Why Asset Allocators Love Multi-Strategy Hedge Funds

Joe Weisenthal (0:00)

Hello, Odd Lots listeners, I'm Joe Weisenthal.

Tracy Alloway (0:02)

And I'm Tracy Alloway.

Joe Weisenthal (0:03)

Tracy, we're doing another live show and it's right here in New York City.

Tracy Alloway (0:07)

Yeah, this one should be our biggest yet. And we're gonna have a bunch of Odd Lots favorites and do something maybe a little different to some of our previous live podcast recordings.

Joe Weisenthal (0:17)

When the guests are revealed, the show is gonna sell out right away. So you should really just go get your ticket right now. It's June 26th, it's at Racket NYC, and you can find a ticket link at bloomberg.com/oddlots or bloombergevents.com/oddlotslivenyc.

Tracy Alloway (0:34)

We hope to see you there.

Ronan Cosgrave (0:38)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:53)

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

Joe Weisenthal (0:57)

And I'm Joe Weisenthal.

Tracy Alloway (0:59)

Joe, did you at some point last month when markets were being very, very dramatic, did you maybe hear that a pod was blowing up? Maybe, just maybe?

Joe Weisenthal (1:11)

I probably saw some tweets, probably tongue in cheek. I may have sent some DMs to people saying, jokingly, have you heard of any pods blowing up? But no, it's become such a meme any time the market moves half a percent. I imagine some pods did blow up, but it is a funny joke. Good intro.

Tracy Alloway (1:29)

It's definitely become a thing, but I think it highlights something very real, which is there is this mystique around pod shops, the multi-strategy hedge funds. And whenever something weird is happening in markets now, they tend to get blamed or people start joking about them. And also part of the mystique is there's just a lot of interest in why they seem to be so hot right now, blowing up in a very different way. And what exactly is the attraction for big allocators of capital? Because I always think it's not like big investors can't create their own diversified portfolios or invest in a fund of funds or traditional two and 20 or whatever. So what exactly is it about the pod shops that makes them so attractive?

Joe Weisenthal (2:15)

We've done a lot of episodes on the multi-strands at this point, the pod shops of various flavors. There are still a lot of things I don't understand. First of all, my understanding is that they sort of continue to prove their metal. I mean, it seems like they didn't lose a lot of money in April during some of that volatility. So they have this promise, uncorrelated returns. We'll get into how they deliver that. But so far, it seems like they continue to more or less do what's advertised. I have a lot of questions about how and what is the actual source of alpha and how long can this go on and whether there are a lot of copycats and whether that will cause alpha decay and all this stuff.

Tracy Alloway (2:58)

I have questions about comp, the most important thing.

Joe Weisenthal (3:01)

Well, this is really important. And actually, we did that episode with the founder of Freestone Grove, Dan Morello. A lot of the conversation was about comp. And I'm interested in comp because I'm interested in the topic of making a lot of money. But also, I get the impression that comp and incentive alignment more broadly is actually one of the key problems that people are trying to solve for all the time.

Tracy Alloway (3:27)

I think that's right. Okay, so I am very pleased to say we do in fact have the perfect guest. We're gonna be speaking with Ronan Cosgrave. He is a partner at Albourne Partners. So Ronan, thank you so much for coming on Odd Lots.

Ronan Cosgrave (3:39)

Thank you very much. I'm really honored to be here.

Tracy Alloway (3:41)

First question, what exactly is Albourne Partners? Because it's not a pod shop itself.

Ronan Cosgrave (3:47)

No, no, so I co-lead multi-strategy hedge fund coverage at Albourne. We're an advisory only independently owned consultant. We help institutional investors invest in hedge funds, private equity, real estate, all across the alternative assets spectrum. We have about 350 clients worldwide, and we advise on greater than $750 billion in assets.

Joe Weisenthal (4:08)

Okay, give us a little bit more of your background. You're the perfect guest to talk about multi-strategy hedge funds and why allocators like allocating to them. Talk to us about how you built up your familiarity with the space and how you've built up your understanding of their inner mechanics.

Ronan Cosgrave (4:26)

That's a long answer. I've been over 20 years in the hedge fund industry.