have something
that was unique filling a gap that investors were looking for.
I think that also is a I would say, a
variable that investors need to consider. It's not just the individual.
In the multistrat world, fifty percent of the success comes
from do you know how to run the business right?
(08:25):
The other fifty percent is the investment side, where traditional
single strategy funds are typically is about like eighty ninety
percent the investment and trading side. But in running a
multistrat like there's hundreds of variables you have to optimize
for all the time and they're moving all at the
same time. That is the part that is tricky that
(08:46):
it takes extra care and due diligence for investors' sponsor.
Speaker 1 (08:50):
Asia Centric is produced by Bloomberg Intelligence. We're more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class rece Our coverage spans
two hundred market industries, currencies, commodities, and industries, as well
as over two thousand equities and credits. To learn more
about Bloomberg Intelligence, visit b I, go on the Bloomberg
(09:12):
terminal If you like what you're here, don't forget to
subscribe and share. Can you give us some examples of
some of the difficulties that you know, Like maybe an
entrepreneur or you know, someone who was a star portfolio
manager then decided to create his or her own multistrat.
What would be some of the difficulties that they may encounter.
Speaker 2 (09:33):
Yeah, okay, So one of the most difficult things of
a multistrat is the cost. Okay, Right, You're hiring a
lot of teams, the investors bearing the cost and wearing
the cost in the beginning. You know, what benefit do
they have in return? And are you going to be
successful in cost pass throughs? Multistrats is probably going to
be one of the most expensive propositions to actually seed
(09:54):
or to anchor as an investor from day one. So
I would say the challenge which comes in is how
do you optimize cost relative to getting the right talent
relative to the infrastructure you have to build? So you
(10:15):
probably hear I mean there's been articles. I'm not saying
anything that's not non public, but you could see some
of the articles before of multisrat cost pass through funds,
cost skyrocketing and getting into trouble.
Speaker 1 (10:29):
For the benefit of the listener, like cost pass through.
That's when you pass all the fees the costs onto
the investor base.
Speaker 2 (10:37):
Right, Yeah, So we don't actually have a management fee,
so the expenses of the fund are passed back to
the client and also the portfolio managers payouts and so
forth are also to the client. We only collect a
performance fee. Okay, okay, But the problem with that is,
like the infrastructure and the netting cost and the sign
on costs for hiring this war and talent that you're
(10:58):
talking about could get quite expensive. So the investor doesn't
just want to hand you like a blank check and
you go off and do what you want to do
and incur all these expenses. So in the beginning, balancing
the cost with what it takes to get a portfolio
manager on board, with how big do you want your
business to be in the beginning, and gradually growing that
(11:20):
relative to you know, skipping right to the to the
premiere is very key. So our anchor investors had like
a significant amount of experience learning what is to do
and what is not to do, so they were actually
extremely helpful in guiding us into what are some parameters
(11:41):
that they've seen would fail and what would some parameters
that would be lead to success. And they're letting you
do as an entrepreneur what you want to do, but
they're just guiding along the way. That was actually extremely helpful.
We know from our previous experience with firms, but they've
been so established, right, like you're not starting from day one,
Like we didn't have to go take an office and
(12:03):
like you know that kind of stuff from day one.
So it was very helpful to take the guidance from
our anchor investors. And I think you definitely need that
as a as a multi strat launch, just to see
the landscape and pictures that they've seen before they like
a traditional headphone manager would not have seen.
Speaker 1 (12:17):
That's quite interesting because lots of people outside the industry
think it's all about getting returns, but it's actually more
about well, it's heavily skewed to also managing the business,
managing the cost from day one.
Speaker 2 (12:28):
Oh absolutely, So that's why the multi stride is so difficult.
Like you can get the returns. I mean, anybody could
go buy returns. You could go, you know, I'll give
a portfolio manager some ridiculous deal. But the IRR in
the long run of that particular deal may not actually
be positive, but it's hard for you to see that
(12:49):
right in the beginning. So that's why if you don't
manage this optimization process correctly between the cost and the
deployment of risk and capital, then it becomes a very
difficult exercise. And then you have to also understand like
if you were a fund and you just started either
in the equity space or in the macrospace and you
haven't seen the other side of the assa class, that's
(13:12):
a difficult proposition. Where As the organizations that we were
from before, the amount of i would say volume, and
just the amount of strategies that we observed, and we
understand it's exponential in Asia. There's no other place like it,
like meaning we've seen every single potential strategy possible, and
(13:35):
that gives us a lot of experience and understanding what
works and what doesn't work, and how to put that
infrastructure together as well.
Speaker 1 (13:40):
Now you've referenced the difficulties of some of your competitors,
like some new funds that have started, and there's been
a few collapses as well or shutdowns quite famously, like
Isler Capital recently shut down. One of the reasons was
this cost overrun issue. Can you explain, like, is it
just wages salaries? What other costs could you find there?
Speaker 2 (14:02):
It's a lot has to do with like your fixed
based cost. Right, So let's let's just say typically a
hedge fund charges you one and a half and you know,
twenty percent or two and twenty management fee and a
performance fee and a cost pass through. That number that's
two percent fixed can be much higher because you know,
(14:23):
you need to employ a lot of people. You know,
teams have analysts, you have multiple teams. But the one
aspect that's also difficult to manage is netting cost. So
netting cost is something in our world in the multi
manager space is basically, for every dollar that a team generates,
we capture let's call it eighty cents, because you have
(14:46):
to give a payout to that particular training team. But
every dollar you lose you absorb one hundred percent. Right,
So this netting cost of you know, the amount of
profitable teams relative to nonprofitable teams has to be managed
very well, and that's why draw downs and so forth
have to be managed in a particular way to control
(15:07):
for this particular type of netting cast. This doesn't exist
when you're in a single strategy fund because it's one
large portfolio manager taking risk.
Speaker 1 (15:16):
I'm want to give you this that and this sort
of went viral when it came out. Now, Ballyosny there
twenty twenty three fund had fifteen percent gross gains but
only two point eight percent net for investors. Now they
had seven hundred and sixty eight million dollars of pass
through charges. That's quite a phenomenal number. Now, I know
(15:38):
you can't talk about like your competitor, No, I mean
I'm not.
Speaker 2 (15:41):
I'm not mentioning like Ballyasni or any aspect, but it's
completely conceivable. Like when you mentioned those numbers to me
and how that happened, I can actually see how that happened,
and it can happen to the best of them. Bally
Asny is one of the obviously premiere firms, and you
know even they've been running the cast pass through model
for or quite a bit of time, and this can
actually happen. So even for very seasoned firms, this can
(16:04):
actually happen. So this is why I keep stressing that
it sounds simple. Hey, investers, give you a lot of money,
you go ahead and hire a lot of portfolio managers,
but then things could go very wrong when you even
generate decent returns. So one of the things you asked
before is my experience of my previous shot matters. Of
course that matters, because like you can't just step into
(16:27):
a thinking that you would be able to do this,
because there's a lot of different ways that this process
should be run that you just can't learn overnight because
those mistakes will be very costly. This is something people
have learned over twenty thirty years of their experience and
have collected over that period of time. So you need
to be very calibrated on what you do, and everything
(16:47):
has to be nine to twelve months forward. Just imagine
how difficult that is, like from the hiring perspective, from
the growing perspective, from like expansion, it's an extremely difficult exercise.
Not to mention all the risk side of the equation
that you have to manage for all the trading, right,
that's even more difficult. So it's not as easy as
as it seems.
Speaker 1 (17:05):
You mentioned this earlier on, But how does erpoint attract
and maintain the talent? Because there is this talent more
going on.
Speaker 2 (17:14):
Yeah, So I think firms have their own way of
doing things. One obviously, we're an Asia based firm. To me,
one of the reasons why I think there was a
gap here was that that is a competitive advantage. And
one of the reasons for that is because as the
geopolitical tensions get bigger, the divide will continue to get bigger.
(17:36):
And as we have seen publicly, something goes wrong with
a global firm, you know, Asia is one of those
places that they tend to look to first to cut
back on because it's a fragmented market. It typically doesn't
generate that much revenue for the global fund, right Like,
(17:57):
it's a small percentage relative to what is being generated
in Europe or the US, So it's an easy place.
The cost is a little bit higher to run here
because just think about all the different markets that don't
conform to one particular standard, so it's quite difficult to
do here. So I think it gives comfort to the
portfolio managers of people that we're attracting that we're Asia
(18:17):
based firms, so we live and die by what we
do in Asia.
Speaker 1 (18:20):
So your boss is sitting in Singapore rather than someone
in New York, to London.
Speaker 2 (18:25):
That's I mean, it may not seem like a big deal,
but that's a big deal to be honest. Like, before
moving to Asia, I've always worked in New York in
the US and the West Coast. I never felt that
because those were always the head quartered office.
Speaker 1 (18:35):
Yeah sure, but.
Speaker 2 (18:36):
When I came here, like you could get a sense
of like there is an additional checks and balance of
the headquartered office. Obviously for an Asian firm. If we
expand somewhere else, there's going to be that check and balance, right,
Chinese firms will have checks and balances in the US
as well, it's the same. So that's one area that
allows us to attract talent. Two is also I think
you have to be competitive. Like if your commercial aspects
(18:58):
are not competitive, then you know the portfolio manager's gonna
be like, okay, so the local support, maybe I'll just
take my chances at the other firm that okay, everything
could work out at the global place and at least
I'm not losing out on any opportunity costs.
Speaker 1 (19:11):
Right.
Speaker 2 (19:12):
So two, we have to be competitive. So that's another
aspect that was hard to find here, right, because to
be competitive means you have to be at market rates
with global players. You have to have a full cost
pasth throty in order to do that right, and like
you have to understand how the numbers have to work
in order for this to play out. And then last,
but not least, is I think we've established that or
(19:34):
it's one of the things that we do want to establish. Like,
you know, multi manager firms can't get into a place
where you have the set of risk guidelines. No matter
what happens you touch then you just liquidate and you
have to stop out. Now for us being in the region,
we can sponsor risks that we understand, we believe much
(19:56):
better because sometimes there's people not sitting in the each
of making those tap out decisions right and the PM.
You know, it's difficult enough to run risk and sponsor risk,
it's even more difficult to have to explain to someone
or have the uncertainty of whether someone's sponsoring that risk
when it gets to be really difficult. Okay, that that
(20:18):
I think is a big deal for portfolio manager. So
for us here, I think we take pride in that. Like, Okay,
if a portfolio manager goes through a difficult time, not
the first reaction is just cut. We want to understand
what went wrong. We want to understand like the process
in their thought process, and is it just a short
(20:39):
term market, you know, potential liquidit event or is it
really they got something wrong and we have to go
through the exercise. Now, at some point you have to
go through a risk management exercise, right, I think just
can't bleed forever. But what I noticed in Asia is
that you know, obviously when trading the US, like it's
very liquid, things get arbitrage backed very quickly. The dislocations
(21:01):
disappear in hours, maybe days. In Asia it could take
like weeks, It could take like three to four weeks.
So there was dislocations here in Asia that were very
clear back in April after the liberation day, after the
ninety day reprieve, that dislocation in the US completely got
(21:22):
repriced back, but here in Asia it's still stayed out there,
lingering for like weeks on end. And partially because of
that is lack of risk capital, lack of liquidity, and
lack of arbitrators in these particular markets that you have
in the US, markets that you don't really have here,
So you need to be a little bit more patient.
But what that might mean is just a little bit
(21:44):
more vawl. Right, So like in Asia, the alpha opportunities,
in my opinion, are more apparent, but you have to
be able to withstand a little bit more.
Speaker 1 (21:53):
Vall Okay, because it makes sense because it's a lot
as much liquidity in certain markets as in the US.
Speaker 2 (22:00):
Yes, yes, yes, there's the aspect. Then there's the other
aspect of effectively, each individual market here in Asia you
could think about, it has their own government, geo politics, risk, right,
capital controls, risk onore, offshore risk, cross border risks. Those
things all have to be managed, I would say in
(22:20):
a manner that you don't typically see somewhere else, right,
because there's certain markets that you know overnight, they won't
recognize the NDF that's been trading forever, you know, things
like that. So I think that also may be a
deterrent for some global firms to say, is the profits
and the dollars really worth it for this kind of
noise or this kind of risk that I'm bearing here
(22:41):
that it's hard for me to sponsor. Whereas and then
it's shown time after time, certain firms will come into
the region and then after a while experience hasn't been
so great or it's just like, okay, just too much
dual political risk, I'm going to be out. That would
give us the ability to say we're here, we know
how to manage these risks. Rek a sponsor, We've been
(23:01):
through it before. Back to your question about how white
talent would come to a firm like US or other
local firms.
Speaker 1 (23:06):
Just when you were raising your fund or when you started,
Asia was just starting to recover, like twenty twenty three,
beginning parts of twenty twenty four. Remember people were saying like,
for example, Chinese equities, especially in the tech sector, were uninvestable. Yeah,
you know a lot of asset owners were selling out
of their positions in Chinese companies. What was the reception
(23:29):
for raising money for Asia based fund? And is there
interest now for to invest more in Asia?
Speaker 2 (23:36):
So when we were raising there were two headwinds. The
headwind was like does the world need another multistrat? Yeah,
that's probably the bigger headwind. Actually, the Asia angle was
a little bit more interesting for people because the multi
strat launchers at the time in the US I showed
up to the I think the breakers in Morgan Stanley
and in Florida doing launches and I just didn't realize
(23:59):
the kind of like I wouldn't say allergic reaction people
to have like another like a multistrat and yeah, but
then when they actually heard about the Asia angle, there
was like, oh, Okay, that's interesting because like that's not
exposure that may have More recently, it's gotten even more interesting. Obviously,
Korea has done extremely well, Japan has caught a lot
of attention. Some people are coming back to China and
(24:21):
Hong Kong, all the IPOs and ecms coming out of here.
Ai being really competitive, and I think that's obviously bodes
well for us and wanting to come back to Asia.
And one of the things that's interesting about Asia multi
strat is sometimes for allocators, they may not have resources
to allocate to individual funds here in Asia, and they
just want to give it to a manager to basically say, Okay,
you give me the comfort the universe of what is
(24:41):
in Asia, and that's my exposure.
Speaker 1 (24:43):
Okay, I love what you just said. Does the world
need another multistrat? I might use that as a title
of this podcast.
Speaker 2 (24:50):
Now.
Speaker 1 (24:50):
Look, according to a Bloomberg News article, your fund returned
to seven point three percent for the first eight months
of twenty twenty five. Just headline numbers, they look fantastic
for your first year. You're looking to raise money in
the first quarter of twenty twenty six, so that's an
extra four hundred million. You know. Firstly, like congratulations, you know,
(25:10):
can you talk about like what strategies did well for you?
Was it maybe like for the listener, was it a
certain country, was it career? Was it equities?
Speaker 2 (25:20):
I mean, in general, I think we did quite well
in cross assets and cross strategies. Okay, so both equities
and fixed income did extremely well. We were still building
out our commodities business at the time, so the contribution
wasn't it didn't detract or tracked. And then for the
(25:41):
quant side of the equation, it's also ramping up, so
towards the end of this year, our quant and commodities
books will be more meaningful. But yeah, it wasn't really
concentrated in one place. It was pretty spread and that's
the intention is not to have over concentration in a
particular country or strategy or area as a multi strip,
because you never know what might be the next thing.
(26:03):
One thing about us raising capital is that it's very
important and this is also very different from a single
strategy manager, especially when we're starting out right, Like, it's
not so difficult when you're like a more established multi
stripe because you have a capital deployment plan or like
it's just easier to do because the capital you raise
is a smaller portion of your overall AUM. But for us,
(26:24):
if you're going for let's say one and a half
to two and a half billion dollars, that's a significant
increase or like you know, so just imagine if we
have let's just say one and a half billion dollars
or whatever the AUM number is, and all of a sudden,
we double that. If we don't have the portfolio managers today,
then that by definition, our risk gets dropped by half,
and then our vall gets dropped by half, and our investors'
(26:46):
returns get diluted. So we only raise capital when we
have forward hired and we know that deployment schedule will
keep our for looking fall at the same pace.
Speaker 1 (26:56):
Okay, so you're raising four hundred million dollars in the
first quarter, so you must be out there they're looking
for more forward.
Speaker 2 (27:02):
We've all forward hired, meaning there's people joining us probably now.
July twenty twenty six, we're hiring for. My guess is
you know, joining in Q three, we have strategies in
development like quant strategies and so forth that's been in
house for a while, but now need to deploy in
(27:22):
Q one of next year, so that all has to
be matched. So yeah, we've all basically have to do
forward hiring. As I mentioned this before, that's just one
of the hundreds of variables you have to optimize for.
Not to mention the cost, right, like everything you're doing
on a forward basis in order to.
Speaker 1 (27:38):
Make rather than just what I mean, rather than just investing,
that's what I'm actually running as managing.
Speaker 2 (27:44):
Paper, so exactly. So fifty percent of this exercise is
running a business and fifty percent of this exercise is
the investment of making sure the diversification is right, the
risk management process is correct. You know, how you construct
the portfolio is correct, like you're liquidity management framework is great.
That's why the cost is quite high because the management
side can become expensive.
Speaker 1 (28:07):
Look, just to take this discussion to another another direction,
there's probably a lot of people listening to this podcast
and saying I want to be a HDGE fund manager.
Now they've seen TV series trillions billions. Oh sorry, it
was a billions billions. They've seen the HBO series like Industry.
Some people might have seen Wall Street. But how difficult
(28:29):
is it to actually be a hedge fund manager in
a sort of like a pod shop because the risk
limits are so tight and there's all these stories that
you know, some of these you know managers only last
for a few months or one or two years.
Speaker 2 (28:43):
So I would say it's one of the most difficult
and gut wrenching jobs. I have to say, everybody's fortunate
in the area that we are in to do what
we do right, because there's a lot harder fields of
work out there. But this is just psychologically like a
different exercise, physically demanding in a sense that like I
personally think you need to be in quite good shape
(29:05):
and health to do what you need to do, because
it's it's like you're going into combat every day. Now,
why is that hard? It's hard because like traditionally, if
you get the trade or the investment right, that's already
hard enough as is right, But not only do you
have to do that, you have to map out the
path of how you get that trade right. Let me
(29:26):
give you a perfect example, mat just I'm just gonna
make stuff up. So I believe this stock is going
to go from forty dollars to sixty dollars. Every person
in the world will be like, great, let me buy
that in our world. Hold on a minute, if I
buy this, what if it goes to twenty and then
(29:47):
it goes to sixty, I'm not going to be able
to hold if it goes to twenty. So even if
you know with perfect foresight where it's going to end up, like,
how you get there is like a very difficult path.
So managing how to get there is the multistrats kind
of I would say value added exercise of trading around
(30:09):
to make sure you stay within your risk limits. You
don't create draw downs, but you still ultimately get to
the place that you need to get to. That that's
why it's so difficult, and that's why alpha is being
highly paid for in this space because investors are looking
for alpha. Now, what's interesting is that over the years,
(30:29):
let me use to take stuff over like thirty years,
twenty thirty years, some of the stuff has become a
little bit like a risk premium, right, and when it
does that, your alpha gets eroded. It becomes a risk premium.
Now the volatility increases. Okay, so then now you have
to augment what you do in order to maintain the
(30:53):
sharp or to maintain the draw down that is acceptable
to the platforms or the hedge funds because doing exactly
what you were doing thirty years ago, and I cou
assure you you're not going to be successful because your
drawdowns are going to be you know, significant, because it's
become like a commoditized product. So that's the even harder part.
Speaker 1 (31:12):
Jonathan, would you if we could go back in time,
would you do this all over again?
Speaker 2 (31:17):
I would say yes, okay. And the reason why I
just say that the experience of building something on your
own as challenging as this. It's one of those experiences
that you can't even buy with money. Life is all
about experiences, right, Like you try to gain wealth so
you could experience different things in life, you know, right, Like,
(31:38):
that's what it is. This experience is not something that
you can actually purchase with wealth. So how many of
those things they actually exist in the world. And one
of my mentors back in my GS days, like basically
he was like, this is one of those opportunities that
you're going to have to take. It's going to be
the most difficult, it's going to be the most challenging
and most to be the most rewarding, and it's going
(31:59):
to be the best experience of your life. And they
basically said, like, don't worry about the opportunity cost of
what you're going to leave behind. You know, you should
always think about that. This opportunity to prenangia doesn't come often.
And I would say it's probably been the best advice,
and I would do it over and over again, but
there's difficulty times like I you know, it took a
(32:22):
while for me to have to convince my wife and
then she's she's been through this roller coaster with us
to the points of like, you know, before we were
about to get funded, I mean, all right, I think
our anchor investors know this. Like a week or two before,
we didn't even have a bank account, you know, when
you're like, oh my god, like we can't even for
other reasons because there was things that we had to
do before this and that, But like just going through
(32:44):
little experiences like that and how you solve it as
a team and the people that you start the firm with,
the partners that I have. I think it's one of
those experiences that you would cherish and you would do
it all over ten times, all over again, even knowing
how difficult it is. What I do things differently. Obviously,
there's a lot of lessons I learned. I look back
hindsight certain things I should have done, certain things I
(33:06):
should have not done. But that's just part of it,
and you recalibrate and you learn, and hopefully you adapt
fast enough to grow this very competitive environment because the
failure read is high. It's difficult.
Speaker 1 (33:19):
Well, Jonathan, exciting times. It's been a fantastic discussion. Thanks
for coming on.
Speaker 2 (33:24):
Thank you for having me.
Speaker 1 (33:25):
You've been listening to the Age Eccentric podcast from Bloomberg Intelligence.
I'm John Lee in Hong Kong. You can listen to
all our episodes on Apple Podcasts, Spotify, or whereview listen.
This podcast was also produced and edited by Clara Chen.
Thanks for listening.
Hosts And Creators
John Lee
Tom Corbett
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!