Episode 47: Pete Muller - Founder of PDT Partners

**Amir Fischer** (0:00)
This week on Generating Alpha, I sat down with Pete Muller, founder and CEO of PDT Partners, one of the most successful quantitative hedge funds in history. Pete grew up in Wayne, New Jersey as a son of immigrant parents. After graduating from Princeton with honors in mathematics, he moved to California to play music for rhythmic gymnast. He eventually found his way to Barra doing quantitative work, and then in 1992, convinced Morgan Stanley to let him start a proprietary trading desk called Process Driven Trading. For nearly two decades, PDT averaged 20% annual returns and was Morgan Stanley's most profitable group. After spinning out in 2012, the firm has continued that track record. The flagship fund has never had a down year since 1993 But in 1999, despite extraordinary success, Pete was miserable. His mind was so overloaded with formulas, he couldn't play music anymore. You took a seven-year sabbatical, trekking in Bhutan and busking in New York City subways.
Today, he spends two-thirds of his time in Santa Barbara, has released seven studio albums, creates crossword puzzles for The New York Times, and has made the final table at the World Series of Poker. His firm charges $3.50 and has a 3.5 percent turnover rate. In our conversation, we talked about learning quant finance in the 1980s, the audacious pitch that created PDT, the 2007 quant crisis and institutional constraints, burnout and rebirth, how music and mathematics feed each other, building for quality over scale, and designing a life that doesn't require choosing between the things that matter most. If you enjoy this episode, please follow the podcast and rate it five stars on Spotify, subscribe on YouTube, and share it to anyone who you think might find it valuable. This is an incredible episode and I really enjoyed recording with Pete, and I hope you guys enjoy listening. Thank you. Thanks for joining me, Pete. I really appreciate it.

**Pete Muller** (1:53)
Amir, thanks for having me.

**Amir Fischer** (1:55)
Well, I want to start where I always do, the beginning. You grew up in Wayne, New Jersey, immigrant parents. If I'm correct, you had an Austrian father who was an engineer, Brazilian mother who was a psychiatrist. Tell me about your environment growing up and in what ways do you think it shaped you?

**Pete Muller** (2:11)
Sure. Although I would say I haven't grown up yet, I was raised in New Jersey. My mom was a small town doctor in Brazil. She was the only town doctor before coming to the States and switching to psychiatry. Yeah, I was my head a lot as a kid. I was drawn to both math and puzzles and games and music. I was outdoors a lot, but definitely in my head a lot.
Yeah, I had no interest in finance or markets.

**Amir Fischer** (2:46)
You eventually go on to Princeton studying math, but if I'm correct, also playing in a jazz band.
After graduating, you moved to California and play music for rhythmic gymnasts instead of taking a corporate job. I'm not even sure what rhythmic gymnasts mean. Tell me about why you made that decision your time in college. Kind of, yeah.

**Pete Muller** (3:09)
Sure, so I'm at Princeton. I'm in an eating club and I have a friend who is trying out for the Olympics team, the Olympics. And back then, you said, rhythmic gymnastics, the hoop ball ribbons, you know, it's a branch of gymnastics, but they have Olympic medals. And there were two women that made the UST. And she asked me to compose a piece for her. She ended up loving it. She wanted me to accompany her for Olympic tryouts. And I went and did that in Atlanta, played at the Olympic Sports Festival. She came fourth if she had come first, which was a long shot. I would have been the Olympic pianist. But I met a coach in California that said, if you're ever in California, come play music for my team. And I had a job lined up at a German computer firm in New York City. I had worked for them for a couple of summers. And I just didn't want to go do a nine to five job. Just go to an office. And I thought, let's go to California and see how this plays out. And I went there. And I realized that it's very tough making a living as a rehearsal pianist for a rhythmic gymnastics team. As much as it was fun and I loved California. So I went looking for a job. And that's where I found a company called Barra, which did financial consulting, started by a Zen Buddhist guy named Bar Rosenberg. A wonderful human and turns out finances all math and modeling. And it just suited me. And I found I had a couple of really great mentors. A fellow named Richard Bernold and a guy named Arjun Devachah. Richard was a prophet at Berklee. And Arjun ended up managing tons of money at GMO. And they took a liking to me and taught me the business. And I got really interested. So I started doing talks and writing papers. So that's how I got into it.