How the Rise of 'Pod Shops' Is Reshaping the Way Markets Trade

Tracy Alloway (0:02)

Bloomberg Audio Studios. Podcasts, radio, news.

Joe Weisenthal (0:17)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:22)

And I'm Tracy Alloway.

Joe Weisenthal (0:23)

Tracy, have you noticed, there have been some crazy moves in the market lately.

Tracy Alloway (0:26)

I know, it's kind of funny.

If you look at, I guess, traditional measures of overall volatility in the market, so obviously things like the VIX, it was relatively low up until recently. And that was despite all these big surges in a bunch of stocks. So the mega cap tech companies kind of stand out there. So I guess overall benchmark moves were kind of low, but if you look within that, if you look at specific single stock performance, things like dispersion, it's been kind of crazy. Sort of under the surface, there's been a lot going on.

Joe Weisenthal (1:01)

We are recording this February 15th, 2024 Shares of Supermicro, I don't know what they do. I know they do something with AI. They're currently at 951, up $69 a share on the day.

On January 18th, they were at 311 So it's a triple in a month. There was Arm Holdings recently, which is like now in 150 billion. I mean, these are like serious high market cap companies.

I know they're cheap.

Tracy Alloway (1:29)

Don't you call these up crashes?

Joe Weisenthal (1:31)

Up crashes, that's the word that I use. So it's something like, here's just a company that's been around for a while, mature, people understand it.

It was a $65 billion company a couple of weeks ago. It's currently $128 billion company. Just these big, fat, chunky moves in both directions that we're seeing.

Tracy Alloway (1:49)

Yeah, and on the one hand, obviously you can ascribe it all to investors are getting really excited about things like AI. And again, a lot of the movement we've seen happen in tech stocks, but on the other hand, it feels like there might be something else going on here. And every once in a while, I hear people talking about multi-strategy funds and the impact that those might be having on these overall market moves.

Joe Weisenthal (2:15)

Totally. Like these sort of moves that just keep going in one direction over and over again.

Speaking of multi-strategy hedge funds, which we're gonna get into and understand how they work, and maybe if they are sort of like changing the complexion of how stocks trade these days, I think there've been a lot of launches of them. So we know that some of them have like done really well. And of course we've regaled with the incredible returns of Citadel. But I think we're starting to see a lot of people who like were at those shops, launched their own multi-strategy shops. So there was a good article too on Bloomberg just this week talking about like, not only are they proliferating, but for years they talked about how the two and 20 model was fading. Like you and I have probably heard that our whole career.

It's going away because they're making, they're taking in more than that. And I think they're like keeping like half the profits that they make. So like 20% is sort of old hat. Like these are huge money making machines now.

Tracy Alloway (3:09)

Is this, is this pod lots? I think it's pod lots.

Joe Weisenthal (3:12)

This is the original pod lots.

Tracy Alloway (3:14)

So there's only three things I really know about multi-strategy shops, which is like one, they're very hot right now. And as you say, we have seen a lot of launches recently. Two, I think they trade a lot. Like just in terms of absolute volume, I think they're very active and becoming increasingly active in a bigger portion of the market.

And then three, I hear a lot of talk about measuring performance scientifically and like the things they do differently to maybe a traditional long short fund. But I don't actually know what it means in detail. And then also, as you were saying, I don't actually understand completely the market impact. I think there are a lot of different theories at the moment of how they might be impacting the market. So I'm very excited about this conversation.

Joe Weisenthal (4:00)

Yeah, tons of questions on a big and growing topic that we should talk about more. So I'm excited.

We have the perfect guest. We're going to be speaking with Krishna Kumar. He is the founder of Goose Hollow Capital. He previously ran Pod Capital at the Multistrat Hedge Fund, MKP. He was also previously at Omega.

And he is going to talk about how these places work and the sort of impact they have on how stocks trade. So Krishna, thank you so much for coming on Odd Lots.