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Citadel's CEO Ken Griffin on why corporate America is staring hard at its AI bills:
"Corporate America has been very uneven in its ability to extract value from AI models."
"At what parts of their business do they need to pay extremely high pricing for the state-of-the-art models from OpenAI and Anthropic? And what part of their business can they run on open source models at a fraction of the cost?"
"If you look at some of the companies that have really just done incredible things with AI, they are quickly becoming very thoughtful on maximizing the return on their spend."
"I think all of corporate America is looking at their bills from Anthropic and OpenAI and going, okay, we need to think about how to make sure we're getting productivity out of this."
"And they will in many areas, but in some areas, you've got a lot of waste and people are going to have to pivot around that."
Balyasny's founder Dmitry Balyasny on why running a multi-manager is closer to running JPMorgan than making market calls:
"If you look at Jamie Dimon running JPMorgan, he's not adding a lot of value saying the S&P is going to be up or down or ten-year rates are going to be up or down for the next few weeks or few months. He's building a business, setting strategy, hiring the right people."
"The role of running a large multi-manager firm is closer to that. Now we're probably not as smart as Jamie Dimon, certainly not as good of a manager."
"The job is much more talent development, culture setting, strategy setting, risk allocation. It's less about a particular big trade on something or a particular market view."
"When we started, I was running 100% of the risk, then you're running 90% of the risk, then you're running 80% of the risk. So today it's very small."
"The common person you might talk to at a cocktail party will think that the majority of your value is saying the market's gonna be up or down, and that's definitely not the case."
Citadel's Head of Global Equities Justin Lubell on why Citadel's technology is an exoskeleton, not a substitute for stock picking:
"It's absolutely a human business. We do have great technology, great resources, great infrastructure, and those all help our competitive advantage, but this is a human business, deeply human."
"The humans are the people who are meeting with management teams, on the ground looking at facilities, looking at sites, doing channel work and trying to understand how businesses are performing."
"I actually try to describe what we offer as an exoskeleton: we're all going to go into battle, and we're going to be on the same battlefield."
"The infrastructure, the technology, all of those things, that's like suiting up so that you have the right tools for the battlefield."
"But if you're not a great stock picker, there's not much we can do to help."
Hedge Fund Clips retweeted
Ex-Goldman Oil Derivatives Trader Simran Singh (@0xturbanurban) on the day oil went to -$37.63, why every trading strategy is momentum or mean reversion, & losing $3.12M in a single day.
Simran Singh (Goldman Sachs oil derivatives trader, on the desk when WTI went negative | GSR Head of DeFi Trading | Now CEO & co-founder of @MonacoTrading)
"You can't touch an interest rate curve, but you can smell a barrel of oil."
We cover:
- Pricing oil options at 300-400% vol the day WTI went negative
- How Goldman's oil desk monetizes client flow (80-85% was producers hedging)
- How producer hedges turned a market-risk problem into a credit problem in 2020
- Why market making is really a bet on mean reversion
- The perp funding trade: anyone can do it, very few can do it in size (15% carry even on the CME)
- "My size your price, or your size my price"
- Who's printing money right now: OTC hedging in power, compute & AI
- Why there's no venue to trade electricity, and how Monaco wants to fix that
Highlights:
00:00 Intro
00:58 The day oil went negative: April 2020
06:07 How Goldman oil traders monetize client flow
18:30 Every strategy is momentum or mean reversion
22:53 Goldman to GSR
28:26 The perp funding trade
34:48 Sell-side to buy-side
42:27 The AI complex & agentic trading
48:21 The Monaco Exchange thesis
53:13 Decentralizing futures listings
Hedge Fund Clips retweeted
Risk units are the hard part; return units are easy.
Alan Waxman Co-Founder and CEO of Sixth Street explains:
"So return units are easy."
"Risk units are a lot harder."
"first of all, what's the quality of the business?"
"The second thing is where do you sit in the capital structure?"
"exact same company, exact same sector in Australia, if it were in Ukraine, you're probably gonna demand higher than 15%."
Ex-Two Sigma quant Omer Cedar on how a bet between Marshall Wace's founders turned an intern's summer project into a $10 billion strategy:
"One of the pioneers is a manager called Marshall Wace. They started a program called TOPS where they really pioneered alpha capture."
"It was a bet between the two founders. One basically said, the sell side has no value. They're simply just parroting off information that they read. And his co-founder said, no, no, I think the sell side has value."
"So they hired an intern to collect sell-side ideas for an entire summer, maybe a six-month period, and test out whether those ideas had value. It turns out that the sell side does have some value."
"They actually gave the intern (by the way, one of the most successful people in this market) an opportunity to start a strategy on the basis of this summer project that he had."
"And lo and behold, about five, six years later, they're running almost $10 billion off of that strategy."
Balyasny's founder Dmitry Balyasny on why Balyasny refuses to have a house view:
"It's mostly bottoms up. We're a firm of specialists, and we don't want to have a lot of correlation between all the different pockets because it kind of defeats the purpose."
"If you can put together lots of uncorrelated P&L streams, you can run a little bit more leverage overall and benefit from that lack of correlation and have fairly consistent returns. So we don't really want a house view."
"House views tend to be very generalist-y, and those kind of things are very hard to have a high Sharpe on."
"Somebody arbitraging the difference between related securities, similar bonds or similar equities in a particular sector, they tend to have a higher Sharpe than somebody that says the world's coming to an end or the world's amazing. Those are very hard calls to consistently make."
Point72's founder Steve Cohen on what every hedge fund strategy really comes down to:
"I was interviewing somebody who does European gas the other day, okay?"
"If I was just doing equities as a hedge fund manager, tends to be pretty same questions all over and over again."
"When you're dealing with different strategies and different approaches, you have to really get into the particular strategy and the nuances of that strategy."
"But in the end, what are you doing in all cases? You're taking risk. And then the question is how do you manage that risk?"
Citadel's Head of Global Equities Justin Lubell on the housing stock his old PM wouldn't let him buy, and how Citadel would back it today:
"Almost every investor that I speak to has some set of ideas where they say, I know I'm right, but I couldn't hang on. And really what they're describing is that they believe in their ideas, but they didn't have enough duration to hold on to them."
"I pitched my portfolio manager a company that I really wanted to buy. It was a housing-related stock. And he said, no, we can't buy it because I'm bearish on housing."
"And I said, well, what would it take for me to give you conviction in the idea? And he said, nothing. I don't want to be long housing."
"So today, I describe the way that we try to invest at Citadel as being like an alpha laser beam. If you can find a great company in any sector, in any neighborhood, on any block, we can help you figure out a way to invest in that company."
"If it's a housing stock and you're worried that the housing cycle is turning, we can still help you invest in that company."
Hedge Fund Clips retweeted
Andreas Stamatakis asks students paying for college to separate two purchases: the education and the credential attached to it.
The admissions advisor points to free MIT and Harvard course material online as an example of learning being available beyond a paid degree. He argues that part of the price of college buys the status and prestige attached to a school’s name.
That distinction drives his go Ivy or go free argument. He believes the education itself is available from many places, which makes the value of the credential a separate question for a family weighing the cost.
“If you're not getting that prestige or the degree, then the thing you're actually paying for is just an education product.”
He urges students to look for a less expensive route when they are paying primarily for the learning.
“And so there's almost always for most students an option that if it's not literally free, it's pretty close.”
Ex-Point72 Head of Prop Research Kirk McKeown on the test every hedge fund research function has to pass:
"At the end of the day, every PM on the street is being evaluated on three things. Number of at-bats, hit rate against said at-bats, and then sizing against that hit rate."
"If you're building a function to inform a PM's process, and I'm genericizing it because it's actually universal, you need to help them generate more ideas, have a higher hit rate against their ideas, or help them improve their slugging percentage and/or conviction."
"If you're not creating lift in one of those three buckets for a hedge fund when you're running a research business, you don't have a research business."
"Where I've always found the best place to try to play there is in the middle bucket: hit rate, being right more than wrong."
Hedge Fund Clips retweeted
$480M Hedge Fund Manager David Orr (@orrdavid) on whether a young investor should start at a pod shop:
"Let's say you don't make it after two years and they show you the door. If you can actually bring yourself to mentally reset, now you're 24, 25 or whatever, just go try doing it my way after. That's fine."
"Pod shop's cool. Let's say you get the foot in the door, they make you a PM, you're going to earn like tens of millions of dollars."
"I'd say probably, to their credit, you have a better shot their way, maybe."
"I swear I got started investing late only because I believed my economics professors that the markets are efficient."
"Let's say that you know that this is wrong and you're like 17. You could just have an account at 17 and already be doing it my way before you even get the opportunity to work at a pod shop."
"Just start. There's no reason to wait."
Hedge Fund Manager David Orr (@orrdavid) on why he’ll back a delivery guy over a Harvard grad, as long as the track record is real.
David Orr runs Militia Capital, a ~$480M hedge fund. ~50% annualized, Sharpe 2.
“If you didn’t go to Harvard, they’re not going to give you money. They’re gonna lead you on for years.”
We cover:
- Edge is just reps. He's placed a few hundred independent bets every year since 2019, more in one year than a lot of hedge fund managers get in a decade.
- The two-hour rule: if he can't decide on a stock in an hour or two, he skips it. When a trade goes against him, he quits. "The market said I'm wrong, I'm wrong."
- 500 positions in his partition and zero notes. Some of his best shorts are down 40% and he's forgotten what the company does.
- The Gogo lesson: he spent 100 hours on a short and was right on the fundamentals (it's now $2), but it ripped to $20 first. All that research made him stubborn on the way up.
- The AI risk system: it groups the book into custom baskets like "Banks Done Right" and "yield traps," recalculated daily. A 25% bet can quietly become 45% in two weeks.
- How Militia recruits PMs: 95% of track records are junk, and one cherry-picker ran 30 accounts and sent the best one. The PMs who make it include a game show winner, a Spanish government worker and a programmer, with 0.15 cross-correlation.
- The best short seller in the world, quietly: 40% a year short only for years, and he still gets a tiny allocation at his fund.
- Why multi-managers' real business is marketing. Collect $2B a year in fees on $100B and it's "mission accomplished," whatever the returns.
- The long/short tax trick: harvest losses on losing shorts, and never cover one that's down 90%. No tax is due until it's delisted, which can take 10 years.
- $150M raised from one email asking LPs for $100M. He says he could raise a billion but won't, and admits they "must have gotten at least somewhat lucky."
- His AI stock map: hyperscalers locked customers into take-or-pay deals at ~35% return on capital. If compute prices crash 80%, the end customers get wiped out, not the hyperscalers.
- Is investing 99% talent? For big alpha, almost entirely. Pod shop alpha is teachable, maybe for 1 in 50 people rather than 1 in 10,000.
Highlights:
00:00 Intro
00:44 How AI custom factor baskets track dynamic correlation in levered portfolios
03:24 Sourcing non-consensus PM talent and verifying live Sharpe track records
07:24 Structuring carry and tax deferral to attract elite proprietary traders
12:50 Why institutional multi-manager platforms fail to back pure alpha
20:22 The two-hour research limit: Avoiding sunk-cost bias in short selling
27:58 Momentum screening vs deep value: Why top longs hit new highs
29:40 Why traditional finance books fail and what operator biographies teach
37:16 Why rapid technological adaptation beats traditional economic moats
39:26 Analyzing the AI trade: Why hyperscalers offer superior downside protection
44:57 Internalizing stock borrow desks to maximize net-of-fee fund compounding
55:25 Avoiding confirmation bias and why shorting revenue growth fails
01:01:42 Pod shop leverage factories vs raw discretionary alpha generation
01:07:12 Unplugging from market narrative feeds to preserve independent conviction
AQR's Managing Director Peter Hecht on why most 'diversified' portfolios are really just equities:
"Most portfolios, no matter how many line items they have, explicitly have a ton of equity risk or have investments that are so highly correlated with equities, we can just call it equities."
"If I say the S&P is up a lot, what does that tell me about your private credit? And you tell me, oh, it's up. And I tell you the S&P is down a lot, what's up with your private? Oh, it's down."
"Credit is sort of like mini equities, right? They don't do well when there are massive recessions and they can do well in an expansionary period."
"In most people's portfolios, 90% of the risk can be explained by some type of equity factor, no matter how diversified it looks when you look at all the line items."
Hedge Fund Clips retweeted
When a position goes against you:
Point72's founder Steve Cohen
"I mean, listen, you gotta keep processing information."
"You gotta remember the way we do things, one stock is part of a bigger portfolio."
"Let's say you own a stock and it's going down, you may have shorts against it, protecting you. We run long, short, we don't necessarily just run long."
"You gotta recheck your work and, you know, make sure that you're not missing something. I mean, you can't know everything."
"And you may want to add if you've done all the work and decide, hey, this is a great opportunity."
Hedge Fund Clips retweeted
You see why I call them the Balyasny Bama Bros now?
Balyasny founder Dmitry Balyasny on why University of Alabama kids can do just as well as Ivy League kids at his fund:
"Kids from, you know, Harvard and Princeton, and they've done great, and we've taken kids from, you know, University of Alabama, and they've done great"
"Everybody's hardworking and has a level of intellect in this business"
"We also love like looking at places where the school is like, okay, not top 20, it's like top hundred"
"Like we love those kinds of kids."
Citadel's Head of Global Equities Justin Lubell on why Citadel neutralizes market beta but not factors or themes:
"Sometimes people are surprised to hear it. They say, oh, Citadel, they invest factor neutral or beta neutral. We are not factor neutral at all. We are not thematically neutral at all."
"We are beta neutral. We don't want to take pure beta risk, but we take a lot of factor risk."
"What we really endeavor to do is to be factor balanced, so that it's not that all of our returns will come from being long growth or long value."
"Ultimately, what that means is that we invest with a lot of thematic ideas all the time. Even when there are major thematic moments in the market, I have yet to see a single time or single thematic regime where there are not winners and losers inside of that theme."
Citadel's CEO Ken Griffin on how fast money front-runs a fund in trouble:
"There's no doubt that a number of the more fast money accounts in the market would start to front run what they would have anticipated Situational Awareness or its contemporaries would be doing."
"This is like a classic playbook in finance. You think somebody's in trouble and you start to try to anticipate the moves they're going to need to make."
"Even if all you knew was, geez, people that are long this AI theme are in trouble and they're going to be de-risking, so I'm not going to buy those stocks or I'm going to trim my exposures. You start to transform a possibility into a reality."
"When you acquire a portfolio in that market environment, you generally get a pretty sharp reversal in price as confidence is reestablished and the anxiety about a portfolio suffering an unexpected quick divestiture ends."
"We did okay. But it was a complicated portfolio to buy overnight."
Balyasny founder Dmitry Balyasny on why University of Alabama kids can do just as well as Ivy League kids at his fund:
"Kids from, you know, Harvard and Princeton, and they've done great, and we've taken kids from, you know, University of Alabama, and they've done great"
"Everybody's hardworking and has a level of intellect in this business"
"We also love like looking at places where the school is like, okay, not top 20, it's like top hundred"
"Like we love those kinds of kids."
I'm in my 40s. The most scared/disoriented people in my network are the ones that have the following resume => went to an Ivy League school, went into consulting for Bain or BCG or investment banking for a bulge bracket bank then MBA at Harvard/Stanford and then career progression in high income tech W2 or hedge funds/private equity.
A number of these individuals in the last 5 years have been unexpectedly let go in their early 40s with 2-3 kids in private school and a burn rate they socially struggle to walk away from (kids have close friends now, business connections at the private school their kids go to, living in a high cost location makes it easier to network, etc).
These are the people literally have only been told they are excellent their entire lives and now are in year 3-4 (no exaggeration) of trying to land a new job. Some are willing to "settle" for working for mid 6 figures (some even less) just to cover their burn rate with a young family.
AI probably makes this dynamic happen earlier in one's career going forward for some of these perfect resumes individuals. Good chart from @Jack_Raines in his book Young Money
Ex-Two Sigma quant Omer Cedar on why you should bet against an expert who keeps getting more bullish:
"If somebody is heavily bullish or heavily bearish, and they become incrementally more heavily bullish or heavily bearish, the best thing to do is to bet against them."
"They've become extremely comfortable with the story and the narrative of the company, and they don't realize that typically the market has outrun the expectations on the company itself."
"When the street is very, very bullish or very, very bearish on something, it's time to go in the opposite direction, because at that point in time, everything is priced in."
"Everybody's bullish, everybody's bearish. The first person who walks out and says, hey, I don't think this is going to work anymore, that's the signal you want."
"The Emperor has no clothes. That's what it is. Then you have to pull back."