Breaking Down the Multi-Manager Playbook: How This $19B CIO Thinks About Alpha | Sean McGould | The Lighthouse Group

**Sean McGould** (0:00)
Japan is a different market than what it was five years ago. So in June of 2021, the corporate governance code was effectively revised. So started to care more about things like return on equity, capital allocation, et cetera. The bottom line, since those changes were enacted, is that the Nikkei has outperformed the S&P 500 by about 8% per year.
If you look at the average stock in the Nikkei over that time period, it's up about 9% a year. So what's made that difference?

**Jack Farley** (0:48)
Hello, and welcome to Other People's Money. I'm Max Wheatley, and I'm joined today by Sean McGould, CEO and CIO of The Lighthouse Group, an alternatives manager with approximately $19 billion in assets under management as we record today.
And before we get started, I'd like to do a quick disclaimer that the views expressed by Sean are his own. They are as of the state of the recording, and they are subject to change. The discussion is for informational purposes only, does not constitute investment advice, and nothing in this conversation is an offer to sell or a solicitation of an offer to buy any security. With that out of the way, Sean, thank you so much for joining me today.

**Sean McGould** (1:26)
Thanks, Max. I really appreciate being on.

**Jack Farley** (1:29)
All right. Well, alternatives manager, it's such a broad space these days. Can we narrow it down a little bit? What does Lighthouse specialize in?

**Sean McGould** (1:37)
Lighthouse specializes in hedge fund strategies. So about two-thirds of the risk that we take is in equities, around the globe, about another 25 percent is in more event-driven strategies, like merger arbitrage and SPACs and those sorts of things. And the final 15 percent is in macro-related strategies, but liquid, no real estate, private equity, venture capital. All right.

**Jack Farley** (2:09)
So my question would be, with all of those different strategies, what's growing? Where is the investor demand right now? Hedge funds for the past decade, people have been talking about the lack of demand, but really over the past few years, hedge fund demand has very much increased from institutional investors. Are you seeing that from your seat?

**Sean McGould** (2:30)
Definitely. There's more interest in hedge fund strategies now, certainly, than there was a couple of years ago. I think a few things have changed. If you looked at the landscape of alternative investments a couple of years ago, probably the top of the list was private credit. At that time, there have been some headlines around private credit. I think it will continue to be a viable asset class. Not everything is caught up in the software sector and private credit. I think there's a renewed interest in having some more hedged approaches in portfolios and having them liquid in nature.
I know one of the things we'll hit on next will also be just the advent of Asian investing and some of the interesting things that are going on in those markets.
But probably a lot easier to access those through liquid strategies than through less liquid strategies and either private credit, private equity within both Japan, South Korea, China.

**Jack Farley** (3:27)
Well, liquidity is two things. It's the liquidity of the underlying assets, but there's also the liquidity of the vehicles. We are seeing gating on hedge funds jump up. Is it not just the investments, but also asset lockups?

**Sean McGould** (3:42)
Well, yeah, and just to quantify that, most of we really haven't seen gated lockups on, I would say, hedge funds. There are terms within the hedge fund. There are some offerings within hedge funds that have longer liquidity to them. But I think the most recent lockups and gates have actually referred to private credit, where investors couldn't get their capital out. Those are private loans being made to companies, individuals, whatever it is. The markets that we trade in are generally all listed. Markets from an equity perspective, bond perspective, or their currencies, commodities that are traded on exchanges.
I think the one thing is that if people ask for liquidity and the markets were trading very poorly, the cost of that liquidity is quite high. It's probably the wrong time to redeem.
But if you go back to a time period like 2008, certainly saw that, where that occurred. So matching up redemption rights with liquidity and asset prices, all those things, some of those things are in the control of the investors, but more of the gating that's happened recently has been in private credit.

**Jack Farley** (4:52)
Yeah. Well, the hedge in hedge fund is also a key word to examine a little bit. There are many hedge funds out there that have market exposure that can fluctuate from leveraged long to leveraged short.