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Masters in Business
How to Think About Alternatives with JPMorgan's Alternative Asset Management CIO Paul Zummo
01:06:59
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- [00:01]
Hannah Fry
I'm Hannah Fry and I'm on a mission to find out about a mysterious day called Q Day, which experts think could be the moment our most precious encrypted data is suddenly at risk. Learn more later in the podcast.
- [00:15]
Lenovo Advertiser
If a Lenovo gaming computer is on your holiday list, don't shop around. Just go directly to the source Lenovo.com youm'll find exclusive deals on the gaming PCs you want, like the Lenovo Legion Tower 5 Gen 10 Gaming Desktop and Lenovo Lock Gaming Laptop. So avoid all that shopping chaos and price comparing and just go directly to the source Lenovo.com, where PCs are up to 50% off. That's Lenovo.com Lenovo Lenovo.
- [00:47]
IBM Advertiser
So let me get this straight. Your company has data here, there and everywhere, but your AI can't use the data because it's here, there and everywhere? Seems like something's missing. Every business has unique data. IBM helps your AI access your data wherever it lives to change how you do business. Let's create smarter Business IBM.
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Paul Zumo
Bloomberg Audio Studios Podcasts Radio News.
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This.
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Lowe's Advertiser
Is Masters in Business with Barry Ritholtz on Bloomberg Radio.
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Barry Ritholtz
On the latest Masters in Business podcast, I sit down with Paul Zumo. He's Chief investment officer at J.P. morgan's Alternative Asset Management. He co founded this group back in 1994 with essentially pocket change. It now runs over $35 billion in assets for institutions and high net worth investors at JP Morgan. Really just a fascinating concept of everything about how to stand up a division within a large company, how to think about alternatives, how to recognize when an industry may be average but the best players in that industry generate significant alpha. I thought this was fascinating and I think you will also. With no further ado, JP Morgan's Paul Zumo. Paul Zumo, welcome to Bloomberg.
- [02:24]
Paul Zumo
Thanks for having me. Great to be here.
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Barry Ritholtz
I'm so excited about this because I just fell in love with your 30 pearls of wisdom. We'll get to that later. Let's start with your background. So a Bachelor's from SUNY Albany and then an MBA from New York University. What was the original career plan?
- [02:44]
Paul Zumo
Sure. So yeah, when I was young I was always into investments, or at least intrigued by investments, but also into technology as well. Like arguably to the extent we have a gift in life, it was probably technology, but the technology was so early stage I didn't exactly know what it was. So I wound up pursuing obviously investment side, but kind of use that technology from time to time, especially as we were building a group. But originally I really wanted to get into equity research and not that I knew exactly what it was, but it was the most tangible and aligned with who I am in terms of problem solving and analytics and things like that. And wound up instead falling into the hedge fund world and doing what I do today as hedge fund solutions, which actually has a lot of elements in a sense of what equity research is. Again, you know, your problem solving at its core and doing analytical work.
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Barry Ritholtz
You get the Chartered Financial Analyst designation and you start at Chase as an analyst. What sort of work were you doing there?
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Paul Zumo
Yeah, so out of school I was in a pension fund consulting group. And so really what you're doing is a couple of things. I mean one, performance measurement across client accounts and you know, also you're doing some, some research stock rather manager selection on a traditional side. But I think what was helpful about it is it kind of gave you a really good purview of all different asset classes and all different styles of management. And I remember in early days really appreciating like the, the importance of stylistic differences in equities as an example. This was again early days but like recognizing you know, small cap growth versus small cap value and a drastic differences. But it really, it really has just set the understand the industry and styles and types and approaches at a much deeper level.
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Barry Ritholtz
So you were a manager of retirement plans at the Interpublic Group. Tell us a little bit about that.
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Paul Zumo
Yeah, so after Chase I spent about two years at Chase and then went to the Interpublic Group. So this is a plan sponsor and maybe a somewhat unusual move at that stage in my career and what attracted me to it was they were at a point where they were. So again this is an advertising agency but I worked in the pension group and they were, they were looking to revise their asset allocation materially. So you know, change the whole asset allocation, change the manager lineup. And importantly they, they didn't have a consultant so they were doing an in house. So they were affording me, I mean not solely, but affording me a lot of responsibility to help restructure the whole plan. Terminate managers, onboard managers.
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Barry Ritholtz
What year was that?
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Paul Zumo
So that was 1992 to 1994. And interesting.
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Barry Ritholtz
I'm curious what led them to say, hey, we're just going to start over.
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Paul Zumo
Yeah, I mean that was before. I mean that was kind of a decision that had already been made, you know, and they were changing, you know, again changing their asset location and looking at the whole manager holistically and interestingly that's when I first Got involved in hedge funds or at least first met hedge funds. So this is again, you know, early days, right. 19 1990.
- [05:53]
Barry Ritholtz
Everybody was producing Alpha back then, right?
- [05:55]
Paul Zumo
Well then, yeah, I mean then it was, that's true, but it was so unknown, you know. So I met with a number of market neutral equity managers, a couple long short managers, and then importantly David Askin. So David Askin, for those that don't know, was one of really the first hedge fund, for lack of a better word, blow ups, where it was a mortgage backed derivative manager.
- [06:20]
And obviously a quirkyish market and wound up having significant problems. So it was weird, did not invest with him. But it was really a very valuable early kind of lesson from a due diligence standpoint that obviously we didn't pay for. So all the better. But it really maybe tells you two things. I mean, one, if you don't completely understand something, and admittedly at age 24, I didn't @ the time.
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Barry Ritholtz
Then.
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Don'T.
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Paul Zumo
Put money there and just have the courage to say no, there's a lot of choices out there and you need to be disciplined and walk away. But we did invest in an equity market neutral fund and again that was.
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Barry Ritholtz
1993. So that's the initial exposure to hedge funds. How did you go from there to J.P.
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Paul Zumo
Morgan? Yeah. So this is probably another, you know, never burn your bridges. Which, which I'll, I'll come to. So I had, I had, as I mentioned, I'd worked at Chase once before and at the time I was looking to leave because once you restructure the plan, there's only so to. To do. Especially when you, when you're young, so is ready, you know, it's ready to do.
- [07:37]
Barry Ritholtz
Something. Do you literally put yourself out of a job through the restructuring.
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Paul Zumo
Process? Well, I mean I could have stayed, but then you're just, you know, you just overseeing the investments as opposed to actively. It's a little less interesting. And so in any case, I was interviewing at a hedge fund Solutions, a fund of funds out of Long island. And you know, really like the guys, a couple of great guys that were there. But at the end of the day, I decided I didn't want to go. You know, I didn't want to reverse commute because I was living in a city. I didn't want to go out to Long Island. So I wound up not pursuing it. But the relevance of that is that what would become my, my boss, Joel Katzman was distributing that, that fund of funds and he was a Chase. So when it came time to do a reference check on me. They asked Joel to do a reference check for me because he was at Chase. I used to work at Chase, and reference check I assume was good, but it turned out I didn't pursue it any further. And Joel, who was distributing the fund of funds at the time, got the idea of, you know what, rather than distributing it, maybe we should start this up anew. And if you want to work in a city, why don't you come work for.
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Barry Ritholtz
Me? So you're at Chase, which even back in the early 90s is still a very large bank. This seems very entrepreneurial, very startup. Like, what was it like building this division inside a giant money center.
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Paul Zumo
Bank? Yeah, no, it was great. You know, I mean, you know, bear in mind it was a different world back then in many ways, not only from an investment standpoint, but like what it takes to launch a new business. So, yeah, we launch with a whopping $7.4 million, which is, you know, which is unusual to say, at least walking around pocket money. And I'd say, yeah, maybe a couple. So, like, from an standpoint, it was the perfect time to start. You had Orange county issues, you had rates going up, you had. Well, David Askin, as I mentioned before, you had dislocation, and that created opportunities. The problem was.
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Not many people knew about hedge funds. And I'd say three quarters of the people that did had a negative.
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Barry Ritholtz
View even in the early 90s. My bias is that the golden era of hedge funds was from the early 90s right up to the financial crisis. There's been far more challenging period post financial crisis for Alpha generating the 90s. It seemed like everybody was making.
- [10:05]
Paul Zumo
Money. Well, so two things. I mean, maybe we'll get to those points later about different cycles. But again, from an investment standpoint, people were making money. There's no question about it. I think the public's view, and partially like what had often been written in the press, was the negative side of hedge funds going after this currency or that currency. And I think the perception was one of either it was negative or just a lack of understanding. So a lot of what we did early days was just educational. Like we would write newsletters internally and educate people on alternatives, but eventually, eventually you put it together and performance kind of speaks for itself and you, you know, you build it, you build it over time. But it was great from an entrepreneurial, entrepreneurial standpoint. This kind of goes back to my tech side as well. I mean, one, building infrastructure broadly in process. But you know, early days, building technology as well, like there was no per track, which is something people use. Like so, you know, we, and I kind of built it all, you know, so built a research database, built a system to analyze returns and yeah, that was, that was great. It was a lot of.
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Barry Ritholtz
Fun. So today it looks like the industry is much better known. There's been a giant movement to try and democratize access to all sorts of alternatives from hedge funds to private credit, private equity, real assets. What do you think led to this massive interest in alternatives? It's not like it's been a terrible equity market for the past 15 years. It's been.
- [11:47]
Paul Zumo
Great. So yeah, two things. I mean, I'd say even let's go back early days, part of the vision. This is really Joel's vision. First and foremost that was that alternatives were going to become mainstream, which sitting back and hedge funds were going to become mainstream eventually. And then back in 1994, that was a novel concept. It was just this little thing off to the side and look, we've more or less arrived at that. So I think the vision is true. And then the second part is, well, why not retail investors? And if you think about 2022 and you think about rising stock bond correlations, there's so many investors, many of them more retail oriented or high net worth oriented, that just don't have alternatives or enough alternatives in their portfolios. So yeah, that's led to the democratization and launch of interval funds and tender offer funds, which is, I think really interesting. So it's giving those investors access to alternatives which are really valuable in overall portfolio context. So it's about building, I mean, yeah, just to respond like, sure, equity markets are going up today, but they didn't in 2022. And I think the takeaway is that you need to build a more resilient portfolio rather than just look at these things in.
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Barry Ritholtz
Isolation. So you start with barely $7 million. Today you have over $35 billion that you're directly overseeing. JP Morgan Chase is giant with trillions of dollars. It sounds like there's a whole lot more headroom for alternatives at JP Morgan to continue growing. Like where do you see this.
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Paul Zumo
Going? Yeah, I mean alternatives are definitely the fastest growing or one of the fastest growing areas within just hedge funds, but more broadly, and there's a tremendous amount of support for it. So yeah, I think for us and for other alternatives, we're going to continue to build, continue to launch new product, continue to.
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Get a larger reach.
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Into other client types and geographies. So yeah, the future is extremely.
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Barry Ritholtz
Exciting. So I mentioned earlier, 30 pearls of wisdom for 30 years. I want to dive into that in a moment. I have to start with one quote that kind of caught my eye. And we talk about this all the time. Culture is king. The road to failure is paved with poor cultures. Explain what led you to that.
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Paul Zumo
Conclusion? Well, experience. I mean.
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Barry Ritholtz
You. I don't.
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Paul Zumo
Know. I mean, hedge funds fail for and succeed for different reasons, but culture is definitely at the heart of many of it. And I'd say more importantly, like, sometimes people ask, what are. You know, what, what's. Like, what do you think about most as your takeaway having been doing over 30 years? Like, for us, it's. For me, it's culture. Like, the culture that we've built as an organization has been spectacular and clearly a.
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Barry Ritholtz
Differentiator. Is that what's kept you at JP Morgan Chase for 30 years? That's kind of rare these days. Most people don't stay at one shop almost their entire.
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Paul Zumo
Career. Yeah, it's a couple things. I mean, culture and the team, you know, it's like a family for sure. And we make each other better. We challenge each other.
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IBM Advertiser
Respectfully.
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Paul Zumo
We. We really enjoy each other's company and appreciate our differences. So, yeah, that, that's been, that's been great. Leadership of Jamie is, Is unparalleled.
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Barry Ritholtz
So.
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Paul Zumo
Jamie. Jamie.
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Barry Ritholtz
Dimon. Oh, I've heard of him. Remind me to tell you a funny story about him.
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Paul Zumo
Later. And then lastly, like, you know, the job itself allows you ob. Meet with some of the best investment minds in the world, which is just such a privilege. And then to be able to dig in deep on so many different asset classes, so many different geographies, you're constantly learning. So those three things for sure.
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Barry Ritholtz
I mentioned, you're not exactly very public facing, you're a little below the radar, but you publish these really interesting things. And one of my favorite pieces you wrote was 30 pearls of wisdom from our last 30 years. We don't have time to go through all 30, but I picked a few.
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That they're just so simple and yet so insightful. And we tend to overlook things like this. This one just jumped out. Don't buy the portfolio, buy the process. Stories change positions are fleeting, but a robust investment process should endure. That just sums up so much in two sentences. Tell us about.
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Paul Zumo
That. Yeah, no, it's definitely one of my favorites as well. I mean, it applies to all different types of hedge funds, but I'd say especially discretionary macro. Right, so you're interviewing a discretionary macro manager the vast majority of them are very smart, they tell a very good story, they have great views, but it doesn't necessarily mean they're a moneymaker. And again, I think sometimes people make the mistake of agreeing with the view, agreeing with a manager, getting seduced by someone having insight. Obviously it's really important. But again, it doesn't necessarily speak to the process. And especially in something like discretionary macro where it's not a high sharp strategy, it tends to be more volatile strategy. And if you don't develop that conviction, and again, first and foremost in the process, you can get shaken from, you know, from that.
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Barry Ritholtz
Idea.
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Paul Zumo
Right. The ideas change. The process should endure. So really, really important, for.
- [17:37]
Barry Ritholtz
Sure. Have the courage to make mistakes, mitigate unnecessary risks, but take calculated bets. Again, two simple sentences. So much involved in that. Yeah, I find a lot of people in our business don't like to admit.
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Paul Zumo
Mistakes. Yeah, I think it's, it's something, not the admitting mistakes so much, but the courage to make.
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Barry Ritholtz
Mistakes. When I think about take a risk, calculated.
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Paul Zumo
Risk. When I think about things that I've done better over the years, definitely one of them that comes to mind where I've given myself more freedom to make mistakes and to maybe size and lean into themes or high conviction managers to a greater degree as well where I think maybe there's a perfectionist and many of us and sometimes the flip side of that or the problem with that is you become too conservative. Right. So now, yeah, if you make a mistake, you need to, you need to figure it out quickly and change course. But allowing yourself to maybe make mistakes is definitely.
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Barry Ritholtz
Helpful. Coming up, we continue our conversation with Paul Zumo, Chief investment officer at JPMorgan Alternative Asset Management, discussing 30 pearls of wisdom from our last 30 years. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg.
- [18:58]
Hannah Fry
Radio.
- [19:19]
Right now, bad actors are harvesting our data, hoping to decrypt it later using quantum computers on so called Q Day. I'm Hannah Fry, host of the Exponential Era, a series that explores the real world impact of future network technology. And I sat down with two experts to discuss how we protect our data from this quantum threat. Find out what I learned@Bloomberg.com Nokia.
- [19:47]
Lenovo Advertiser
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- [20:14]
Paul Zumo
Lenovo.
- [20:15]
IBM Advertiser
Lenovo.
- [20:21]
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- [20:39]
Paul Zumo
Business.
- [20:40]
IBM Advertiser
Business. Let's create Smile to Business.
- [20:43]
Barry Ritholtz
IBM.
- [20:51]
I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Paul Zumo. He is Chief investment officer at JP Morgan Alternative Asset Manager, helping to oversee $35 billion in external hedge fund assets. He's also chair of the Alternative Asset Management Investment Committee. He co founded the group back in 1994. I really like this. Don't be afraid to run into fires. Some of the greatest investment opportunities and manager access are sourced during this location. Tell us about running into.
- [21:27]
Paul Zumo
Fires. Yeah, so this.
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Is obviously really important. I love behavioral issues and behavioral finance and the challenges that come to that. Of course, we're all wired inappropriately from an investment standpoint and that we're wired to avoid pain, which is why many people make the wrong decisions during periods of crisis or periods of heightened volatility. I think some managers do a great job. You know, I wrote it about, you know, I guess the manager I had in mind was David.
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Barry Ritholtz
Tepper. You know, runs into fires all the.
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Paul Zumo
Time. You know. Yeah, I mean, it's kind of, you know, less so these days, but certainly, certainly over.
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Barry Ritholtz
His. He moved to Florida, kind of chilled out a little.
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Paul Zumo
Bit. But he, you know, like he always, again, having watched things play out over 30 years, I always thought he did, you know, he's done a really good job. But, and again, like this is something I think we've done a better job at overtime as well. When I think about, you know, the crises, you know, 1998, 2008, 2020, like, you know, as they say, many of these things rhyme. And you've seen it before, like, you know, you, you know what it feels like kind of coming out of it and going in. And if you're playing appropriate defense, like you should afford yourself the opportunity to really lean into where you think there is dislocation, especially more technical oriented dislocation. So yeah, it's critically important. I mean, that's where you make outsized returns during those inflection.
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Barry Ritholtz
Points. So let's talk about outsized Returns. Success can be a dangerous achievement. Complacency, distractions and misalignments can be silent.
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Paul Zumo
Killers. Yeah, So I guess you could come at that one from a couple of different ways, but one of which, the most important is like when you find success, sometimes people, you know, the firm grows, the number of analysts grow, the complexity of the business grows, and the portfolio manager goes from managing portfolios to managing people. And I've seen that movie so many.
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Barry Ritholtz
Times. Maybe they have that skill set, maybe they.
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Paul Zumo
Don'T. And maybe they don't. And that's probably not where you want them to spend their time. So I think if you think about the hedge fund graveyard and what the issues have been over this, there's a big area that kind of has that footprint, if you will. So, yeah, people, the star portfolio manager no longer spending the appropriate time on a portfolio managing people getting distracted or the second piece of it is just quite frankly making too much money. Right. So, you know, when, when I bought the third yacht, I was about to say that it's time to leave. You know, it's time to leave after, before the first.
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Barry Ritholtz
Yacht. But the first time I heard that has to be like 20, 25 years ago. Hey, when your fund manager buys a 40 foot or a 50 foot boat, it's time to move.
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Paul Zumo
On. Yeah, I mean, it's more than Apple. Yes, you have to, you have to watch the personal lifestyle at times as well and make sure people are focused. Now, you know, there are people that are billionaires and they're still in the office 70 hours a week. Right. But, and it's, it's just innate. They don't, they couldn't do anything but that. But yeah, you have to, you know, you have to understand what, what am I buying? And maybe it changes. Right. So maybe that star portfolio manage has built out enough of a team and you're not buying anyone singularly, you're buying something broader and that process mentioned earlier.
- [24:57]
But yeah, it's a risk for sure. And it's an area where many of successful hedge funds have kind of either become potentially mediocre or have had challenges because they've taken their eye off the ball in one way or.
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Barry Ritholtz
Another. Really, really interesting. I love this one. The opposite of long is in short. Great short sellers are wired differently. Don't expect success on the long side to necessarily translate to a successful short book. First, I love the quote. Second, are there really any short sellers left? I think this last run feels like they steamrolled over.
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Paul Zumo
Everybody. So yeah, maybe a couple of Things. So I mean, just on the quote itself, I have to like, of all the lessons learned and all the mistakes we've seen people make that, that one as probably right at the top or certainly right toward the top. Like the opposite of a long is definitely not a short. And sometimes people will suggest it is. I mean, the math is different. Risk management is different. The timing is different. I would even say successful shorting is about risk management first and stock picking second. And you see that. I mean, you've seen that when he 1999, when the Internet that is blowing is go nuts. You see that in the meme stocks. You see that today with quantum computing and some of the AI names. Again, it's risk management first, stock picking second. Timing is critical. Timing and sizing is just critically, critically important. Go.
- [26:30]
Barry Ritholtz
Ahead. I was going to say I have a buddy who used to run a hedge fund trading desk and he always used to say the opposite of love is in hate. The opposite of love is.
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Paul Zumo
Indifference. There you.
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Barry Ritholtz
Go. And it's the same basic. And he was talking about stocks, but it's the same sort of thing. They're not mirror images, are.
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Paul Zumo
They? No, definitely.
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Barry Ritholtz
Not. Are there any short sellers around? I know like 1-3030s have become popular. Yeah, A lot of quants approach it that.
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Paul Zumo
Way. So maybe there's two, you know, two different aspects of it. So there are successful and good short sellers out there. I'd say there are. There are, you know, less that are dedicated short sellers. So from 1995 to 2008, we use dedicated short sellers and short bias managers. And, and it was really interesting and actually a tremendous source of Overall Alpha. After 2008, we no longer use dedicated short sellers and short bias managers. So I don't follow the space nearly as much, but there are certainly good ones within longshot equities, maybe. I'm sure there are some on a standalone basis. It's a very difficult business.
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Barry Ritholtz
Model. Tough.
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Paul Zumo
Gig. One of the interesting things in short selling, which I think people don't, you know, I don't know, I've never heard it spoken about before is, you know, and this again, this is dated. But the, when you, when you looked at again, let's say pre 2008, where there were probably, I don't know, I don't know. There's, you know, certainly a few dozen dedicated short sellers and short bias managers. I want to say like 40% of them were women. Really? Which, which people.
- [28:01]
Barry Ritholtz
Don'T. That's.
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Paul Zumo
Fascinating. You know, so Charlotte Yu, Stephanie Ross, Dina Galante, like all, all these, you know, very successful short sellers. And in an industry that was more male dominated, it always struck me as just really interesting that in that segment that, you know, an overwhelming amount, at least on a percentage basis, maybe, you know, maybe it wasn't greater than 50%, but like, but compared to the rest of the.
- [28:25]
Barry Ritholtz
Industry. It was.
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Paul Zumo
Outsized. It was outsized. You know, it's just, it's just.
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Barry Ritholtz
Interesting. There have been a number of academic studies that say female fund managers outperform their male counterparts by anywhere between 50 and 100 basis points. And it's always, you know, the joke is testosterone poisoning. But it's fascinating to hear. I'm, I'm curious as to why female short sellers.
- [28:52]
Is it an objectivity? Is it just a different approach? It's kind of really intriguing.
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Paul Zumo
Yeah. Well, my wife would probably say it's because they don't have the egos of the.
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Barry Ritholtz
Man. Right.
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Paul Zumo
Right. That's the.
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Barry Ritholtz
Poisoning. Absolutely. If it doesn't work out, they cover it and move.
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Paul Zumo
On. Yeah, I think there's probably some. Of course there's great examples of both. But again, risk management and discipline.
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Is definitely the key to successful short selling. So there has to be something about.
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Barry Ritholtz
It. Let's go with another bullet point that speaks directly to that. I love this one. Avoid casinos. Black isn't on a roll and red isn't due. Very few managers add value over time through timing the market, even if it sometimes look like. Looks like it. Don't reward a manager for.
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Paul Zumo
Gambling.
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Barry Ritholtz
Yeah. Again, so much insight in two sentences. Explain how you reach this conclusion, which I just think is.
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Paul Zumo
Brilliant. Yeah. So I give, give credit to Chris Marshall on the team. I think he's the one that came up with that quote. But it really, again, is the observation that the vast majority of managers are. The vast majority of them are good stock pickers, but bad portfolio.
- [30:07]
Barry Ritholtz
Managers. Two different.
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Paul Zumo
Skills. Two different skills and timing decisions. The vast majority of managers are subtracting value from that portfolio of.
- [30:18]
Barry Ritholtz
Matches. Really? The vast majority. You're going to say top quartile, top decile. Where's the alpha coming.
- [30:23]
Paul Zumo
From? I mean, the alpha is coming from like if, if you look at, let's put it this, if you look at fundamental long short equities that live within the pods and you look at alpha generation with them on, on, you know, eternal leverage or whatever you want to say. And then you look at the standalone long short universe and the alpha that's generated there, there's a disconnect. Right. And it's not because they're not good stock pickers. The disconnect I, I think is because the portfolio manage, bad portfolio management or subpar portfolio management is subtracting value from their stock picking. So maybe they were adding 5% of Alpha on the stock picking and decaying that by 3% from portfolio management decisions. I just think it's difficult and there's been tremendous factor moves in the last number of years. There's also issues when you're operating on a standalone basis. Like there's business considerations, rightly or wrongly. Right. So if someone's operating in a 10 Vol and markets are going down and they're in the hole by 8% now, are they acting differently from a point? You know, they should be buying a lot more because the markets are down and things look interesting. But are they, are they, they playing scared? They're playing scared, you know, and I think it's, again, it's not everybody for sure. And there are some that do it. Well, I just think it is very challenging to do. It's much easier to find good stock pickers that are adding alpha than it is for someone to consistently be able to make, I don't know, contrarian or correct portfolio.
- [32:00]
Barry Ritholtz
Management. Well, the old joke is the crowd is right most of the time. So if you're constantly fighting the crowd, you're on the wrong side of the.
- [32:08]
Paul Zumo
Trend.
- [32:08]
Barry Ritholtz
Yeah. Last one. And again another. Another brilliant one. Dinosaurs go extinct. Innovation must be.
- [32:16]
Paul Zumo
Constant. Yeah, and this is for, you know, this is for hedge funds as well as us. And you know, and part of it relates to the manager themselves, part of, relates to strategies. And again part of it, part of it is business model. But when I think about, you know, I think about strategies that we used to invest in in 1995 where you can make a lot of money like SIG merger arbitrage, you know, like merger arbitrage, again, you could, you could make double digit returns. It was less.
- [32:41]
Barry Ritholtz
Competitive. Plus you need mergers and.
- [32:44]
Paul Zumo
You. Well yeah, that, that, that helps for sure. But now like the strategy, I mean there are some very successful people that do it on a standalone basis. Usually they do it with credit or other events. But like it's a much more difficult place to make money. It's, it's become largely commoditized. When it becomes interesting, there's a swarm of money that will kind of go into it.
- [33:02]
Barry Ritholtz
Right. Isn't that true? True for.
- [33:04]
Paul Zumo
Every. Which is why you need sector well, eventually. Which is why you need to innovate. You need to, you know, so let's take like machine learning quant. Right, like machine learning Quant started investing 10 years ago. Like that was novel and, and you know, today it's obviously gaining a lot momentum, people understand it more. But you have to kind of continue to reinvent like from our perspective, need to continue to do look after different strategies, different types of managers to find kind of high alpha. And then from a manager standpoint, again, let's think about quant again. The managers need to reinvent themselves and refine themselves from an alpha standpoint. So like alpha's decay, yesterday's alpha is tomorrow's beta. Right. And a lot of what has made them successful from an alpha standpoint is going to decay. So if you don't, maybe it's 15, 20% is going to decay and be irrelevant each year. So you need to constantly kind of reinvent.
- [34:05]
Barry Ritholtz
Yourself. So when you start putting together the next 30, over the next 30 years, yesterday's alpha is tomorrow's beta. That's number.
- [34:13]
Paul Zumo
31. There you go. That's.
- [34:15]
Barry Ritholtz
Right. So let's talk about what's going on today. Hedge funds have had to adapt to a very challenging era. Certainly since the financial crisis. I've heard financial repression and all sorts of reasons for why some funds have been underperforming. Less volatility, increased dispersion and equity returns. What's going on in the world of hedge funds.
- [34:43]
Paul Zumo
Today? So yeah, the last five years especially have been a great time for hedge funds. So let me maybe frame it and actually we just came out with a paper call hedge Funds and the End of the alpha Winter. And I should do a shout out for Emmy Hodges who did a great job on putting the piece together. But maybe just taking a step back, we identify three big picture variables that really drive excess return in hedge funds. One of them is volatility. Everything else equally one volume higher. That creates dislocation, sloppy trading. It's opportunity. Opportunity. It's the fuel, the fuel of what drives alpha. Right. The second is dispersion. So equity dispersion first and foremost, but wider dispersion as well. So more winners and losers. Obviously if you're a stock picker, that's helpful. And the third is rates being higher than 2% and higher rates help in a number of ways, but both kind of mechanically. Obviously if you have floating rate debt, toefl high rates, but also again, we've seen this like in a period of rising inflation where rates are going higher, that's going to fuel increased volatility. So it's a little circular. Right. But elevated Volatility, or at least normal volatility, elevated dispersion and rates that are greater than 2% when you have those three elements. So even two of those three variables, kind of as a, as a tailwind rather than a headwind, alpha generation is really, really strong. So what we've done is like we looked at three different periods. The first, starting with 2000ish, kind of a 10 year period, I forgot the exact percentage, but a large percentage of the time two of those three variables were at your back, they were helpful. And you saw excess return that was very, very high. The middle period, which is the alpha winter, you had.
- [36:38]
Barry Ritholtz
Tens. Is that what we're talking about? Essentially.
- [36:40]
Paul Zumo
Yeah. 2010. Right. The middle period, this is I think 9ish or 8, 9 year period, which admittedly is quite long, was one that, where you saw a lot of central bank intervention, where those variables were generally depressed. You could think about 2017 realized, follow it being really low. Obviously we had rates at zero for a chunk of that period as well. That was difficult to generate alpha, not only for hedge funds, but more broadly. And that's kind of the alpha winter. We would suggest that that period is abnormal. And even if rates go down, even the volume comes down, you're not likely to go back to a period that's so dominated by that period of central bank intervention. And most importantly, the postscript to that is for the last 5ish years you've gone back to the good old days of alpha generation. So last five years you've had volatility that that's generally normal or higher, dispersion that's really high, and rates that are accommodative as well. And excess return in alpha has resumed and looks very much like what it looked like 20 years ago versus that kind of middle alpha winter.
- [37:56]
Barry Ritholtz
Period. So the past five years have been really interesting. 2022, obviously stocks and bonds down double digits. That seems to happen once every 40 years or so. What about 2025? What sort of role is deglobalization and shifting trade policies playing in shaping hedge fund.
- [38:16]
Paul Zumo
Returns? Yeah, I mean, obviously you have a lot of different, it's a lot of different strategies, a lot of different substrates. So it's very difficult to talk about the whole hedge fund industry as one thing. But when I think about excess return, all the things that you mentioned are generally good for hedge funds. Right. So the rest of the world is getting worried. That is again the fuel of what drives hedge fund returns. Right. So when you see rising volume and that's going to be good from Cisco Arbitrage. It's going to be good generally for balanced stock pickers. It's going to be good for discretionary macro managers. When you see de globalization and some of the trends that come out of that, whether it's onshoring, whether you see some of the moves in.
- [39:02]
Gold, that's good from a trend following standpoint, it's good for discretionary macro managers. When you see Japan increasing rates, the US decreasing rates, that's hopeful because it's two bets, discretionary macro managers in place. It's not just everyone operating in the same way. Those things are good generally because it gives people more of a palliative to an alpha pallet to which to choose from. Place more bets, diversify more, and also heightened volatility and heightened uncertainty is going to be positive for the vast majority of strategies, especially from an excess return alpha.
- [39:40]
Barry Ritholtz
Standpoint. So you mentioned Japan. I'm curious what regions around the world are attracting the most new capital? We've seen Europe suddenly catch a bid. Obviously Japan has been doing well. The rest of Asia, the Middle east and even the US. What areas are attracting new capital and what's driving that.
- [39:59]
Paul Zumo
Trend? Yeah, I mean, one of the areas that we're most excited about for sure and have been leaning in for the last few years is Japanese corporate governance. Now interestingly, if you look at dollar flows into Japan, it's actually not. I mean, it is positive, but it's kind of modest in the grand scheme of things, which kind of shocks me, honestly. And like I don't mind because we're playing events first and foremost, but you really haven't seen that many dollar flows in, which again is unusual given everyone in the world in every way, shape or form is probably underweight Japan and it's obviously inexpensive. But most importantly, you have a material dramatic catalyst that's driving value through Japan. And yeah, we're excited about it. Corporate governance has been talked about in Japan for decades. The reality is, until Abe had his third arrow, which really set off a number of regulatory and policy changes and importantly, cross shareholder relationships started to unwind that really set the stage for increased corporate governance. So again, we've been there for three years. I think we're maybe halfway through what needs to be done and there's still a very, very fertile opportunity set. So that's, that's one. The other thing I would point out is just the Middle East. Now obviously it's not to say that there's a lot of money from an investment standpoint going into The Middle East. But I had just come back from a week long trip in the Middle east and got there maybe 18 months prior. And it's really exciting what's going on. Clearly there's a lot of interest from an investment standpoint in hedge funds and alternatives in the Middle East. There's no question about.
- [41:41]
Barry Ritholtz
It. Is this because all the sovereign wealth funds located in Qatar and Arab Emirates and go down the list, it's.
- [41:51]
Paul Zumo
Certainly coming from them, but it's broader as well. I mean it's family office money in addition to the sovereigns and they're interested in alternatives. They're interested in hedge funds, local.
- [42:02]
Barry Ritholtz
Family office or European American family office.
- [42:05]
Paul Zumo
In the Middle east, all of the above. I mean there's also been which is maybe to tie together one other part. I mean there's also been a lot of movement of people of hedge funds setting up businesses in Dubai, Abu Dhabi and people moving there with wealth and in turn they become potential investors in alternatives. So that's definitely a prominent story as well. The number of people that are setting up in the region are opening up.
- [42:30]
Barry Ritholtz
Offices. So when we used to talk about New York, London, Tokyo, Hong Kong as centers. Do you put Abu Dhabi or Dubai in that list is it's, you.
- [42:42]
Paul Zumo
Know, for the larger, for the larger hedge funds for sure. I think it's becoming, you know, the vast majority of more opening offices or have offices in region. So it is definitely an area that is attracting a lot of, a lot of interest. And then from an investment standpoint, you know, again it's a much smaller market. But there I think the, you know, the policy changes and regulatory changes which allow foreign ownership and as derivatives market starting is encouraging as well. It's early days and again it's not, you know, the breadth and depth of the market still needs to improve. But again it's exciting from that standpoint as.
- [43:18]
Barry Ritholtz
Well. Really kind of intriguing. What are hedge funds thinking about with assets like crypto or gold? How are they dealing with what are some of the biggest winners past couple of.
- [43:30]
Paul Zumo
Years? So you've seen, I mean on gold and precious. But I mean discretionary macro managers have. Many have had that bet on. It's been a very successful bet and theme given concerns on inflation and debt levels. So you continue to see that theme in people's portfolios. Crypto is a little more interesting and specific. Some managers, again mostly discretionary macro managers as have invested in crypto, mostly Bitcoin or eth more from that inflationary debt standpoint. Although others have from other standpoint as well from a trend following standpoint on futures, people have done it a bit on statistical arbitrage side. Some people play it from a cash futures standpoint, from an ARB standpoint as well. But it's still small. At least let's say the traditional hedge funds investing in crypto, it's still small. That being said, obviously you have a large number of like dedicated crypto funds that are trading both directionally as well as as as well as on the ARP side as.
- [44:38]
Barry Ritholtz
Well. Coming up, we continue our conversation with Paul Zumo, Chief investment officer at J.P. morgan Alternative Asset Management, discussing the state of hedge fund investing today. I'm Barry Ritholtz, your listener, listening to Masters in Business on Bloomberg.
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- [46:41]
Barry Ritholtz
Effort.
- [46:45]
I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Paul Zumo. He is Chief investment officer at JP Morgan Alternative Asset Manager, helping to oversee $35 billion in external hedge fund assets. He's also chair of the Alternative Asset Management Investment Committee. He co founded the group back in 1994. So what styles and hedge fund worlds are doing well in 2025? I've noticed over the past few years emerging managers have made some consistent gains. Quants have done well, some of the multi strats have done well. What are you seeing in the rest of the field, some of which even in this high volatility, high alpha market have been.
- [47:32]
Paul Zumo
Struggling? 1 yeah, I'd say so we, we look at pivotal path as you know, their indices. First and foremost I think it's, they're the, they're very, very good quality indices and I think paints a very good picture and that's kind of what I have in mind. So like when you, when you look at it you'd find that most strategies and sub strategies have done pretty well this year in the grand scheme of things. You know, the one exception to that is, is CTAs which have struggled.
- [47:58]
Barry Ritholtz
Even with gold running.
- [47:59]
Paul Zumo
Away. And CTAs got hurt in April where they were very, very long equities and yet liberation day and the markets correct a lot. So you saw a bit of a retrenchment in CTA's performance in April. That got hit pretty hard and they've been trying to piece it together and they have, the last couple months have been.
- [48:22]
Barry Ritholtz
Stronger. To be fair. It's very challenging to, to follow a trend when the trend is dependent on the whims of one.
- [48:30]
Paul Zumo
Person. That, that is.
- [48:32]
Barry Ritholtz
True. Right. Doesn't show.
- [48:33]
Paul Zumo
Up. But the good news is most other strategies are actually doing quite well. Right. So if you look at across relative value, as you mentioned, quant, the multistrap pods convertible bond arbitrage has been good with, with strong issuance discretionary macro. As we talked about some of the themes, whether it's you know, whether it's gold or you know, or rates themes has done well as well. You might say, okay, well the markets are up but it's not just beta, it's alpha. So a couple people have come up with, you know, if you look at the alpha generation this year, it's about 5%, five and a half percent in longshore which is quite healthy.
- [49:11]
And even you know, merger arbitrage events done well. You know, credit's done fine. So I'd say it's been a good year overall with most strategies generating strong single mid single digit to high single digit returns or high single digit returns. And overall definitely a good year for the.
- [49:29]
Barry Ritholtz
Industry. So we've seen the rise of multi strategy managers over the past few years and there have been a number of very large multi strats and it seems to be a direction a lot of funds are heading. How has that changed competition within the industry, is there more collaboration within a multi strategy shop amongst all the different pods? How is that playing.
- [49:52]
Paul Zumo
Out? Well, I think collaboration amongst themselves, I think like, I think there's a.
- [49:58]
Barry Ritholtz
I'm assuming they're not competing, they're not collaborating with the fund across the street. It's all internal.
- [50:04]
Paul Zumo
Right. I'm sorry, collaboration for the pods. Pod or within the.
- [50:08]
Barry Ritholtz
Pods. Collaboration within a multi strat from hey, here's the macro, here's the long, short, here's the quant group, here's the trend group.
- [50:18]
Paul Zumo
What. Yeah, are we seeing so that cross pollinization across, across teams? I think it depends on the model. You know like if you, if you look at the pods obviously there's some prominent ones out there. They, they differ materially from like strategies that they pursue. They differ materially from the culture that they pursue. They, they know they, they just differ in many the risk management approaches is different. So, so it really depends. There are some managers where they are benefiting from maybe cross polarization.
- [50:49]
Across teams or a senate book that's maybe drawing upon best ideas.
- [50:56]
But it's really going to differ kind of pod to pod based on the style and how they.
- [51:00]
Barry Ritholtz
Operate. Fair enough. Let's talk about risk management. There were obviously some lessons learned this year in April and plenty of lessons learned in 2022. What do you think are going to be the most impactful lessons for managers? Looking.
- [51:16]
Paul Zumo
Forward. Looking forward. I mean things we worried about today is just complacency. You know, I mean Mark, anytime you have markets going up for, you know, for, for a while, inevitably complacency develops in some way, shape or form. So we're certainly being, you know, front footed and having discussions where is that and whether it's credit or equity markets and like how do we, or specific areas with hedge funds and how do we guard against that a little bit. But I think some of the events last year like we're talking about, you know, Liberation Day or maybe the Deep Seek event and some managers being.
- [51:48]
Barry Ritholtz
You know, God was deep seek 2025. It seems like decade years.
- [51:52]
Paul Zumo
Ago. Maybe it was, you.
- [51:53]
Barry Ritholtz
Know. No, it was, it was January this year blew everybody's.
- [51:57]
Paul Zumo
Minds. I mean I think it really underscores a couple things. I mean one, risk management for and foremost, right? And certainly, you know, certainly on Liberation Day I think a lot of people were caught off balance in their books and then again oftentimes kind of retrench after that lock and losses. It's not a great recipe. So like sizing positions and sizing Risk across areas, you know, in which people invest are obviously always critically important. And then on deep seq, look, AI is extremely exciting. It's it, it creates tremendous opportunities. But going back to what we were saying about short selling before, it also creates tremendous risk and you know, risk of be just being one sided bet, but also risk of again operating in a long, short fashion and getting thinking about like offsetting risks and, and, and basis and sizing. So those things are critically.
- [52:51]
Barry Ritholtz
Important.
- [52:53]
So speaking of AI, I, I just overheard Paul Tudor Jones speaking to somebody on Bloomberg saying, you know, maybe AI might be developing into a small bubble, but it's not a giant headache. How are you looking at all this bubble chatter, high valuation, concentrated markets. This seems to be part of the wall of worry that markets are climbing. What's your perspective on.
- [53:21]
Paul Zumo
This? I mean if Paul said it, it must be.
- [53:23]
Barry Ritholtz
Right. So you could do worse than following Paul.
- [53:27]
Paul Zumo
Judah. That's right, that's right. I mean look, is it a bubble? Obviously it's real. It's going to be impactful, it's going to be enormously important. It's going to reshape how we do so many, so many things for sure. Is there excess in certain areas related to. There has to be for sure. Again, I think it comes down to risk management first and foremost. Assuming you want to set up a balanced book. It comes down to risk management first and foremost. And if you don't, if you just want to play it from a thematic standpoint, again, it also comes down to risk management just from a sizing standpoint. You need to size it to be able to handle the inherent volatility of it. But is it rich? Well, of course it's rich. Is it a bubble? I don't know. I'm not the best one to say. But it certainly is real. It's certainly going to revolutionize and change our.
- [54:17]
Barry Ritholtz
Lives. Every time someone asks me about it, I like to remind them Greenspan's irrational exuberance speech was 96. You still had a long way to go before that really became a.
- [54:29]
Paul Zumo
Bubble. But also look, look at, you know, we're talking about, you know, dot com, right? So I mean as a little bit of your, you know, your model and your playbook. Right. So I mean obviously Amazon came out of that, but there's a lot, you know, pets.com, you know, dating myself but you know, and I have Metromedia fiber.
- [54:49]
On my desk. You know, like really it's going to be when there's going to be winners and losers, right. And it is Extremely important, extremely powerful. But it's not going to lift all boats at all, all time. So you need to be selective and you need to size it.
- [55:03]
Barry Ritholtz
Right. Makes great sense. Last question before we get to our favorite questions. What do you think hedge fund managers, investors are not talking about, but really should be? What topics assets policies are getting overlooked but.
- [55:19]
Paul Zumo
Shouldn'T? Well, I mentioned complacency a little bit just because where we are in the cycle. But maybe if it's okay, I'll take in a different direction to say, like it's more of a misnomer about the hedge fund industry, which is if that's okay, it's a little different. So like one thing I would say that's frustrating, I think a lot of people get wrong is they look at the hedge fund industry as an asset class. And what I mean by that is if you have an asset class, then and everything in an asset class should be more or less highly correlated to each other. It's the same thing. If you take the 10,000 or so hedge funds that are out there, the correlation across correlation, pairwise correlation is something like 0.2 or.
- [56:02]
Barry Ritholtz
0.25. No way near.
- [56:03]
Paul Zumo
One. It's nowhere near one. So what you really have is a collection of strategies, a collection of sub strategies. Importantly, the characteristics of those strategies are just vastly different, different from each other in many cases. And the way you use them in a portfolio is vastly different. So when people think about the hedge fund industry and they're looking at a hedge fund benchmark which is. Or like 10,000 funds cobbled together, oftentimes they look at it and they're like, well, I don't know what to make of this. It has an okay return and an okay volatility with okay characteristics. Maybe I don't need it. It. And it's the right conclusion to the wrong answer. Right. And. Oh, I'm sorry, the right conclusion from the wrong.
- [56:49]
Barry Ritholtz
Question.
- [56:49]
Paul Zumo
Right. And.
- [56:52]
Again, the observation is correct. But really the question is, can I look at subsets of this industry that are deeply valuable rather than just looking at the whole thing as a whole? And we would strongly suggest that if people are just looking at the aggregate industry.
- [57:11]
They'Re missing a point. That beneath that there are strategies and sub strategies and certainly managers that are adding enormous, enormous value that's being overlooked by someone who's plugging the average into an.
- [57:25]
Barry Ritholtz
Optimizer. I'm so glad you said that because over the course of 25, 30 years, I've watched the hedge fund industry change so dramatically. And my own views on it have evolved. It's very easy to look at a broad index and say, gee, this is expensive and doesn't generate great returns. But again, depending on where you want to draw the line, top quartile, top decile, when you look at the top performing funds, there is genuine alpha.
- [57:54]
Paul Zumo
Generation. Yeah, for sure. And interesting. Like if we would have met 25 years ago, 15 years ago, I would have said the same thing. Is that I'm not here to say the hedge fund industry as a whole is such a tremendous value proposition. That was never the thesis. The thesis is more. Are there 100 or 200 managers out there that are adding enormous value? Yes. And can through great due diligence, can myself and other people find them? If they spend the time and do a great job? Yes. And is that tremendously value in portfolios? Yes. But it's not about the hedge fund industry as a whole. And the averages are going to knock the lights.
- [58:40]
Barry Ritholtz
Out. Jim Chanos has this quote I love. He says when he started out in the late 80s, early 90s, there were a couple hundred hedge funds and they all generated Alpha. Today, there's 11,000 hedge funds, and it's the same 200 hedge funds generating alpha, which. There's a lot of truth to Sturgeon's Law. There's a lot of truth. Truth to 90% of everything is not.
- [59:03]
Paul Zumo
Great. Yeah, Yeah. I don't know if it's the same 200.
- [59:06]
Barry Ritholtz
But. No, you said the same number. Not necessarily the same funds. They come and.
- [59:11]
Paul Zumo
Go. Yeah, look, it's a, it's an industry and an asset class and a, A fee structure that attracts a lot of people. But, and, and, you know, and, and many of them deserve that fee structure, and many of them are. Are great. But yeah, it, you know, obviously you need to be.
- [59:29]
Barry Ritholtz
Selective. Absolutely. All right, let's jump to our favorite questions that we ask all of our guests, starting with. Tell us about your mentors who helped shape your.
- [59:39]
Paul Zumo
Career. Sure, I think so. Two. Two come to mind. I mean, if I go back, really, you know, back to high school and I'm forgetting. I'm forgetting his name. It's my wrestling.
- [59:51]
Barry Ritholtz
Coach. I swear to God. I knew you were gonna say that is.
- [59:53]
Paul Zumo
My. Yes, my wrestling coach. He was my economics professor. And this is when I first started getting interested in investments and started reading, you know, I don't know, some of like the classic books from way, way back when. One of the reminiscences of stock, you know, and he was the one that kind of encouraged and we actually played this game at the end of the year, which was like a stock market game, and I actually found an arbitrage, and we made. Made more money than anyone had ever made, you know, and he's like, you know, that's kind of like real life finance. You should, you know, if you. If that interests you, you should exploit. So I. I credit him for kind of pushing. Helping push me in. In that direction. And then from a career standpoint, I. I mentioned Joel Katzman, you know, hired me to, you know, start the business with him. And, yeah, he was really instrumental. I mean, one of the things I don't think, think we spend as much time, but, like, skepticism is really important. I'm a deeply skeptical person. I think it helps you navigate things. It's one of the pearls of.
- [60:56]
Barry Ritholtz
Wisdom. Be a skeptic. Approach due diligence from the perspective, where does this.
- [61:01]
Paul Zumo
Break? Where does it break? Yeah, and I mean, it's like approaching due diligence. I give an analogy of, like, thinking about a balance sheet where people. Again, behavioral biases. You know, too many people say, approach it from the asset side. How much can I make? What's the story? You need to approach it from the liability side. Like, what can go wrong with this manager? What can go wrong with the strategy? Where does it break? And then turn to the asset side and effectively say, am I getting compensated for that? Right. And you could teach people some of that, but part of it has to be innate as well. You need to be innate. Skeptic, maybe. So any case, Joel. Joel, I think, shared my skepticism for sure. He certainly taught me a lot about the business and, and, you know, running a business. So, yeah, you know, props to.
- [61:48]
Barry Ritholtz
Joel. Let's talk about books. Since you mentioned some books. What are some of your favorites? What are you reading.
- [61:54]
Paul Zumo
Currently? Yeah, so books. So I have a. I. So we invested around 120 hedge.
- [61:58]
Barry Ritholtz
Funds. And that's what you're.
- [62:00]
Paul Zumo
Reading? Vast majority of what I'm reading is their letters, their research, you know, my. My analyst research. And that's the va. You know, it's the vast majority. And then, like, Michael Semblass does great.
- [62:12]
Barry Ritholtz
Work. Love his.
- [62:13]
Paul Zumo
Work. Really, really good work. So I have to say that's consuming the vast majority of my time. The last. The only thing that stands out, there's a book. What is it? Speak Like Churchill and Stand Like Lincoln, that my old boss, Jamie Kramer gave to me, which is about public speaking, which is actually really good, insightful. Like, easy, easy. Read.
- [62:33]
Barry Ritholtz
Book. Speak like Churchill, stand like.
- [62:36]
Paul Zumo
Lincoln. Yeah. And it's a real, real easy read to, you know, just some, like, reinforcing some good lessons of. Of public.
- [62:46]
Barry Ritholtz
Speaking. You mentioned Michael Semblist. So I consume his regular output. And then the JP Morgan Quarterly Guide to the Markets is just a spectacular, spectacular resource agreement. Really, really find it amazing. Let's. Let's talk about what's keeping you entertained these days. Are you watching or listening to.
- [63:08]
Paul Zumo
Anything, well, interesting, like Netflix and, you know, so. Yeah, well, so I have a five and a half year old, and so she's. She's dominating my. The Netflix account. Usually it's the K Pop Demon.
- [63:25]
Barry Ritholtz
Hunters. That's the number one thing on.
- [63:27]
Paul Zumo
Netflix. I was gonna say. I don't know if you know. Know what that.
- [63:29]
Barry Ritholtz
Is. Every time I'm searching for anything, I put it on for 30 seconds and my wife is. What are we watching? Can you take.
- [63:36]
Paul Zumo
This? Yeah. So unfortunately, it's. It's a little. It's. It's a little too much of K Pop Demon Hunters, but, you know, away from. Away from work, I like wine, so it's probably some podcasts or related to wine just to when I'm not reading the, you know, all right.
- [63:56]
IBM Advertiser
Notes.
- [63:57]
Paul Zumo
So. But there's a. There's a great one called Wine with Jimmy, which is Wine with. If you want to do a deep dive on. Yeah, yeah.
- [64:05]
Barry Ritholtz
That'S. I literally just bought.
- [64:09]
The. I forgot the name of it, but during Amazon prime, it was on my wish list, and it was like 98 bucks, and it showed up for 30 books. The. 30 bucks. The Atlas.
- [64:20]
Paul Zumo
Guidance. Oh.
- [64:21]
Barry Ritholtz
Yeah. Wine around the.
- [64:22]
Paul Zumo
World. That's a fat.
- [64:23]
Barry Ritholtz
Book. Fat. And I'm like, all right, that's absolutely worth having on the, on the dry.
- [64:28]
Paul Zumo
Bar. Now you have to read it. You look. You look. Look good look, you look smart with.
- [64:32]
Barry Ritholtz
It. It's more of a re. A reference guy. But give us some of your favorite wines. If you're not gonna give us more books, give us some wines. What do you love? What do you drink? What do you.
- [64:41]
Paul Zumo
Like? Well, this is. I mean, I like. I like red more than white. I like, you know, a. I don't know, a. Like a Barolo. So a nice tannic red wine. So I drink Barolo.
- [64:56]
Barry Ritholtz
Tempranillo. So we're always looking for a house wine. Just like something reasonable that you could pop open anytime. This entree, Natali Virga, is about a $20 bottle, and it drinks like a $50.
- [65:12]
Paul Zumo
Bottle. Finding those values. Where's it.
- [65:15]
Barry Ritholtz
From?
- [65:16]
Paul Zumo
Italy.
- [65:16]
Barry Ritholtz
Okay. But they only, like, it's A small winery, they make, you know, a few thousand cases. You can't get, like, I'll get a case. And that's.
- [65:24]
Lowe's Advertiser
It.
- [65:24]
Barry Ritholtz
It's. You're done till next.
- [65:26]
Paul Zumo
Year. Well, we'll swap great value wines.
- [65:28]
Barry Ritholtz
After. There was another one called Xanthos that was a meritage. X A N T H O S. Okay. And the 2017 was spectacular. You can't find any. Yeah, it was like a $15 bottle of wine. Drank like a 15, a 50 bottle of wine. I. I don't feel like I have a palette to go much beyond that. Like. All right, I.
- [65:48]
Paul Zumo
Appreciate. Listen, if you could find 20 bottles of wine and drink, like, $60. But, you know, I have. I'm forgetting your name, but I have a Sangiovese like.
- [65:57]
Barry Ritholtz
That.
- [65:57]
Paul Zumo
Yeah. Which I found at one of the wine. You know, you. You go to these, like, wine tasting events, but you. You go around and you could taste wine, taste.
- [66:05]
IBM Advertiser
Things.
- [66:05]
Paul Zumo
Right. It could be blind. But this is like a James Suckling one. You taste all different types of wines, and then. I don't know, for me, I take pictures of the ones I like. And then you go back, and then you look it up, and some of them are like $150, and you're like, oh, I didn't find anything. And then you see one that's like 20 bucks, and you're like, all right, maybe I found the.
- [66:26]
Barry Ritholtz
Jewel. Right. It's easy to get disappointed in a $150 bottle of wine. A$20.
- [66:32]
Paul Zumo
It's. There's a lot of great wine out.
- [66:34]
Barry Ritholtz
There. And then you go to Italy and you sit at a cafe and you get an $8 carafe, and it's the best thing you've had. Right. It's just so crazy trying to figure. Figure that out. So our final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing or hedge funds or.
- [66:54]
Paul Zumo
Alternatives? Yeah. So, I mean, first, you know, and I guess it's cliche, but, like, the, like, do what you love thing is so real and valuable, but I think you have to, like, find what you love first. Like when you're. When you're 20 years old. I don't know that.
- [67:10]
Barry Ritholtz
Anyone. It's a big world.
- [67:11]
Paul Zumo
Yeah. Like, has a great vision on it. I would say, like, trust your instinct, you know? So, like, it's obvious to me today why I'm doing what I'm doing. It's like, this is. I don't know. I'm skeptical. I'm structured I'm creative, like, curious. Like it makes sense today. It's, it didn't make sense completely at the time, but like, you follow your instinct. You're like, oh, I love to do this. So I'm working on the weekend every week because, like, this really intrigues me and it's interesting and like, you know, I don't know, they did not pay me and I'm still doing this, right? So like, I think being true to yourself and really exploring, like what makes you happy, what makes you, you know, intrigued, what really makes you dive deep on things and then continuing to lean in and continue to pursue it and learn, learn more and more. Maybe the second part of it is just be a student of history. So whether you. So I like baseball and you know, I think like when I was young, like how much I learned about the, you know, ty Cobbs and DiMaggio and Ruth's and everybody. Like, I think if you're a baseball player, like, you should know the history. If you're going to the hedge fund industry, like, you should know the history. When I say David Askin, you know, you should know that it, you know. So like, like take the time to understand the history because a number of reasons. One, it gives you context. But two, the mistakes and the opportunities often rhyme with each other. Investing in 2020, in March 2020, turns out it looked a lot like 2018, 2008, 1998. There were elements that are very, very similar. And being a student of history helps you navigate much better in the.
- [68:52]
Barry Ritholtz
Future, to say the very least. Final question. What do you know about the world of investing and hedge funds today that would have been useful back in 1994 when you were first launching JP.
- [69:05]
Paul Zumo
Morgan Alternative Asset, there was no Internet, right?
- [69:11]
So back in 1995, I don't know, we knew a fraction, we knew 5, 5% of what we knew today, but it was 50% more the next person knew, right? So I mean, it's all about, it's all about getting, you know, it's all about getting an edge and continue to reinvent yourself. I think the biggest, the biggest lessons learned for, you know, for us, but for the industry is, and what I would have taken back if I could is just the depth of understanding on financing. So, you know, in financing agreements, right, like prime broker agreements and term and triggers and all, all sorts of things have caused problems over the years. If you could take that one and it's caused a lot of pain historically. From time to time, if you had that knowledge and you pull that back to 1995. Wow. You would be able to navigate near seamlessly across the industry in a way that was much bumpier for everybody along the.
- [70:13]
Barry Ritholtz
Way. Paul, thank you. This has been absolutely fascinating and thank you for being so generous with your time. We have been speaking with Paul Zumo. He's Chief investment officer at J.P. morgan Alternative Asset Management. If you enjoy this conversation, well, check out any of the 600 we've done over the past 12 years. You can find those at Spotify, iTunes, Bloomberg, YouTube, wherever you find your favorite podcast. And be sure and check out my new book, how not to Invest the Ideas, numbers and behaviors that destroy wealth and how to avoid them wherever you buy your favorite books. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Anna Luke is my regular producer. Sage Bauman is the head of podcasts here at Bloomberg. Sean Russo is my researcher. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg.
- [71:15]
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Paul Zumo
Lenovo.Com.
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Janice Torres here and I'm Austin Hankwitz. We host the podcast Mind the Business Small Business Business Success Stories, produced by Ruby Studio in partnership with Intuit.
- [72:02]
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QuickBooks. We're back for season four to talk to some incredible small business.
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Paul Zumo
Owners. The big thing about working at tech is that it's ever evolving, ever changing. Everyone's a rookie. That's how fast the industry is changing. So what I'm really excited about is to be part of that change. So Listen, on the iHeartRadio app, Apple Podcasts, or wherever you get your.
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Paul Zumo
Briefs. Oh.
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