From AQR Quant to Founder & CIO with Brian Hurst

Summary

Masters in Business Podcast Summary: From AQR Quant to Founder & CIO with Brian Hurst

Episode Title: From AQR Quant to Founder & CIO with Brian Hurst
Host: Sonali Basak
Guest: Brian Hurst, Founder, CEO, and CIO of Clear Alpha
Release Date: January 10, 2025

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1. Introduction and Career Beginnings

The podcast opens with Sonali Basak introducing Brian Hurst, highlighting his extensive background in the hedge fund industry. Brian discusses his academic roots at the Wharton School, University of Pennsylvania, where he earned a Bachelor's in Economics. Surprisingly, Brian reveals that quantitative finance wasn't his initial career plan. Influenced by his father, an accountant and CFO of a commercial real estate company, Brian was drawn to corporate finance over real estate, leading him to Wharton ([02:42] - [03:03]).

2. Early Career at DLJ and Transition to Goldman Sachs

Post-graduation, Brian began his career at Donaldson, Lufkin & Jenrette (DLJ) in the early '90s. During his tenure, he spearheaded a project to automate investment analysis tasks, inspired by early tools like Microsoft Excel and FactSet ([03:59] - [04:39]). This initiative not only showcased his technical prowess but also laid the foundation for his transition to Goldman Sachs.

3. Building AQR Capital with Cliff Asness

Cliff Asness, the founder of AQR Capital, recruited Brian to join the newly formed Quantitative Research Group at Goldman Sachs. Brian recounts the challenging economic climate of 1994, marked by significant rate hikes and market instability ([05:31] - [07:14]). Under Cliff's leadership, Brian and his team developed quantitative models focused on generating alpha through market-neutral strategies across various asset classes. Their success in producing consistent returns led to the establishment of AQR as an independent hedge fund in 1998 ([07:14] - [10:49]).

Notable Quote:
"Cliff's extremely principled, very ethical, and it's a very fortunate thing to be able to be in business with someone like that where you can be successful at business, but do it in a very ethical, principled way."
— Brian Hurst [55:42]

4. Transitioning to Clear Alpha: Challenges and Freedoms

Leaving Goldman Sachs to start Clear Alpha marked a significant shift for Brian. He highlights the trade-offs between the vast resources at Goldman and the focused mission of an independent hedge fund. Starting Clear Alpha required managing limited resources, which fostered a laser focus on profitability and operational efficiency. Brian shares anecdotes about advocating for better technology within Goldman Sachs and the newfound flexibility at Clear Alpha ([10:49] - [13:15]).

5. Hedge Fund Industry Insights: Evolution of Alpha

Brian delves into his white paper, "The Evolution of Alpha," outlining the transformation of the hedge fund industry from single-strategy funds to multi-manager, multi-strategy approaches. He explains how each evolution addressed challenges like inconsistency and capital inefficiency inherent in previous models ([17:50] - [20:25]).

Notable Quote:
"Multi strategy funds gave you the benefit of many different strategies and styles, yet put into the same vehicle, all these positions held in the same vehicle to get much more cash efficiency, capital efficiency, higher return on capital, plus the consistency."
— Brian Hurst [24:15]

6. Embracing Multi-Strategy and Multi-Manager Approaches

Brian emphasizes the importance of non-correlated strategies within multi-strategy funds to mitigate risks associated with crowded trades. He compares these funds to a casino, where diverse games ensure that losses in one area are offset by gains in another. This diversification is fundamental to achieving consistent alpha generation ([25:24] - [30:25]).

Notable Quote:
"There's a couple things I'll say about that. So one thing just from a personal perspective. My wife and I, we have five children together and that's a lot to deal with."
— Brian Hurst [13:15]

7. Navigating Crowded Trades and Identifying Niche Alpha

Addressing the risks of crowded trades, Brian discusses strategies to identify and invest in less common, niche alpha opportunities. He introduces the concept of "niche alpha," which involves implementing well-known strategies in unique ways to avoid common pitfalls and reduce susceptibility to market-wide downturns ([32:21] - [44:36]).

Notable Quote:
"Alpha is either about being smarter or working harder. The being smarter can work in the short term, but eventually that does get armed away. The working harder to me is the thing that actually stays."
— Brian Hurst [46:23]

8. Cost Efficiency and the Future of Hedge Fund Fees

Brian critiques the traditional hedge fund fee structure, highlighting how multi-manager, multi-strategy funds offer greater cost efficiency compared to fund-of-funds. He explains that by consolidating strategies within a single vehicle, these funds can reduce overlapping fees and enhance overall returns to investors. Brian foresees a continued decline in fees for high-capacity, well-known strategies, while unique alpha strategies may see rising costs due to increased complexity ([47:49] - [50:17]).

Notable Quote:
"For every dollar of P and L being generated by these hedge fund strategies, at the end of the day the institutional investor took home about 37 cents."
— Brian Hurst [33:09]

9. Behavioral Challenges in Investing

Brian addresses the "behavior gap," the disparity between the returns reported by funds and the actual returns investors receive. He attributes significant losses to behavioral issues, such as panic selling during downturns, which are exacerbated in alternative investments. Clear Alpha's multi-strategy approach aims to mitigate these behavioral pitfalls by offering more consistent performance, encouraging longer-term investment horizons ([36:00] - [39:52]).

Notable Quote:
"Investor education, really understanding what they're investing is, is a critical component to being a successful investor."
— Brian Hurst [39:52]

10. Cultivating an Idea Meritocracy and Company Culture

At Clear Alpha, Brian fosters an "idea meritocracy," ensuring that all ideas are openly shared and evaluated based on their merit. This culture encourages collaboration, transparency, and continuous improvement, allowing the firm to adapt and innovate effectively. Brian underscores the importance of leadership in creating a safe environment for idea exchange ([39:52] - [42:09]).

Notable Quote:
"The only way for people to feel safe about that is that they need to see me as the leader and my other partners as the leaders to be willing to take in feedback."
— Brian Hurst [40:04]

11. Portable Alpha and Future Investment Strategies

Discussing innovative investment concepts, Brian introduces "Portable Alpha," which involves combining a traditional beta exposure (e.g., S&P 500) with an alpha stream from alternative strategies. This approach allows investors to enhance returns without the constraints of traditional active management. He likens Portable Alpha to "return stacking," a concept popularized by Corey Hofstein ([50:39] - [51:47]).

Notable Quote:
"Portable Alpha gets rid of all of those constraints. What you typically see is Portable Alpha programs are much better at and consistently beating traditional active programs."
— Brian Hurst [51:47]

12. Personal Insights, Philanthropy, and Advice

Brian shares his personal commitment to philanthropy through his involvement with the Yale New Haven Children's Hospital Council, motivated by his family's experiences with severe peanut allergies. He discusses the importance of data-driven research in combating health issues ([52:06] - [53:10]).

When asked for advice, Brian emphasizes the value of listening over speaking, highlighting the Dunning-Kruger effect's impact on personal and professional growth. He advocates for continuous learning and humility as keys to success in quantitative and investment finance ([57:25] - [59:16]).

Notable Quote:
"Don't presume how much you know what people are thinking. So ask questions and listen."
— Brian Hurst [58:55]

13. Final Thoughts and Recommendations

Brian recommends staying curious and open-minded, continuously seeking knowledge from diverse sources. He reflects on the importance of learning from mistakes and leveraging intelligence augmentation over artificial intelligence to enhance performance without the existential risks associated with AI ([55:35] - [55:54]).

Notable Quote:
"If you improve by a few percent a year, that really compounds over time."
— Brian Hurst [54:08]

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Conclusion

Brian Hurst's journey from a Wharton graduate to the Founder and CIO of Clear Alpha offers deep insights into the hedge fund industry's evolution, the importance of multifaceted strategies, and the critical role of behavioral finance. His emphasis on idea meritocracy, niche alpha, and cost efficiency positions Clear Alpha as a forward-thinking player in the competitive landscape of investment management.

For those interested in the intricacies of quantitative finance, hedge fund management, and the future of alpha generation, Brian Hurst's perspectives provide valuable guidance and inspiration.

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Notable Quotes Summary:

1. "Cliff's extremely principled, very ethical..." — Brian Hurst [55:42]
2. "There are thousands of different types of ways to make money in the markets..." — Brian Hurst [31:49]
3. "Alpha is either about being smarter or working harder..." — Brian Hurst [46:23]
4. "Investor education, really understanding what they're investing is, is a critical component..." — Brian Hurst [39:52]
5. "Don't presume how much you know what people are thinking..." — Brian Hurst [58:55]

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This summary is based on the transcript provided and aims to capture all key discussions and insights from the episode.

Transcript

[Sonali Basak]

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[Brian Hurst]

Bloomberg Audio Studios Podcasts Radio News this is Masters in Business with Barry Ritholtz on Bloomberg Radio.

[Sonali Basak]

This week on the podcast, yet another extra special guest. Brian Hurst is founder, CEO and CIO of Clear Alpha. They are a multi manager, multi strategy hedge fund that has put up some pretty impressive numbers. His background is really fascinating. Cliff Asness plucked him out of the ether to be one of his first hires at the Quantitative Research Group at Goldman Sachs. He was the first non founding partner at aqr, the hedge fund that Asness set up and Brian worked there for a couple of decades before launching Clear Alpha. He has a fascinating perspective on where alpha comes from as well as the entire hedge fund industry. Few people have seen it from the unique perspective he has and I think he understands the challenges of creating alpha where it comes from and managing the risk and looking for ways to develop non correlated alpha that is both sustainable and manageable from a behavioral perspective. I thought this conversation was absolutely fascinating and I think you will also. With no further ado, my interview with Clear Alpha's Brian Hurst.

[Brian Hurst]

Thank you. Very appreciate it.

[Sonali Basak]

Good to have you back here. Last time you were on a panel we were talking about the rise of some emerging managers, including yourself. But let's go back to the beginning of your career. Wharton School at the University of Pennsylvania. You graduate with a Bachelor's in Economics. Was quantitative finance always the career plan?

[Brian Hurst]

That's a great question. I think when I went to school I didn't even know quantitative finance was a thing and frankly at that point in time it really wasn't much of a thing. I was taken by my dad. He was an accountant and CFO of a commercial real estate company. He would take me to the office and I Was really fascinated by business. I really wanted to get into that. I was into computers. I really learned how to teach myself how to program and things like that. But I wanted to get into business. And I said, dad, I want to get into real estate. And my dad gave me some really good advice. He said, ryan, if you think about finance as an org chart, real estate is like one of the divisions. And if you start in real estate, it's hard to move up and go to other divisions and try other things out. You should really learn corporate finance. And you can always switch to real estate if you wanted to. And corporate finance is kind of the top of the umbrella or the org chart. And I said, okay, well, what's corporate finance? And where do I go to learn that? He's like, well, you should go to Wharton. And then I said, well, what's Wharton? That's how it started.

[Sonali Basak]

That's hilarious. You finish up at Pennsylvania and you begin your career at dlj. What sort of work were you doing and what were your classmates doing? This is the early 90s. You start at DLJ?

[Brian Hurst]

Yeah, I did DLJ. It was interesting. That was my summer year between junior and senior at Wharton. And they kept me on throughout my senior year to finish up an interesting project, which is basically automating the job of the investment analyst that we're doing. All the company working, all the 10Ks, 10Qs, all the information. At the time, there was a new company starting up, and I know I'm on Bloomberg, but it was called FactSet at the time.

[Sonali Basak]

Sure, of course.

[Brian Hurst]

And there was a salesperson walking around trying to get anyone to talk to them because this is a brand new company. And I was a summer analyst. And I was like, I've got time. I'll talk to you. And he showed me, first of all, two things. He showed me this thing called Microsoft Excel. At the time, Everybody was using Lotus 1, 2, 3. And he showed me basically how you can type in a ticker and it pulls in all of the financial information right into this spreadsheet for you. Before the Internet. But what was kind of the Internet at the time? I was like, wow, this is amazing. I was like, this could save me hours and hours of work. And so I went to the MD at the time and I said, hey, I think I can automate most of what the analysts are doing. He said, you're a summer intern. We're not paying you much. Go at it. And that's what I did. So I started off in that, but I mainly learned that I Didn't really want to do investment banking because it didn't hit on my core skill set which was like engineering back down quantitative techniques and tools.

[Sonali Basak]

That sounds really interesting. It's amazing to have that sort of experience as an internal. How did you land at Goldman Sachs?

[Brian Hurst]

Like everything in life that works out well that's a lot of hard work but mostly luck because of the DLJ experience that was a good thing to have on my resume. Cliff Asness Founder of AQR Capital Managing partner there at the time I think it was late 20s he was finishing up his PhD at the University of Chicago and was working for Goldman Sachs Asset Management. He got the mandate to launch a new quantitative research group and so he wanted to hire someone who had both the finance background and the computer science background. I had started with a couple friends a software business in high school and at Penn one of the things I did with my roommate was we started up a hardware business kind of like Michael Dell building and selling computers to faculty and students on campus. So I had the computer science background. Cliff had gone undergrad at Penn at Wharton also so he knew that we'd taken the same kind of courses we spoke the same language from that perspective and I had that technology background so I was his first tyres he was building out that new team what my other colleagues did back then you had basically three choices coming out of Wharton it was accounting, investment banking and consulting. There was really no jobs for asset management but those are the courses I love the most at Penn and really wanted to pursue that so it was a great opportunity.

[Sonali Basak]

So you spend three years or so at Goldman with Cliff by that point he had been there for a while and decided, hey, I think I have a little more freedom and opportunity if I launch a fund on our own. You were there day one, you left with him. Right? Tell us a little bit about what it was like standing up AQR with.

[Brian Hurst]

Asness it was great. We started off just a little background there as a research group within GSAM so think Cost center and just putting some timeframes around this. This is 1994 which is one of the toughest years in Goldman's history Even going back to the Great Depression it was kind of a year where Tremena partner you had to put in money which was.

[Sonali Basak]

Was it that bad a year? I don't remember. 94 is a terrible market year.

[Brian Hurst]

That was the year where the Fed had the surprise significant rate hike in Feb I was actually on the floor.

[Sonali Basak]

I think bonds took a whack but equities also wobbled a bit. Is that right?

[Brian Hurst]

Wobbled a bit. But yeah, it was really a bad year for fixed income and the firm had a lot of risk in fixed income, I presume, which led to the tough year. Yeah, so we were a research group, cost center. And then left and right people were disappearing week by week as they were, you know, cutting down really headcount. And so quickly we realized we've got to start generating some revenue if we want to stay alive. And Cliff went to them and said, hey, we've been, we've built some interesting models. We think we're good at picking stocks and futures and things like that. We think we can trade on this and make some money. He convinced the partnership to give us some money. So it's basically a prop trading effort for a little while. It did very well. They kept adding money to it and then we opened it up and turned it into a fund. It was really Goldman's first real hedge fund coming out of GSAM that funded very well, which really opened the door for us to be able to leave and start up and raise money as an independent hedge fund.

[Sonali Basak]

What were the specific strategies Cliff was running at GSAM with the partners money?

[Brian Hurst]

It was a multi strategy approach, but it was all quantitative. And when I say quantitative that means a lot of things to different people. I think about every good investment process is really a process. And whether people would label as quantitative or not is really how automated it is. And so by quantitative I mean like really automated. Downloading public data for the most part, pumping it through some systems and that causes you to want to buy and sell different instruments around the world, but you're still creating.

[Sonali Basak]

Or Cliff at the time was creating models and the models would give him a ranked list of hey, the top 10 stocks on this list of a thousand are really. Or whatever the number is, are things you want to look at either getting long or short based on whatever that model is.

[Brian Hurst]

That's right. So that you'd have many different signals and we're trading many different asset classes. And so it's like you're saying all the signals, you would give them weights, different signals and those would add up to you like these things. You don't like these things. We would trade global equities in a bunch of different countries, but market neutral. So long as much as you are short. So you're not taking a bet on is the market going to go up or down, you're really taking a bet on this group of stocks is going to outperform this other group of stocks by looking at a bunch of different characteristics. We did that for stocks, we did that for currencies, for commodities, you name it. It was tradable and we had data, we wanted to be trading it. And that's really what the genesis of that fund was.

[Sonali Basak]

How long were you guys doing that before you realized, hey, this is really going to be a successful model? And then how much longer was it before maybe we should do this out from under the compliance regulations of a broker dealer?

[Brian Hurst]

We started that as a fund really in 1995. It had been trading prop for a little time with Goldman's money. And we made money almost every month. Basically it traded as a fund. And I think we left in terms of a timing perspective. You know, this started in 1995. We left early 1998. So it was only a couple years and change that we were trading this within GSAM before leaving to start up aqr.

[Sonali Basak]

So, so let's talk a little bit about aqr. You there from, from inception, from day one. What was that transition like from, you know, I imagine at Goldman Sachs you have access to lots of support, lots of tools, lots of data, lots of everything. What's it like starting over again from scratch in a standalone hedge fund?

[Brian Hurst]

I'll tell you a funny story. So I got into a few different battles with the administration folks at Goldman Sachs as management. If you remember, like in college, I had a computer business where we'd like buy parts, build computers and sell them. And so I knew how to build my own computers. Goldman Sachs at the time, the standard computer that everybody had was what was called an 8086. This is like the first real PC that IBM had out there. And you know, they were good, but they weren't the most advanced available machines. Basically, I went to the administration, I said, look, we need the most advanced machines because we're trying to run a lot of computationally intensive models. And this machine we have now is very slow. It's taking very long to run our models. You can buy the latest machine at half the price of what Goldman was paying and get twice the performance. What I didn't realize at the time is that when you're trying to run an organization that large and complex, they want everything standardized. You can't support it unless everything's standardized. And so there was a reason reason for it, which I didn't understand, but.

[Sonali Basak]

You guys can support your own hardware. That's not that hard.

[Brian Hurst]

Cliff eventually persuaded them to let us get the new machines. But one of the big Changes as you talk about leaving a place. You have lots of resources and whatnot at large organizations, but you have limited resources at every place. No matter how big you are, there's always trade offs that you're making when you start off as a new firm. One thing that was a big change is that at Goldman we had to support lots of other groups. We were providing research advice, investment advice, talk to clients, help them raise money in other products. When we launched our own hedge fund, all that mattered was making money in that hedge fund. So helping that focus was important and we were able to buy the latest computers at half the cost.

[Sonali Basak]

I'm going to bet that you did something a little beefier than those IBM 8086s.

[Brian Hurst]

Yeah, I was overclocking the machines. I was pulling all the ways to get things to go as fast as possible.

[Sonali Basak]

Huh. Really, really interesting. So at aqr you juggled a lot of responsibilities. You were a portfolio manager, researcher, head of trading, and apparently tech geek putting machines together. What was it like juggling all these different responsibilities?

[Brian Hurst]

There's a couple things I'll say about that. So one thing just from a personal perspective. My wife and I, we have five children together and that's a lot to deal with. My wife is amazing and there's no way I would be able to do all the stuff I do at work if it weren't for her being amazing and handling everything at home. So that's the first thing in terms of how I get so many things done at work. I'm also from a personality perspective. I get bored very quickly. I like learning and doing a lot of different things. I like being able to jump around. So to me that's just fun. The consequence is sleep. I don't sleep very much.

[Sonali Basak]

What do you mean not very much? And you know that only gets worse as you get older, right?

[Brian Hurst]

We usually get to sleep around 1:00am and wake me up, you know, 6, 6:30, something like that.

[Sonali Basak]

All right, so five hours, that's not terrible. I've lived on six most of my life. And it's. And you get older that that shrinks. I thought you were referencing the five kids. Because it's like, hey, when you have five kids you learn how to juggle a lot of different things at once because something is always on fire.

[Brian Hurst]

There's always something going on, that's for sure.

[Sonali Basak]

What was it like working with Cliff back in the days?

[Brian Hurst]

It was fun. I think Cliff's great at a lot of different things, but one. Was he hired? Well, he was Able to attract really talented people. And then he just let them do what they do. So he's not a micromanager. He just lets them run with it. And so that was a very fortunate thing for me. Right place, right time, in terms of being able to get a lot of responsibility early on. And that's how I was able to not just be a researcher building models and creating new strategies that I'd run by Cliff. And he would say, okay, you're doing this dumb or doing that dumb and you're going to improve this, but also doing all the trading by myself for the firm for the first several years and then eventually saying, hey, Cliff, you know, I need some help here. We need to hire, you know, someone to run technology other than me. We need to, you know, hire more traders than just me so that I could actually sleep. So that's how he ran it. And it was a lot of fun. I mean, you mentioned it earlier on. I mean, Cliff's hilarious and he's a funny guy.

[Sonali Basak]

And it's rare to find someone who is a quant who can communicate as eloquently as he can and at the same time has such a devilish sense of humor. Like, that's an unusual trifecta right there.

[Brian Hurst]

And it's part of what makes him fantastic as an individual, but also fantastic to work with and work for. It made the place fun even in the tough times. And so that's a big reason why I think a lot of people stuck through lots of the ups and downs that any organization has.

[Sonali Basak]

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[Sonali Basak]

Let's talk a little bit about the AQR experience. The firm seems very, I almost want to say academic. They publish a lot of white papers, they do a lot of research, they have very specific opinions on different topics that seem to come up in the world of finance. How much of this intellectual firepower is part think tank and how much of it is just, hey, if you're going to have an investment perspective, you need to have the intellectual underpinnings to justify it?

[Brian Hurst]

I think one thing that makes AQRI very powerful is its ability to attract top talent. Specifically on the academic side, smart people want to hang out with other smart people. There's definitely a network effect that happens there. I would say part of the compensation you're getting indirectly by being in an organization like that is getting exposure to all these great minds that you can learn from, you can bounce ideas off of. Is it a think tank? Yeah, I think it is a think tank from that perspective, but at the end of the day, it's a business and they're there to make money, make money for their investors. I think there is a lot of focus on that as well. The publications. You see a lot of white papers. Sure. I would say it rhymes with a lot of things they do, but they obviously keep a lot of the special sauce unpublished and use that within their funds.

[Sonali Basak]

But they're still writing about broad strokes. So let's talk about a white paper that you wrote titled the Evolution of Alpha. Tell us, how has Alpha evolved over the past few decades?

[Brian Hurst]

Sure. This is a white paper I wrote from my Clear Alpha CIO CEO hat and it really talks about the history of the Hedge fund industry. Why different models of delivering alpha, starting with let's say single strategy hedge funds, fund of funds, multi strategy funds, and now multi strategy, multi manager or multi PM funds. That's the latest evolution. And then we talk about what we think might be the next step, part of which we think we will drive. So that's the point of the paper. And there's reasons why you went from different models from one to the next. And it has to do with a variety of things. I'd encourage you to read the paper, it's on our website.

[Sonali Basak]

So let's follow that up. What were the drivers of the shift from a single manager to multiple managers to multi strategy to multi manager, multi strategy? What was the key driver of that?

[Brian Hurst]

Starting back, this is around 2,000, let's say, obviously hedge funds existed before that. But that's really the point at which at least a meaningful amount of institutional investors actually started having investments in hedge funds as like a normal course of business. That was the year obviously that the market sold off a lot. There was the Enron fiasco and whatnot. A lot of Wall street was let go. So a lot of talent was being let go. And much of that talent was investment analysts, research analysts that covered stocks, new stocks, deeply knew the management of those companies deeply. So if you're an investment analyst at a Wall street bank, you go off and hang up a shingle, start a single strategy hedge fund where you're picking stocks, you had an argument why you'd have an edge because you knew these managers and these stocks deeply. That really was like a Cambrian explosion of hedge funds. At that moment in time, even to this day, I think in terms of sheer number count, the vast majority of hedge funds are really stock picking hedge funds.

[Sonali Basak]

Long short, 11,000 hedge funds out there today.

[Brian Hurst]

Long short, discretionary equity stock picking hedge funds. That model survived for a little while, but as investors were investing in these individual single strategy, single style hedge funds, what they realized is that any one single approach is not very consistent. It's going to go through its good periods and its bad periods. It was hard to hang on to what I would call or be exposed to what the line item risk is. When you have these quarterly reviews of what's going on in the portfolio, invariably the discussion is let's talk about the things that are down the most. And that leads to, you know, firing managers when they're down, usually just after an environment that was just bad for their approach before it rebounds and does well, you know, in the next year. So that model, while it still exists today. Is tough from an investment to stick with. Then you switch to funded funds, institutional investors, you know, one stop shop buy into a fund to fund. You can get exposure to many different strategies and styles in one vehicle. That's what came out of that and was to address this inconsistency. Fund of funds were more consistent than a single strategy fund. But I would say the consequence or the issue really is both for fund of funds and really for portfolios of hedge funds that investors have. It's cash inefficient, it's capital inefficient. Because most hedge funds have a lot of cash on their balance sheet. Typical hedge fund, it varies, but depending on type of style and strategy will have between 40 and 90% of the money you give them just sitting in cash.

[Sonali Basak]

Really? That's a giant number. Half is a giant number. I thought you were going to go in a different direction. I have a friend who's an allocator at a big foundation and he calls the fund of funds fund of fees because you're paying layers on top of layers of fees. And it definitely acts as a long term drag. But I never would have guessed that 50 plus percent of assets handed to hedge funds are in cash in any one time. I always assumed it was the opposite, that all right, they're, you know, like the 130, 30 funds or whichever variation you're looking at. I always assume that they're leveraged up and even if they're long, short, all that money is put to work. You're saying that's not the case?

[Brian Hurst]

Well, technically they will put the money to work in the sense of it's not pure cash sitting there. But really there's a lot of borrowing power. You'll love assets that you're holding. There's a tremendous amount of borrowing power. You can borrow against those assets that you hold to then create a more efficient portfolio. That's where multi strategy funds evolved. Multi strategy funds gave you the benefit of many different strategies and styles, yet put into the same vehicle, all these positions held in the same vehicle to get much more cash efficiency, capital efficiency, higher return on capital, plus the consistency.

[Sonali Basak]

So I'm assuming if you're using a multi manager, multi strategy approach, any one strategy at any given time is either going to be doing well or poorly. But the overall performance of a multi strat will offset that. So it's not like, hey, this guy has a bad quarter because what they do is out of favor and the clients pull out their cash just before the recovery is There a tendency to leave money with a multi strat, multi manager approach for longer. And so you don't have those sort of bad quarter, bad month, whatever it is, because this just isn't working now, but it'll start working eventually. Is that the underlying thinking?

[Brian Hurst]

That's really the approach. In fact, a lot of successful single managers, businesses evolve to the multi strategy approach because they recognize that lack of consistency for a single approach, a single investing style was a threat to their own business. And so expanding into other strategies and styles is how a lot of these more successful single strategy funds evolved.

[Sonali Basak]

So it sounds like if you're running either a multi manager or a multi strategy or both, everything needs to be very non correlated. You don't want everything down at the same time. How do you approach picking various strategies that are not correlated?

[Brian Hurst]

That's a great question. I think it's helpful. I don't like the gambling angle, but I think it's a helpful analogy because most people are used to the analogy. If you think about the casino, people go to the casino knowing that if they play the games long enough they're going to lose their money. I think most people think that the multi strategy hedge fund is really like the house, where each table or each game in the casino in their house has a slight edge. And if they make sure that there's not going to be massive losses at different tables on the same night, same weekend, same month, over time they will just statistically accrue profits in a more consistent manner. So that is a big focus. And if you think about what risk managers would do at a casino, it's the same thing. They're going to make sure that these, these tables, these games are not going to be making or losing money at the same time.

[Sonali Basak]

So let's talk about some of these diversified non correlated strategies. I'm assuming some include momentum, long, short. Any other sort of approaches that people would really readily understand?

[Brian Hurst]

Sure. When I think about most hedge fund strategies, the ones that people know about, the ones that there are, if you look at hedge fund indices, there's a category for it. It could be long short, stock picking, it could be merger arbitrage, it could be index rebalance arbitrage or basis trading, There's a variety and there's dozens of these well known, well understood activists. Activists. Exactly. These are all out there. They're well known. When you look at each one of those, you can break it down between cheap, passive beta. Let's take an example. Long, short, discretionary stock picking. Most of these hedge funds the way they're implemented is the managers net long the stock market some portion of their returns, it's actually a pretty significant portion is just going to be driven by whether the stock market's up or down.

[Sonali Basak]

Just pure beta.

[Brian Hurst]

Pure beta. I think about the scarce resource is your risk budget and how do you want to allocate that risk budget if you're allocating a lot of your risk budget to just pure beta that might work for the manager but for an investor that doesn't make a lot of sense. Because I can go and get pure beta. I can buy an index fund for single digit basis points. At this point it's effectively free. These multi strategy funds in order to reduce the correlation across their managers, they don't want to have all these managers long pure beta, that's a common risk that will cause them to make and lose money at the same time. And so when you're running a multi strategy fund, it's really about looking at these common risks. Beta is the simplest example. It could be sector exposure, it could be factor exposure like momentum you mentioned earlier and there's a lot of other less well known but known in the industry risks that take place. People talk about crowding. There's reasons why crowding happens. So being able to be aware of those and look for signs of that and trying to mitigate those commonalities across your different strategies is a really key component to managing risk for these multi strategy funds.

[Sonali Basak]

Huh. There's so many different ways to go with this. So you're, you're implying with these crowded funds that there's a way to identify when, when you're in a crowded fund. I, I recall the quant quake a couple of years back where all these big quant shops post GFC really seem like they were having the same sort of exposure and the same sort of problems. How can you identify an event like that before it takes your fund down 10, 20%?

[Brian Hurst]

It's a great question. And I would say a more recent example might be Covid March of 2020 when there. So I talked about a couple different common risks. One is beta, another one might be factors. A simple other one is just there's a well known strategy, let's say merge arbitrage. You know, there are plenty of funds that are running merger arbitrage as one of their strategies within the fund. Okay. Simply because a lot of people are doing something that in a sense when there is some other exogenous event that causes people to de risk, it actually makes it bad to be in well Known, well understood trading strategies so that you know ahead of time that this is something that is crowded. You know that there are other players that are doing the same kind of trades as you. Going in.

[Sonali Basak]

Huh? That's really interesting. And just to put some meat on the bones, multi strategy, multi manager, multimodal funds have really gained prominence lately. Names like Citadel, Point72, Millennium, lots of other larger funds have very much adopted this approach. Fair statement.

[Brian Hurst]

That's very fair. I do think it's the best way to deliver alpha.

[Sonali Basak]

So you're reducing correlation, you're reducing risk, you're increasing the odds of outperformance. How broad are firms like, I don't know, Citadel or Millennium that they don't run into that crowded trade risk? You would think given their size and their tens of billions of dollars, a crowded trade becomes increasingly more likely. Right, right.

[Brian Hurst]

And there's a reason for why that's the case. There are literally thousands of different types of ways to make money in the markets. Thousands. But there's only dozens of ways of making money in the markets that have lots of capacity. Means you can put a lot of dollars and generate a lot of dollars to scale up. To scale up. And if you're going to be a very large fund, you by definition have to put more and more of your money into the well known large trading strategies. And so they have to be particularly attuned to the fact that they are large and their competitors are also large and then the same kind of trades. So it is at risk. And when these things, when one of these shops sells out or reduces risks in one of these common strategies, it's going to affect the other ones. It's hard to avoid that. But they are fairly well diversified across many different types of strategies. So that's why you see still very consistent returns. But there is this exogenous risk element of having been big in the crowded. The way you avoid that is, is by being smaller, focusing on smaller strategies that are a little bit different.

[Sonali Basak]

Huh. Really, really interesting. So you mentioned earlier early days of hedge funds. The fund to funds were popular. It feels like they're kind of going away. You certainly hear much less about them these days. Is that a fair assessment? Just because you don't hear about stuff doesn't mean it's disappeared. But I certainly read much less about fund to funds. They are in the news. Much less. Have multi manager, multi strat, multimodal, broad funds replaced the concept of fund to funds.

[Brian Hurst]

I think it's an evolution. It doesn't mean that the fund of funds model is going away entirely. There's certain managers out there who have co mingled vehicles that only they won't run an SMA for you. They won't trade their strategy into your account. Fund of funds can access that. So there's a reason for that. They're nice one stop shops and they can maybe be a little more transparent. But there are. You talked about this earlier, the fees being an issue and it's really about the fee as a percentage of the dollars of P and L being earned. There was an academic paper recently published. They did a really interesting study over 10 years of looking at institutional hedge fund portfolios. What it showed is that for every dollar of P and L being generated by these hedge fund strategies, at the end of the day the institutional investor took home about 37 cents.

[Sonali Basak]

Really.

[Brian Hurst]

Which is I think a shocking number for a lot of people.

[Sonali Basak]

Right. So you're saying almost two thirds of the money, never either it's fees or costs or some other factor, but only a little more than a third ends up with the actual investor.

[Brian Hurst]

That's right. And it's really interesting. It breaks down the sources of all these things. Part of it is fees and double layers of fees and things like that. A big part of it is the behavioral nature which I think is driven by governance of investing organizations where filled with humans. Yes, strategy is down. What's been down? Let's get out of that. Let's get into the thing that's been up recently that costs about a third of your alpha.

[Sonali Basak]

That doesn't surprise me at all. Even though you expect big endowments and foundations and hedge funds to be smarter than that. Fill them with people and you're going to get those behavioral problems, aren't you?

[Brian Hurst]

Yeah, well there's agency issues in between and I think investors are well aware of these. So that causes part of it too. But a big thing. And the thing that kind of the multi manager multi strategy approach tackles that a fund of funds can't is you get a lot of netting benefits both from one manager's long apple, another manager's short apple. In a fund to fund approach where you're investing in two different funds. Well A they don't know that and B the managers who long apple they're paying a financing spread to go leverage long apple and the manager who's short is paying a financing spread to go short apple costs built in. You're paying a lot of extra costs.

[Sonali Basak]

There just to be net flat.

[Brian Hurst]

Just to be net flat. So if those two managers instead traded those positions into the same vehicle, you're getting that efficiency and that's worth on the order of like 2 to 3% per year. Just that alone. The enhanced risk management you can get by having daily position transparency and all the trades of all the different PMs are doing. Being able to hedge out all these beta risks, factor risk sector risks, things like that allows you to be much more efficient with how you deploy that capital. You see that these multi manager funds tend to be a little more invested than a hedge fund portfolio typically could be. That creates a lot of efficiencies. When you look at the returns that they're generating, it's closer to 5050 where for every dollar that's generative P&L, 50 cents is going to the investor. It's a much more efficient delivery mechanism.

[Sonali Basak]

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[Brian Hurst]

Yeah, this is really something that's very important to me when I think about the industry and like what are the big problems that are facing the industry? What's really causing investors not to get as much money in their retirement accounts as we possibly could get there? One of them is this behavioral issue, which I think also ties to incentives and governance and agency issues within investing organizations. Morningstar does a study that they call Mind the Gap and they do it on a regular basis. Some of your listeners might have heard this, and it's definitely worth reading. I'll quote some numbers off the top of my head. I might be remembering it incorrectly, but what it does is it's measuring the time weighted returns of funds, which is the returns that funds report. These are the returns that if you invested a dollar at the beginning and you held it all the way through, the returns you would have gotten. If you never when to or when out of that fund, then they compare that to the asset weighted returns. Right. And that is going to the asset weighted returns are, you know, accounting for the fact that, you know, the fund does well, everybody gets excited. Money comes in larger assets, and then it maybe does not as well after that. And so the larger assets earn less return. And so the asset weighted return minus the time weighted return is a really good way to measuring what's the actual impact of this behavioral element of investing, which is a really critical part of investing.

[Sonali Basak]

The gap refers to the behavior gap, which is the difference between what the fund generates and what the actual investors are getting. Please continue.

[Brian Hurst]

What you find is that for 60, 40 balanced funds, which typically are in retirement accounts where people maybe aren't looking at them every single day, they get statements once a quarter that are delayed.

[Sonali Basak]

Set and forget, just leave a little bit.

[Brian Hurst]

It's kind of a set and forget that that gap is on the order of 60 basis points. Relatively small, relatively small, but it still costs 60 basis points per year for the average investor of this behavior for those simple funds. Now for alternative funds, when they look at those, that gap is 170 basis points a year.

[Sonali Basak]

Okay, that's starting to add up.

[Brian Hurst]

That really, I mean, if you think about that compounding over a decade, that's a massive hit to wealth. Why is there such a big gap for alternatives and not as much of a gap for the 60, 40? I think it has a lot to do with investor understanding of what those products are and therefore the confidence. People invest in alternatives, they don't necessarily understand them. And so you're setting yourself up for failure a little bit there because when it has bad performance, you don't understand what it does, you're more likely to redeem.

[Sonali Basak]

That makes a lot of sense.

[Brian Hurst]

So to me, investor education, really understanding what they're investing is, is a critical component to being a successful investor.

[Sonali Basak]

Huh? Really, really interesting. So you talk a lot about idea meritocracy. It's on your site, you've written about it. Explain a little bit. What is idea meritocracy?

[Brian Hurst]

This is a really important part and it's a part of our culture. At Clear Alpha. The idea is to get all ideas surfaced so that the organization can make the best decisions. How do you. What prevents good ideas from surfacing? One is that people may not know that a question is even being asked. So many organizations are run fairly siloed, different groups. A lot of that happens, especially at large organizations. It's hard for everybody to be constantly communicating with one another. So just not even knowing a question exists. So the way we address that is that we use Microsoft Teams at the office and most people are in various channels and we're seeing questions going on all the time. I really discourage people from asking me a one on one question. I will usually redirect a question someone asks me to. Here's the broad company, here's the question that was asked, here's the answer. So then immediately the entire company learns what this topic was. And very often that says, oh someone else, I have another idea about that that I want to now share. So getting accessibility for people to deliver. But the most important about idea meritocracy is really from a leadership standpoint. People have to feel safe bringing up ideas that they're not going to get yelled at. There's no bad questions, there's only people not asking questions. That's what bad. And the only way for people to feel safe about that is that they need to see me as the leader and my other partners as the leaders to be willing to take in feedback, be challenged even publicly and say, you know what, that's a really good idea, let's go with that. And so just having them feel that safe environment so that people can always ask and bring questions up, huh?

[Sonali Basak]

That's really interesting. Also you've discussed generating less common ideas. Earlier we were talking about crowded trades. How do you generate less common ideas? How do you find non correlated sources of return when you're in a hyper competitive marketplace?

[Brian Hurst]

Great question. So I'll use an example here. There's a common strategy that people might be familiar with. It's called merger arbitrage. And basically company A is going to buy company B, whether it's for cash consideration or stock, for stock type transaction and merger arbitrageurs. Look at that and they might go long, the company that's being acquired short, the company that's doing the acquirer and then make money if that deal ultimately closes. That's a very common, well known strategy. That would be the common version of implementing the strategy. A less common version to implement is you try to find ones that you like more than others. So you might think they all are like the vast majority are going to close, but some you might like better than others. And so you could go long half of them and short half of them. So you're not exposed to this common element of merge arbitrage, deals closing, you're neutral to those. So if a large pod shop, one of these large multi managers, if they decided to get out of merger arbitrage and they're selling all these positions down, half your portfolio will get helped and half your portfolio will get hurt. But you're less exposed to that crowding risk, that common what I would say risk factor that these other common strategies have. So that's a niche version of how we might implement that kind of a strategy.

[Sonali Basak]

You mentioned niche. I never heard the phrase prior to reading something you had written called niche alpha. Tell us a little bit what niche alpha is.

[Brian Hurst]

That's a great question. The simple answer is you're unlikely to have any or much of it in your hedge fund portfolio. That's how I would describe it. It's looking for people that are either implementing common strategies in a very different way that makes them less susceptible or more immune to people getting out of that strategy or people have a completely different idea of how to make money that I hadn't heard of before. And I've interviewed hundreds if not thousands of portfolio managers and worked with, developed many strategies of my own. So it's trying to find things that people aren't doing.

[Sonali Basak]

Huh. Is there? Given what we know about the efficient market hypothesis and Gene Fama was Cliff Asness doctoral advisor, is that what or MBA advisor.

[Brian Hurst]

Cliff was Gene's ta.

[Sonali Basak]

Yeah. So given how mostly efficient the market is, are there really niches left that have not been discovered? How many more opportunities are out there that we don't know about?

[Brian Hurst]

That taps into something we talked about earlier, which is there are thousands of ways to make money in the markets. There's only dozens of ways to make money in big dollar size.

[Sonali Basak]

At scale.

[Brian Hurst]

At scale.

[Sonali Basak]

So these smaller ideas is that where the mostly kind of eventually efficient market hasn't quite reached yet?

[Brian Hurst]

Well, it's what I think about is the amount of dollars you can make. This is a ratio, I think about the amount of dollars you can make divided by the complexity or how much brain damage you have to inflict. Upon yourself to actually implement the strategy. A lot of these small strategies, they're complex and difficult to do. They might require some kind of new technique that is difficult or rare to implement. And the actual P and L that you can generate, profit loss, you can generate is small village for that effort.

[Sonali Basak]

Small in terms of percentage returns or small in terms of dollars. Hey, there's only 100 million to arbitrage away with this. And once that is mined, that's it, it's done.

[Brian Hurst]

It's about dollars of P and L you can extract from the markets per year. Percentage returns can be very high for these strategies. But, but I'll give you a sense. You know, most other large shops, they're going to look for strategies that can generate at least $100 million of P and L to make it worth their while to invest. We're looking at strategies that are generating 10, 20, 30, $40 million per year.

[Sonali Basak]

Huh, that's really kind of intriguing. So what sort of demand is there for lower capacity strategies? I mean, so you guys are less than half a billion dollars. You're not an enormous fund. Are there more hedge funds looking to swim in these ponds or is this something that, hey, once you cross a certain size, you just have to leave behind and stay with those larger capacity scalable strategies?

[Brian Hurst]

Yeah, I think this is a general thing for all investors, not just other hedge funds. Everybody wants to be in the interesting things. They want to be in the lower capacity things. They know that they're less crowded. The difficulty and really what I think kind of our business model is, is you're paying for us to go out and search the world and source them because it's expensive, it's an expensive exercise to do. People might not have the expertise or the background to underwrite these types of strategies. It just takes a lot of work. And at the end of the day, alpha is either about being smarter or working harder. The being smarter can work in the short term, but eventually that does get armed away. Eventually someone smart enough comes by. The working harder to me is the thing that actually stays.

[Sonali Basak]

Huh, that's really interesting. You would think if the incentive was there, enough people would just eventually grind away in that space.

[Brian Hurst]

I mean, the incentives there, it's just not enough to be worth the time. And so if you are a very large investor organization, you do have to prioritize. You still have limited resources and time to look for things. So you're going to have, you know, thresholds. I'm not going to invest. At least, you know, at this amount of Dollars. And that's where we step in, is kind of fill that gap.

[Sonali Basak]

So you're very much a student of what's going on in the hedge fund world. What are you seeing in terms of strategies driving costs down and the question of where fees are? They've certainly pulled back from the days of 2 and 20. What's happening in terms of efficiency and cost?

[Brian Hurst]

There's a bunch of things to talk about there. So first thing I would say is the higher capacity strategies that have become well known, I think that those costs are going down because there's a lot of people who can implement those strategies. And so you think just simple supply and demand, lots of portfolio managers, you can do them. And so then it's just a competition of who's going to be able to do it most efficiently. Then there's unique alpha. I think that's harder. And actually the cost of that has gone up over time. It's not gone down. The cost it takes to compete in the space has increased over time. So there's a bifurcation that's been going on. We think that there's still a lot of efficiencies you can carve out of the system that exists now that we're attacking a lot through technology. A lot of three ways of working that can just make the organization more efficient and deliver more net returns to investors.

[Sonali Basak]

We've seen some motion towards fees for alpha, not beta. Some people call it pivot fees. There's a lot of different names for this. I haven't heard much about that recently. What are your thoughts on where hedge fund fees are going in the future?

[Brian Hurst]

I'll answer that with a different story that will draw an analogy here with the rise of indexing, which has been happening for decades now. Thank God for indexing. It's a fantastic invention that has helped a lot of investors. The original thought was, well, as the market goes more and more indexing and I don't know what the number is. It's probably 70% is indexed of the invested dollars. Then it makes the markets. You know, it's easier to make money because there's less people trying to compete for that. But that's not what actually happens. What actually happens is it's become more and more difficult to make money because the talent pool is of higher quality now than it used to be. That's searching for that alpha. And just like sports, when there's a zero sum game. Right, Right. And it's very small differences between the number one person and the number five person. What you See is the rewards and the compensation tends to be a power law, meaning that the very few get paid a lot. And I see for pure alpha, where there's real competition, that the investment talent will actually get paid more and more over time it'll get more and more difficult to be that person. Whereas for the common stuff, the well known things that have higher capacity, I think you're going to see fees keep going down on that side.

[Sonali Basak]

Michael Mauboussin calls that the paradox of skill, that the more skillful the players are, whether it's sports, investing, business, the more of a role luck plays, which is really fascinating. You've also written about Portable Alpha, discuss Portable Alpha, what is that and how can we get some?

[Brian Hurst]

So I think Portable Alpha is a great way for investors to get exposure to alternative return streams. What Portable Alpha is, is mixing a beta like S&P 500 exposure with an alpha stream and really just plopping that alpha stream on top of the S&P 500 return. So it lets investors get exposure to S and P, which most investors already have, but now exposure to a different type of return stream. Usually people, historically at least, have tried to be the S and P by picking a manager who's trying to pick stocks, overweighting stocks that they like versus the index and underweighting stocks that they don't like. But that comes with a lot of constraints. One is the manager can only overweight and underweight stocks in the index. They can't trade other asset classes. They can't utilize any kind of sophisticated investment techniques to try to beat that benchmark. Portable Alpha gets rid of all of those constraints. What you typically see is Portable Alpha programs are much better at and consistently beating traditional active programs.

[Sonali Basak]

I like the phrase Corey Hofstein uses for that return stacking. Is that same concept as Portable Alpha.

[Brian Hurst]

That's right, yeah.

[Sonali Basak]

Really, really interesting. Before I get to my favorite questions that I ask all my guests, I just have to throw you a little bit of a curveball. So you're a member of the Yale New Haven Children's Hospital Council. Tell us a little bit about what you do with that.

[Brian Hurst]

Sure. So just how we got involved, my wife and I, we have the five kids, three of which had severe peanut allergies. And we were very concerned about that. You know, that's become a rising epidemic within society over time. And we wanted to see if we could solve that, invest in basically research, try to solve this problem. So we worked with both Yale and our local hospital to can we fund a research effort and A clinical effort to basically collect data, because a lot of the research really needs data. So we work with them. And that's how we got originally involved with Yale as an organization. And then they have this council that's focused on children's health issues and what it is. It's a collection of individuals who are interested in this topic. We meet typically quarterly. They'll have some of their top researchers from Yale come in and talk about whatever research they're working on and their clinical experiences with children as patients. And that usually generates ideas. Okay, how can we make this more effective? How can we get more funds directed toward this activity?

[Sonali Basak]

All right, we only have you for a couple of minutes. Let's jump to my favorite questions that we ask all of our guests, starting with, what are you streaming these days? What's keeping you entertained? Either Netflix, podcasts, Amazon, whatever.

[Brian Hurst]

My wife and I, after going through the litany of all the kids and their issues each day, it's usually very late, and so we don't get to watch as much TV as you probably would like. There's a lot of great content out there lately. We're watching Lioness on Paramount, which is.

[Sonali Basak]

I just finished season one a few weeks ago and taking a break before season two, but it's fantastic.

[Brian Hurst]

It's fantastic. Yeah, we've really enjoyed it so far. But I would say.

[Sonali Basak]

Are you up to season two yet?

[Brian Hurst]

No, we're three or four episodes in to season one.

[Sonali Basak]

Brace yourself. You have quite a ride.

[Brian Hurst]

Okay, great. But in terms of, like, favorite shows, one of my favorites was the remake of Battlestar Galactica, which was a show when I was growing up as a kid with a remake with terrible special.

[Sonali Basak]

Effects in the old one. And the new one is great, right?

[Brian Hurst]

That's right. And there's a scene that's actually relevant to our conversation a little bit today. The leader of the Cylons, which is like the robots, is talking with a human, is one of the fighter pilots, and they're watching video of one of the battles, and the humans win this battle. But then the Cylon says, this is how we're going to beat you and humans. Like, what do you mean? Because they just watched, like, one of the humans kill one of the robot fighter pilots. And she says, well, every time that we make a mistake and we lose a battle, every single other Cylon learns from that. And so inevitably, we will learn every way that we can avoid dying, and we will take you over. And that has a lot to do with how we approach the business. On the investing Side always learn from your mistakes, get the communication out there and constantly improve. If you improve by a few percent a year, that really compounds over time.

[Sonali Basak]

Well, what does it matter if the AI silence eventually going to kill all of us? It won't make any difference. Alpha is only here until the Cylons beat us in a space battle.

[Brian Hurst]

Yeah, we view it.

[Sonali Basak]

That's way off in the distance.

[Brian Hurst]

We like intelligence augmentation versus artificial intelligence. IA instead of AI using these tools to be more effective.

[Sonali Basak]

That makes a lot of sense. Let's talk about your mentors who helped to shape your career.

[Brian Hurst]

Well, I would say of all the ones I could think of, Cliff would be the top mentor. And Cliff wasn't the kind of guy who would put his arm around you and say, hey, this is how you do X, Y and Z and you should do this differently. He did have several conversations with me like that. Most of his mentorship was through his actions. Cliff's extremely principled, very ethical, and it's a very fortunate thing to be able to be in business with someone like that where you can be successful at business, but do it in a very ethical, principled way. That's always doing right by the client. And that's something one of the biggest things I've taken away from working with them.

[Sonali Basak]

Let's talk about books. What are some of your favorites and what are you reading right now?

[Brian Hurst]

I like history, specifically financial history. The one I'm reading right now is called the World for Sale. It's actually written by a couple of journalists that cover the commodities industry and it's really about the physical commodity traders and the whole history of that, which is. Which is kind of interesting. I love biographies. One particular I liked was the Michael Dell one. Play nice. But when where it's kind of chronologically, this whole story, I really connected with the building computers in his dorm and selling them. Obviously he was much more successful at that than I was.

[Sonali Basak]

Really interesting. Any chance you read McCullough's Wright Brothers?

[Brian Hurst]

I have.

[Sonali Basak]

Not really. Fascinating. I like it. It's unusual to read something that you think, oh, I know that history. And then it's like, no, you've no idea what's going on in the history. And he's just a great writer. Really, really, really interesting. Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either quantitative or investment finance?

[Brian Hurst]

I don't know if the advice would be specific to those things, but talk less and listen more is what I would say. There's a curve. I forget the name of the curve, but it's you start thinking, you know, a lot. Especially Dunning Kruger. Yeah, Dunning Kruger. That's what it is. Yeah. That is such a true effect. I thought I knew everything and if I just listened to those around me who knew, a lot more people are trying to help you more than you realize as a young person. And I should have just listened to more advice. I would have been more successful much.

[Sonali Basak]

More earlier if I had so here's the funny thing about the Dunning Kruger curve, and this comes straight from David Dunning. They did not create the Dunning Kruger curve. It kind of came from just pop psychology and social media. And then when they went back and tested it, I think the paper was like 99 or 2004, something like that. When they went back and tested it, it turned out that the Dunning Kruger curve turned out to be a realistic, measurable effect. And it's Mount Stupid. The Valley of Despair and the Slope of Enlightenment are just sort of the pop terms of it. But it's really, really funny. And our final question. What do you know about the world of investing today? You wish you knew back in the early 90s. That would have been helpful to you over those decades.

[Brian Hurst]

There's a lot of smart people out there, as smart as you might be. There's a lot to learn from everybody else. Everybody has some insight, some perspective that you don't have, don't presume how that you know what people are thinking. So ask questions and listen.

[Sonali Basak]

Sounds like good advice for everybody. We have been speaking with Brian Hurst. He's the Founder and CIO of Clear Alpha. If you enjoy this conversation, well, be sure and check out any of the 530 we've done over the past 10 years. You can find those at iTunes, Spotify, YouTube, Bloomberg. Wherever you find your favorite podcasts, be sure and check out my latest podcast at the Money short 10 minute conversations with experts about topics that affect your money, spending it, earning it, and most importantly, investing it at the Money. Wherever you find your favorite podcasts, I would be remiss if I did not thank the crack team that helps us put these conversations together each week. Sarah Livesey is my audio engineer. Sage Bauman is the head of Podcasts. Sean Russo is my researcher. Anna Luke is my producer. I'm Barry. You've been listening to Masters in Business on Bloomberg Radio. Join Bloomberg in Atlanta or via livestream on February 11th for the Future Investor finding the opportunities this 2025 event series will examine how companies are investing in their businesses to create efficiencies, innovate their products and services, and improve the customer experience. This series is proudly Sponsored by Invesco. Q. Q. Q. [e-mail] futureinvestoratlanta.