IDW Group CEO Ilana Weinstein Talks Hedge Funds

Ilana Weinstein, IDW Group CEO and Founder discusses hedge funds recent talent wars and their attempts to gain capital. She is joined by Bloomberg's Sonali Basak and Matt Miller.

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Episode Transcript

Speaker 1 (00:00):
We're going to talk about hedge funds. We're gonna bring
in Alana Weinstein IDW Group CEO and founder, because for
all the love the market makers are getting, the hedge
funds don't seem to be feeling as much love. What
are we seeing from the multistrats in terms of performance?
After we seemingly saw a little bit of a rebound
coming into May, are they still feeling it?

Speaker 2 (00:21):
Okay? So what's beautiful about the multistrats is they're not
as tethered. They are not tethered, I should say, to
the market in terms of whether the market is up
or bound or rebounding. That's for another category, which we'll
get to. They are exceptional at managing volatility and putting
up consistent performance. And what I would chine a light

(00:41):
on right now, Shanali, is we have lived through one
of the most volatile periods in recent memory, as we know,
over the last several months. And the fact that the
multi managers have navigated this as effectively as they have,
They've stayed in largely positive territory during the duration of
this period, I think shines a light on the fact
that the best ones I'll say it like this have

(01:03):
money bowled.

Speaker 1 (01:04):
The industry fascinating. So if you look at their ability
to draw in talent, how does it compare to the
rest Because you are seeing i mean, there's no other
way to put it, crazy pay packages. You've been seeing
seeing teams lifted out for one hundred million dollars. You're
looking at Ken Griffin trying to put a four year
non compete on in Florida. I mean, what does that
talent war look like for the multistrats?

Speaker 2 (01:25):
Okay? So, and that is the Multistrats are the biggest
acquisitors of talent right by virtue of their name multi well,
multi managers is really the you know, euphemism that I'm
referring to. They need multiple managers to manage capital. First off,
let me provide some perspective on these pay packages. It's

(01:47):
not like someone who's getting an one hundred million dollar
check and walking across the street and able to cash that. Okay.
Part of it is a hefty guarantee for sure to
pay that person for the period they're sitting out.

Speaker 1 (01:58):
Part of it is deferred.

Speaker 2 (02:00):
Part of it is a wallet so that they can
hire a cracker jack team, and a lot of it
also is on the come where they're getting. If you
normally get a twenty percent PAYOUTTIONALI, I'm going to give
you a thirty percent payout up to two hundred million.
That's an extra twenty million, but you got to make
that two hundred million. The bottom line of all of
this is you don't want to be beholden too what

(02:22):
I'll call the auction. So if you're a multi manager
and you lose someone, which you inevitably will because this
is a merry go round, someone leaves Peter to go
to Paul, or you know what, there's a lot of
capacity for this strategy right now, let me take a
crack AT's starting my own fund. How are you going
to replace that person? Do you always want to be
in a bidding war? No, because then you're beholden to

(02:45):
paying I would actually say maybe overpaying for air quotes talent.
These people are not necessarily as talented or remains to
be seen as the headline numbers would suggest. That's a
lot of money for the multi manager to have to
recoup on their investment TVD on whether they will much
smarter to grow talent in house and the best ones

(03:09):
like point seventy two and Citadel are a factory for
what I like to call alpha makers.

Speaker 3 (03:15):
That's what I was actually going to ask about. So
I don't obviously know as much about this industryationality, but
it would seem to me that a lot of these
people learn on the job. So can you foster a
sense of loyalty? Does Steve Cohen do that? Does Ken
Griffin do that? When you build them up from the
bottom up, it doesn't help obviously IDW. If they make

(03:36):
these well, it does.

Speaker 2 (03:37):
Help IDW because the reality is if there is a culture,
and that's very hard, it's not. They don't all they're
not all created equal in terms of their ability to
train and develop and mentor and make you Matt the
best version of yourself that you can be at each
point along the experience curve and also give you a pathway.
It's not just about coming in as an analyst and

(03:59):
being a good AT or coming in as a PM
and being a good PM. At Citadel, you can you
can go very successfully as at point seventy two, from
analyst to PM to running a business. How exciting is
that you could be a business headed Citadel. Steve just
created a new fund around one of his PMS turion. Right,

(04:19):
So that's a pathway where now you have, in that example,
point seventy two with you to raise capital. They raised
a billion and a half out of the gate, and
the PM has all of the incredible resources available to
him at point seventy two. That's not all multi managers
created equal, and that's what creates stickiness and durability and.

Speaker 1 (04:39):
Then the ability to build out a team under that.
Perhaps you know, one question I have is where we're
not seeing as much success. It looks like the long
short business this year, for all of the volatility in
the market, has not played out quite as well. And
that comes after some really tough years and resources. Yeah,
so well said, what's going on?

Speaker 2 (04:59):
Okay, so you know, like you'll see the returns in
May breaking news, Really not. They're going they're gonna be
better than they were in April. So is the market.
The problem with this is one the swings of volatility. Okay,
I'm not gonna name names, but there are so many
examples of funds that were down and like the mid

(05:20):
teens in April and now we're up mid single digits.
Think about that as an LP and think of how
nervous that might make you about what's gonna happen next month.
And as an LP, what I'm thinking about is how
much alpha am I getting net of fees relative to
the underlying beta exposure. That's like very complicated. I don't

(05:42):
want to think about that. I want alpha and I
have the multi managers in order to access that, or
I want beta and I can pay nothing for that. Right,
buying an ETF for the SMP where the long short
funds will raise money is not in their hedge fund product.
You heard it here, fir s. They are not raising capital.
I don't care what they tell you. In their hedge

(06:03):
fund product. Where they are raising capital is long only
because there is appetite for the alpha component of a
beta product. Can I just ask.

Speaker 3 (06:12):
Quickly, I have a curveball question for you, all right,
let's hear it. Traditionally, Harvard has been a feeder university
for these masters of the universe. Right, do you see
that continuing after this?

Speaker 2 (06:27):
Well, my son goes to Harvard's I don't know how
I'm supposed to answer that question.

Speaker 3 (06:31):
You as Harvard, But who else can provide the best
financial minds in the world.

Speaker 2 (06:40):
Well, I mean, there's a lot of good schools out there.
I wouldn't say Harvard has a walk on that. What
I will tell you is it pertains to talent. And
I've seen this up close. Literally. I visited my son
a few weeks before the end of the year and
I was hanging out with him and his friends who
are finishing their sophomore year. Matt and the aggressiveness by

(07:01):
the top hedge funds, namely the multi managers in locking
up these kids now now for their junior summer, and
the pay packages talent the talent wear has gone way
downstream as we've seen or and you guys alluded to
it as well earlier, are huge even for kids so
that they have first steps.

Speaker 1 (07:22):
We got to leave it there.

Speaker 2 (07:23):
Whish we had more time.

Speaker 1 (07:23):
That is a lot of winsteam of the IDW group place.

Speaker 3 (07:26):
We need to continue that conversation right