OI23: Why Capital Efficiency Is the Next Edge in Investing ft. Charlie McGarraugh

**Charlie McGarraugh** (0:01)
And so the difference between somebody who can live with, you know, a 10-point drawdown versus somebody who can live with a 20-point drawdown is not like 10% more. It's like way bigger than that, depending on your time horizon. There's always arbitrage alphas in the world, and people get, you know, spend a lot of time thinking about predicting returns on the basis of those things.
But the sizing is just such an important piece of the puzzle, and thinking more about that, I think, is just a place that we're spending a lot of time thinking about and working on.

**SPEAKER_2** (0:30)
Welcome to Top Traders Unplugged. In markets, success doesn't come from predicting what happens next. It comes from being prepared for what you can't predict.
In each episode, we go deep with some of the world's most thoughtful minds in investing, economics and beyond, to understand how they think, how they prepare and how they decide, and the experiences that shaped how they see the world. No noise, no short cuts, just real conversations to help you think better and invest with confidence.

**Moritz Seibert** (1:03)
Hello and welcome to another episode of the Open Interest Series on Top Traders Unplugged. This is episode number 23 and I'm your host, Moritz Seibert. I'm joined today by Charlie McGarraugh, the CEO of Altis Partners. Altis Partners was founded in 2000 as a trend-following CTA business and has since evolved into a macrophocus trading firm with a focus on combining factors such as trend, carry and reversion all into a single portfolio. Additionally, Altis functions as the sub-advisor to two US domiciled ETFs that are managed by Simplify and this is now by far the largest part of the business, at least in terms of AUM.
Charlie looks back on a long career at Goldman Sachs, including metals trading and then got involved in a sports betting business, which I personally find very interesting. We'll get into that a little bit later, I guess.
And that one got sold to blockchain.com. Following this, Charlie acquired Altis Partners. So Charlie, let me stop there because you can add much more detail and background and make it more interesting. Let me say welcome to Open Interest on Top Traders Unplugged and I hope we'll have a very interesting and cool conversation.

**Charlie McGarraugh** (2:09)
Awesome. Well, thanks, Moritz.

**Moritz Seibert** (2:11)
Excellent. Look, I mean, I gave a little bit of an intro.
You have a, my understanding is you have a long career at Goldman. You were a partner at Goldman Sachs in working in the US, working in London. You are from the US, but you moved over to London, then started trading metals. Give us a little bit of background on Charlie yourself and the sports betting piece and how you came to acquire Altis.

**Charlie McGarraugh** (2:38)
Sure. I'll try to keep it pretty brief because the markets and the products and the strategies are the interesting part. Me, I'm boring. Boring is good in asset management. At least that's what we hope. I joined Goldman Sachs right out of undergrad. I majored in math and econ did pretty well. I've worked on a number of different desks, including emerging markets and mortgage trading, and ultimately, the commodity business. I started in New York and one day they said, you're moving to London. And I thought that would be pretty fun and interesting adventure. And it was.
We traded mortgages throughout the post-crisis world where there was a lot of distress in Europe. And eventually, again, as happens in these big firms one day, it was sort of made clear to me that management wanted me to move to the metals desk. This is 2014, and I did. It took quite a while to adjust to a trading environment in listed futures where the product is relatively simple, but the market structure is extraordinarily complex. Very different than asset-backed securities and structural finance where it's pretty easy to understand who's buying and selling and stuff. It's a relatively specialized product, but the products themselves are complicated. So very, very different beast in the dynamic world of Liquid Macro and that took a little bit of learning. Now, I realized that this is now the mid-2010s, that the markets already had significantly electronified. Then if I was going to be good at this new thing, it wasn't enough to understand just valuation. I really had to have a better understanding of the dynamics of the market.
The old model where it was voice trading and a big sales force making phone calls was not enough really to understand, particularly in a market that had asymmetric information flows like physical commodities often do. At that time, China was dominating the base metal flow, and it was very difficult to get a sense as a westerner sitting in London, what was really going on in the ground there, driving base metals.