C (3:17)

That's right. If you're early in your career and looking for insight, inspiration and advice, listen to the Capital Ideas podcast.

B (3:23)

Hear from Capital Group professionals about leaning into the differences that make you unique, making decisions that last, and what it means to lead with purpose. Available wherever you listen. Published by Capital Client Group Inc. And now my conversation with Anthony Scaramucci. Anthony, thank you so much for joining. What we're going to dig into is the topic of hedge funds. I know that you are a huge voice on crypto. We're going to come back to that another episode. But I've got in front of me your book. It's a little book of hedge funds which I encourage everybody to read. It's got my sticky tabs in it because I've made notes and everything. And the reason that this caught my eye as a topic to dig into with you, Anthony, is there's a narrative at the moment which is AI is on a path to killing conventional forms of investing. And is it possible now for retail investors and other institutions to replicate the models of the most successful hedge funds using AI and basically extinguish the original hedge fund models?

A (4:21)

Yes, but then also no. Okay, so let me give you the yes first and then we'll talk a little bit about the no. So you can take elements of what people are doing and you can incorporate AI and you can use all the different analytics, technical analytics and so forth, and you can simulate a hedge fund return or hedge fund experience. And again, just to remind viewers and listeners, thank you for mentioning my book. One of the things you want to do in a hedge fund is you want to reduce. You want to create alpha, you want to reduce the risk associated with the rates of return that you're providing, such that you have a sort of a steady stream, lower volatility return, but something that's offering more consistency. And portfolio managers like using that in the context of an overall portfolio. So maybe they own some stocks, maybe they own some bonds, but they want to have some non correlated assets in the fund. Now that's typically what a hedge fund is. But as you and I both know, there are directional hedge funds or macro hedge funds. And there are in some cases just leverage long hedge funds. So when I go through the different categories, leverage long, I would say yes, you know, macroeconomic hedge funds, generally, yes. But I think, you know this about life and you know this about the fluidity of human beings. Things change very rapidly. And I would wonder if we have the sophistication in AI where the computer, the, the artificial intelligence could adapt as quickly as the human being. And so somebody like Steve Cohen or Izzy Englander and their staff, I would put them up against an right now and I would say, well, they're better. You know, there was a period of time when Watson couldn't beat Bobby Fischer. It couldn't beat Gary Kasparov, Watson being the AI from IBM. And then there came a time that no matter what a human being was doing, the AI was infinitely better than the chess master. And I would just say we're not there yet. Okay, so yes, there are certain things that it can do. And no, I would still put my money in places where I have my money, like places like Ball Singer or Steve Cohen or Dan Loeb or somebody like that. But just want to make one last point because I think this is an important one. If you remember, I have by and large, for a good part of my career run a fund of funds. And so a fund of funds, if you're not careful, is like a typewriter business. Okay, so hear me out. We, we, we were very popular. 050607 and then people got, got killed in the financial crisis, became exponentially popular. And then people started figuring out a way to directly invest where there were ETFs created that were generating some types of alpha or replication returns like the ones you're discussing. And we became slightly less popular. And then people said, okay, I can go to a retail wirehouse, put $50,000 in a retail warehouse. They'll, they'll create an omnibus account for all their investors and they'll give Steve Cohen 50 million. It was a way to avoid the million minimum that he had. And so retail investors were getting access directly into hedge funds. And so you'd say to yourself, okay, well that now that fund of funds is obsolete. But what I did with that funds of fund is I flipped it and turned a large component of it into digital assets. And that created a very high return profile. I feathered it with some hedge funds. And I'm not sure AI is going to have the facility or the 36, 37 years of market experience that me or someone like my partner Brett Messing has to see that trend in 2020. Now maybe. You know, I bet, I bet you if we're having this conversation five years from now, we'd be saying, okay, yep, AI has replicated a lot of stuff. It's knocked a lot of people out of business, won't knock everybody out of business, just the way the nature of things. But I don't think it's there yet.

B (8:29)

Let's talk about ETFs and then take that as a proxy for the market or the diversified baskets more broadly. And again, coming, coming to it with the view of a retail investor. You take a look at the ability of the retail investor now to go and buy into ETFs or to just go buy baskets at very low costs. And then I look at the performance of some of these hedge funds and it's interesting. Bloomberg just put out a very interesting chart that shows the performance of some of the biggest hedge funds so far through the end of September in 2025. And other than call it the top 10 or so, most of the others underperformed the S P500. So when we look at that, how do you say to folks, hedge funds are still going to be worth their expensive fee structure?

A (9:13)

So it's such a great question. And again, I'm not an apologist for the hedge fund community because ultimately Buffett's right, for a large slug of your assets, you should just put it in the S&P 500 and sit on it and wait on it. And you should be able to do very well over long periods of time. So I'm not an apologist for the industry, but I guess what I would say is you've got to peel back the onion a little more. You got to say, okay, if that's a private equity return, it's giving me 10% and it's had very low correlation to the S P500, a lower beta than the S and P500. And so it's underperforming, but it's doing better than bonds in general and less than stocks. It's in a sweet spot where I may want to have that return even though the fees are being charged and it's a net of fee return. If I'm in a, if I'm in a hedge fund that has had historical absolute mid single digit, low double digit returns with very, very low Volatility. And again, it's not a Bernie Madoff strategy where it goes up into the right every day until the person's discovered and they go to jail for 80 years. So of course there's wins and loses in the strategy. It's a measured return. Right. As you know, there's a measured risk in our business. How many units of risk am I using to generate that return? What's my Sharpe or Sotino ratio? Not to bore your people, but these are just mathematical ratios that would tell a capital allocator if the return is worth the risk that they're taking. Or is it alpha? Is it better than the actual risk that they're taking? And so, so I would say I think there'll be room for the bigger players, always, because consultants go to big institutions and say, yeah, over this XYZ period of time, Steve Cohen did this or is England did that, and a result of which you should stay in those, those funds. But if you are making a statement to me, and we're both experienced people on Wall street and you're saying to me, are hedge funds worth it? And I would say to you, for the average person, maybe not. But for somebody that's got a reasonable amount of money, maybe so. You know, and what I mean by maybe so is units of risk. Large institutions thinking long term will want to be in those hedge funds. So, so, but listen, now I'm in the industry. I may be biased. I'm not, I'm not, I'm not trying to talk. My book. I think we've done a good job for investors. I think we've delivered reasonably to very high rates of return over time. I've got my money in the, in the products that we're offering to our clients. And I think people generally, I mean, look, we had a great year last year. I'm not allowed to talk about the performance publicly, but if you have 40% of your money in Bitcoin and it goes up 80%. Yeah. You know, trust me, you're doing pretty well. Right? So, so to me, we're. I guess what I would say is we're in a period of change. There'll be less hedge fund managers. You know, you referenced that book. I wrote that book 13 years ago. I predicted in that book that assets would go from $2 trillion at that time to 6 or 8 trillion. I got it wrong. They went from 2 trillion to 4 trillion. And so even if we just had market performance, and it would have been 7 trillion, but we didn't, because what ended up happening is people said, no, we don't want this. We'd rather have the S and P or we'd rather have something else. And we were also in an age of dramatic liquidity. What I couldn't predict in 2012 when I wrote the book was the quantitative easing would last a decade. Did not predict that. And so when you have zero interest rate policies, your longs are going to go up, probably more than you anticipated, but your shorts are going to go up because a rising tide of zero interest rate policy would lift both. So, you know, if you're outperforming on your longs and you're, but your shorts have gone up, you've taken yourself below the S&P 500. See what I mean? And so, and so. But that's, that's normalizing now. You know, we've, we've, you know, post Covid, you know, we've moved into a little bit more of a normal rate environment. We're off zero. There's some inflationary pressure in the system and it may create more of an opportunity for hedge fund managers, but I think the sentiment for hedge fund managers is over. And hear me out for one more second. I, I don't know. Lots of people in my industry think we're in the investment management business. I think we're in the fashion business.

B (14:04)

Interesting. We'll dig into that.

A (14:06)

Yeah, but, yeah, yeah, the skirts go up, the skirts go down. You know, when I started in the business, there was a biotech craze. Then we moved into semiconductors.

B (14:14)

Yeah.

A (14:14)

Then there was a, then there was a craze for the Internet and things like pets.com. then we migrated out of that into, you know, other types of assets. The cloud, the digital economy.

B (14:28)

Yeah.

A (14:29)

And then we went into digital assets like Coinbase and crypto picks and shovels. My point is we always have a new fashion brew.

B (14:37)

Markets Daily is sponsored by Public, the platform for those who take investing seriously. Public combines a wide range of asset classes with the tools you need to build and manage your wealth, whether it's with stocks, options, bonds or day.

C (14:49)

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B (15:02)

Touch point at an uncapped 1% match when you transfer your old investment portfolio over to Public. So get started at public.com/brewmarkets. That's public.com brewmarkets Full disclosures on public.com/brewmarkets when did making plans get this complicated?

A (15:24)

It's time to streamline with WhatsApp, the.

B (15:26)

Secure messaging app that brings the whole group together. Use polls to settle dinner plans, send event invites and pin messages so no one forgets mom 60th and never miss a meme or milestone. All protected with end to end encryption. It time for WhatsApp message privately with everyone. Learn more@WhatsApp.com There's a different kind of risk. It feels though, right this moment, Anthony, even different from the semiconductor boom, different from what we saw in 2007. And that's just the sheer level of concentration we're seeing in the equity markets right now. I think it was David Tepper I saw say in an interview recently that he looks at that and he looks at the valuations and says, I hate them in the markets because I don't see where else it goes right now other than a direction I don't like. When you look at, call it 30% plus of S P500 market cap sitting in the Mag 7, do you look at that and say, I just, I just don't know how you play in that kind of world, how you invest and diversify to try and find alpha.

A (16:27)

So, you know, it's difficult. Okay. And I'm going to give you another stat that I want you to think about. Okay. It's not just a Mag 7. Let's extend it a little. If you took the top, top 20 largest companies in the United States, they have a market cap now equal to US GDP, right. And again, we're talking about Nvidia 4.5, 4.6 trillion.

B (16:51)

Yeah.

A (16:52)

And yet if you looked at the top 20, he said, okay, what are the net profits on the top 20 companies? Well, it's approximately 200 billion. So you got a 28 plus trillion dollar market capitalization with 200 billion billion worth of profits. And so that is a glaring red light flashing on the economic and the markets dashboard. Somebody that's been in this industry for 37 years, I'm looking at that light, I'm saying, okay, these prices are potentially unsustainably high. We have a mutual friend named Andrew Rohr Sorkin. He's writing a book or just finished writing a book called 1929. I have an advanced copy of it. I'm going to bring him on my author's podcast. I'm about a quarter of the way through the book. And the legendary finance professor by the name of Irving Fisher, three Weeks before the crash tells people publicly that stocks have reached a permanently high plateau. And that was the level of confidence they had. And lo and behold there was a 90% decline three weeks later on 29th October 1929. And so I say to you that could there be a big correction and so forth. I believe that there would be. And then the question is who's going to be the most skilled to handle that correction? Well, take a look at Tepper, take a look at Steve Cohen and Izzy Englander. During the global financial crisis are large scale corrections. They had a tendency to preserve capital and so that, that you could be in a corrective moment and then all of a sudden hedge funds all of a sudden become more in vogue because hedge fund managers do a better job of conserving capital than long only ETFs or directional managers.

B (18:47)

It's interesting because you're honing in, Anthony, on really seasoned, very, very well known hedge fund managers who've been around doing this for a very long time and doing so very successfully. Multiple cycles, multiple decades, multiple cycles. There's a sense of they've seen it all, right. And then you've got the Ray Dalios as well who's now being very vocal big asset managers. On the other end of the spectrum though, let's talk about who's been successful raising money to become the next generation of asset manager or hedge fund manager. Do you remember seeing this article about a 23 year old ex open AI engineer who raised one and a half billion dollar hedge fund, I think it was last year with no investing experience whatsoever and he went out and has said here's what's my skill going to. My skill is going to be. I'm going to be better positioned than your traditional money managers at spotting the next AI Tre. When I read that I thought about Cathy Wood who for Ark for her firm famously says she won't hire finance people, she hires scientists. How do you think about that? How do you think about folks who are not at all what you're describing, which is the legendary seasoned financial people, but the actual scientists looking at the underlying products of these companies.

A (19:59)

So it's such a great question. So I love people like that. I want to have people in the industry or in the mix at skybridge that are differentiated. I don't need them to be pure finance and former Goldman Sachs brokers turned hedge fund managers. I don't need that. I would say that the younger people in skybridge actually directly influenced our decision making in morphing skybridge into More of a digital economy, digital asset, hedge fund manager. If I was going to give my old fogey myself some credit, is that I didn't remain generationally anchored to the conventional thinking in my generation because, you know, guys that I really respect. Jamie Dimon Bitcoin's a pet. Pet rock. Decentralized. You know, Larry Fink hated bitcoin before he loved it. You know, it's that sort of thing. And so what you're describing is. And I know, and it makes sense to me why there would be money available for this. Okay, because a billion and a half dollars is a lot of money, certainly, but it's also not a lot of money in the grand scheme of $57 trillion of assets and somebody that has that skill set. I could see a lot of people wanting to test that skill set, seeding that business, particularly if the kid demonstrated his adroitness in dealing with and handling adapting artificial intelligence models to trading. So. So I'm all about that. I'm open minded to all of that. I have a big summer program at Skybridge. I hired a very eclectic swath of people because I feel like I don't want to be that generational snob. We have generational snobbery, by the way, on both sides. We have Mondame in New York. He's a generation younger than Andrew Cuomo. He thinks he knows everything. And then you have Andrew Cuomo that thinks that Madame knows nothing. You know, and we do that in Wall street too. You know, I watch younger people on Wall street come up with these really cool ideas, really smart concepts. And I watch older people poo poo them, you know, tap them on the head and say sonny boy or sonny girl. You know, you're, you're just getting started. You don't know what you're talking about. So, so I want to always be open to that and always neurally plastic. But yeah, I could see how he raised a billion and a half dollars. And I could also see how people like that could change the narrative of the hedge fund industry. Why couldn't somebody that raised the billionaire dollars that you're describing has great AI modeling, great artificially intelligent computers that can help assess markets, is doing well in those markets that grow into $100 billion fund. There's no reason why that couldn't happen. So for me, I'm open to the stuff. Yes, something though, if you don't mind, I want to go back to it because I think it's a really relevant and very intellectually sharp question. You're basically asking, have the hedge funds aged out? Correct. That's what I'm asking, basically asking that. And the short answer to me is, no, they haven't. Will the hedge fund managers age out? And I think the answer to that question is, yes, they will. But the. Then the secondary question of that is when? And so I don't know. But is it five years from now? I think it's five to five years plus from now. I don't think it's in the next one to five years. That's just me. And, you know, when I was at Singularity University, 2014, Ray Kurzweil was talking about Singularity is Near. He wrote a new book now called Singularity Is Nearer. Yeah, he was talking about robotic technology that was going to drive cars, and by 2025, we were going to be in a driverless car world with robo taxis and all this other stuff. Are we there? Sort of, but we're not 100% there.

B (23:57)

I want to come back to this point about neuroplasticity. It's such a, first of all, great word. Thank you. I always like it when the vocabulary gets boosted. One way in which I think, as an observer, you stay very curious and neuroplastic plastic is you're a voracious reader. You host multiple podcasts. You've got one called Open Book, and I'm assuming is that the one that you're going to be interviewing Andrew Russalkin on?

A (24:20)

Yeah, yeah, I interview. I interview authors on that book. And so, you know, I have probably do two of those a week. I keep them to 30 minutes. But I tell people, you know, I'm a big lover of authors. I mean, I love books, but I love an idea of an author working months or years on a project. It'll take me 10 to $35 to buy his work, 10 hours to read it, and I'll get 10 years of experience from an author. You know, Jim Mattis, our former Defense secretary, said it better than me, so I'll share what he said. You're not equipped to go through life without reading, meaning you need other people's life experience. You need their words, you need their insights. You need the insights from the ancients and maybe even the Eastern philosophers as much as you need contemporary insights. And if you don't read, you're overly limiting your life experience. So in a. In a world that's very focused on social media, I try to stimulate the idea of reading by interviewing the authors because the authors are obviously passionate about their work, and hopefully it'll drive people towards their books.

B (25:25)

How do you find time? You're a dad, you're a fund manager, you're a public person, you're a host. Where does the reading slot in?

A (25:33)

Well, I'm a big, I'm a big believer in audible and audiobooks. I'm a big believer that if I'm going to go out for a run, that's 45 minutes worth of listening, which is probably the equivalent of a half hour of reading. If I'm going to be in the gym and it's something I'm doing, maybe not weightlifting or something like that, I'll probably be listening to something or taking in a podcast or doing something like that. And I'm a big traveler. You know this because I travel all over the world for my business. And so this past month, I probably been, I mean, I'm almost embarrassed to admit this to you, probably been on a plane 35 or 40 hours, almost a full work week on a plane. And I'm not a big, you know, user of plane entertainment. I will listen to a book or read a book or immerse myself in something that I'm trying to learn about. And so it's just the intellectual curiosity I have different from other people. I'm not a big Instagram scroller and I'm not a big Twitter scroller, although I use Twitter because I think it's an interesting device to aggregate news. So, I mean, that's how I do it. And, and, and by the way, I'll just tell you this. 10 pages a day in a year's time is 3,650 pages, okay? That's, that's a hundred books, okay? So if you do 20 pages a day, which I do, that's 200 books, okay? And so it adds up. And by the way, if I don't like a book and I, I, I'm done. I don't waste my time. I'm not a, I'm not a plate finisher.

B (27:10)

Well, a final thought for you is, with respect to podcasting, Anthony, we're about week seven, week eight into this daily podcast. So every single day we drop at 4:30, about 25ish minutes long. Give me some advice. What have you learned from launching podcasts that we should, we should be taking into account?

A (27:30)

Well, I mean, you don't, you don't need the advice from me because you're already skilled and you've got great instincts. But I'll tell you how I think about the podcast business. You know, if I'm, if I'M on the radio and you're driving in the car. Your brain is making an assumption that ten, one hundred, a hundred thousand, thirty thousand, fifty thousand people are listening alongside of you. It's a different impact on your brain. If you turn on the tube and I see Barry on CNN or cnbc, there's an assumption she's speaking to an audience of several hundred thousand. But if I'm on a podcast, yeah. With Anne Barry, I've now in a parasocial situation because it's an intimate thing. The podcast listener has earbuds in. They're walking in the woods, they're walking on their daily walk, and there's three people in the room. It's them, the two podcast hosts, or the podcast host and her guest and the third person. And so you do this already. But I would say to anybody that was starting a podcast, dial into the intimacy of that. Dial into and be vulnerable and be real and tell people, you know, people know when you're talking with Spin, I could have spent 30 minutes here spinning you on all the positivities of the hedge fund space. I told you what I like about the hedge fund space. I, I told you what I don't like about the hedge fund space. I explained that your preposition, your theory is going to be true. Okay? And that's negative on the industry, frankly. But, but, but I think when people hang up and they, they end the podcast like, all right, well, at least that guy's a straight shooter. He's telling me what he really thinks. And Anne Barry's either getting it out of him or she's also sharing what she really thinks. So it's a one on one conversation that a third party gets to be a voyeur in. And they're dialed right. That's parasocial. That's not using it as a news medium across a very large spectrum. So think about it that way. And your pocket, you know, look, you got the mojo. You know, you have, you got, you have what my kids call the Riz.

B (29:44)

You got the Riz.

A (29:45)

So, you know, if you have the Riz, you got the Riz. And you know you have the Riz.

B (29:48)

You know what, maybe I'll wear a T shirt that says I got the Riz once in a while. We'll see. We'll put it under the blazer. Anthony's guy.

A (29:54)

You got that British, you got that British, you know, low key, non braggadocio nature about you. But you know, but you know you have the risk, and I know you have the risk. And so use it. Use the Riz girl. That would be my advice.

B (30:05)

It's the baking soda. Is the baking soda Andy's Garamucci, thank you so much. Come back, we'll look out for your next book and we'll chat crypto. Thank you.

A (30:13)

It's great to be out with you.

B (30:15)

Well, big thanks to the Mooch for joining us. It's 4pm on the east Coast. There's the closing bell, the markets wrapping up. So, John, did anything in the markets catch your attention this week?

C (30:26)

Yes, word that the US Government has acquired a temperance head stake and trilogy medals to support the development of Alaska's Ambler mining district, which is rich in copper and cobalt. And add this to last week's announcement that the US Government is restructuring its deal with Lithium Americas to take a 5% stake in the company. And a lithium mine is developing in Nevada. And of course, the deal in July for the Department of Defense to become the largest shareholder of rare earth miner MP Materials. Then just yesterday, shares of US Rare earth miners surged across the board after China tightened restrictions on critical mining exports. Exports fueling market speculation that the White House will continue to invest in building out a domestic supply chain.

B (31:04)

A lot going on in the minerals space. Something we're going to keep watching. A lot more speculation that there's more activity to come. Well, Monday is a holiday for many of you. While the equity markets will be open, the bond market will be closed, a lot of schools are going to be off on Monday as well. So for those of you getting a long weekend, enjoy it. But no matter what you're doing, holiday, working, trading or not, tune in on Monday because we're going to be back with a very special episode. That's it for today's Brew Markets Daily.

C (31:31)

Brew Markets Daily is hosted by Amberry and produced by John Croteau, Tarkab Delatif and Emily Millihan. Our technical director is Uchena Waugh. Guest booking by A.B. silver. The President of Morning Brew Inc. Is Devin Emery.

B (31:42)

Wake up every morning with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. See you back here next week. Have a great weekend.

A (31:51)

Sam.