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[email protected] or you can message me on Bloomberg for more details. Now onto this episode's guest, legendary investor Ken Tropin. Ken is the Chairman and founder of Graham Capital Management, a world class macro hedge fund with $20 billion in assets under management. Prior to founding Graham in 1994, Graham. Was President and CEO of John W. Henry & Company. Now onto our conversation. Greetings and welcome Ken. It's fantastic to have you back on the podcast. Show. Thank you for having me. My pleasure. Completely. Now Ken, whenever I have you on, I always do like to ask you about your investment philosophy and your how would you describe your philosophy to your clients, for. Example? Well, our investment philosophy is essentially one that we are primarily invested in macro markets, but not exclusively. We are involved in equities, we are involved in credit, we are involved in a little bit of emerging markets. But the majority of our risk is in the macro markets, which involves rate trading and FX trading and equity trading and some commodity trading and a lot of a lot of trading within the fixed income sector of a relative value or Steven or break even or you know, inflation trades. Things along those lines are sort of the majority of our risk. And I would say my investment philosophy is one that's on the conservative side in our industry in the sense that we're in it for the long haul. We want to be successful in a variety of market cycles. Sometimes the markets are really constructive for, you know, either your positions and or your views. There are other times where, you know, keeping risk close to home is, you know, fortuitous and a good thing to do. And I have found over the years that you Know, if we can be innovative, if we can always be looking around the corner for what the opportunities not only are today, but might be, say next year or the next three years, you know, we hopefully are going to get it right and be successful. And so, you know, I would say we want to be successful at being innovative, creative, good risk managers, opportunistic when the occasion allows, and careful and thoughtful about our. Business. And one of the developments in recent years has been the growth of pod shops. You know, there's the millenniums and so on, you know, where the structures change quite dramatically from say 20 years ago where you had these kind of big hedge fund guys who take a lot of risk. But now we have this whole sort of different model. How do you see yourself in relation to this growth in pot. Shops? Well, we're somewhat different in the sense that that's not who we are. We are a fund that has 75% or something like that of our risk in macro markets. So we're a macro focused fund as opposed to a fund that just is involved in everything. And you know, we also are very much of the mindset that our clients are our partners and we want to work very closely to give them the investment exposure that they're looking for when they invest with Graham. And so we have a collaborative relationship with clients in the sense that they can work with us to custom design a fund or an investment that really suits the goal that they have for their portfolio. I would say if you think about the very large successful multi strats, they sort of have a one size fits all approach to when clients invest with them and you know, all the credit in the world, their returns have been terrific, they're consistent, they're very, very good risk managers. And you know, I think you only can give them credit for accomplishing something that's very hard to do, which is make money very consistently with pretty solid risk management. Having said that, Graham is different in the sense that if a client is looking for macro exposure and that's, that's what they want to add to their portfolio, we can provide that to them. You know, in a multi strat, that might be 10% of the risk there or 15% of the risk with Graham is 75 to 80% of the risk when you invest with. Us. I understand. And in terms of how your approach has changed over the years, you know, obviously there's been the rise of, well, there has always been quantitative approaches, whether in the early days, CTAs and then since then, you know, fact based trading AI and so on. And recently, of course, AI and generative AI. How do you think about those sorts of approaches and how does that fit into your. Approach? Well, I think, you know, there's no way in our industry to rely on what you did, you know, say, over the last two decades without trying to evolve in a constructive and thoughtful way. You always have to be creative and innovative and try and take advantage of new opportunities. And, you know, I mean, you think about it in the quantitative world, just the horsepower associated with what computers can do, what AI can do and so on, is radically different from when I started the fund 32 years ago. And so we definitely want to, if not be necessarily pioneer in all of these new technologies. We definitely have to be involved, we have to be ahead of the curve or at least very competitive with what the best thinking is in terms of taking advantage of the technologies and the quantitative opportunities that are out there today that are different than what they once. Were. And in terms of acquiring talent, that's obviously a big challenge in the industry. And I know recently you've opened up a New York office, which I'm sure is part of that all. I mean, how do you think about finding talent, retaining the talent that you do have, supporting your talent and so. On? Again, this is not a one size fits all answer. Sometimes it's a very virtuous thing to cultivate your own talent as opposed to sort of overpaying to get talent from a competitor. And so, you know, Jim Simons at Renaissance was famous for doing that, right? He, he very much didn't want people from other hedge funds. He wanted mathematicians from, you know, the best universities. So we like that approach as well. It takes longer to, you know, have the outcome you're trying to, to get for people, to get the experience, to add the value you want, but you have a better control of the outcome. And from an investment point of view, you're getting real value when you invest in these young people. We also, within our discretionary trading part of our business, we like to build bigger and bigger teams, as opposed to always trying to hire, say, 600PMs or something like that. We have perhaps 25pm teams, but some of those teams might have 15 people. And so, you know, we're constantly trying to grow from within. Having said all of that, it's also a good idea to always try and find who's interested in joining a firm because of the culture that we have at Graham. The culture at Graham is a little different from some of our, the other firms in the industry. You know, I'm a little bit old fashioned. I would truly believe in collaboration. I truly believe in, in helping others be successful. I believe really strongly in being erring on the side of being too patient instead of too impatient. And you know, for some portfolio managers or quantitative analysts, that's a very attractive culture. Aspect of when they're considering what firm to join is that, you know, sometimes if they join a multi strat and they don't perform quickly, they're, you know, going to have to go to the next one where at Graham they know they're going to have some time to evolve and, and there's not all this pressure to succeed overnight and that kind of thing. Other ways of recruiting in this very, you know, unique competitive time is to look around globally. You know, for example, are some very bright people in Eastern that you might be able to take advantage of and they're very inexpensive relative to the US counterparts. It means building a footprint there and you know, having an office and so on and so forth. And but that's something that we are exploring as well. And so I guess overall, I would say we definitely recruit from other hedge funds from time to time. We try and cultivate young people at Graham and grow their career within the organization, we try and find people out of academia, we try and find people on a global basis, all of these things. There's no one answer. But in general we're cautiously optimistic that we're finding the talent we need to become, you know, to provide our clients with the returns they're looking. For. And why open this New York office? I remember for years you've been in Connecticut, you know, on the northeast side. But why recently did you open up in New York. Office? Well, a couple of things. First of all, we've had a London office with 35 people in it for 15 years. So it's not like we just are in Connecticut. But it became as competitive as it is today. From a recruiting point of view, having a New York footprint is really helpful. I mean, we opened that office in March and it's already 2/3 full. So it just tells you that there are a lot of people that love New York City. I love New York City and they want to live and work somewhere in the New York. Area. No, no, that makes sense. Now if we switch over to the macro markets right now, I mean, we're coming to the end of 2025. I mean, what are some of the things, some of the themes that have resonated with you over the course of this. Year? Well, obviously it's been a bit of a tricky year in some ways in the sense that the administration's policies have been somewhat fluid. You look at tariffs, for example, we don't even know if the Supreme Court might knock them out. So our traders have done very well by being very tactical, opportunistic and not having really high levels of risk, and yet they've been able to perform fairly well. So I think that's been a very potent combination on the discretionary side of our business. As we look into year end and into next year, you know, we're sort of, we've got another cut priced in and then it's kind of, who knows, next year, right? There are some people that believe that inflationary pressures will be very tough on the new Fed chair to cut rates. There are others that feel that, you know, the economy is going to slow and, you know, and the Fed will be able to, you know, have a couple of cuts or maybe more. But I, you know, I'm skeptical. And then you have some divergence, right? You have Japan, who's raising rates. It's been a really long time since Japan's had a hawkish central bank. So that's quite interesting. And Europe is somewhere in the middle in terms of, if you were to ask me what is the one macro opportunity that I think has perhaps the highest probability of working out, I think term premium is underpriced. And so I like the steepner as a general statement, obviously you got to know when to put it on and take it. Off. And in terms of that, that term, Premier, is this a US specific fact or do you think this is. Global, like Japan, Europe, very focused on. The US in that regard? I mean, think about it. You know, our deficit is so extraordinarily large and so incurable from my perspective in terms of, you know, a way to shrink it. And I think risk premium, you know, in term premium is just completely undervalued. You know, I grew up in the industry when there was very, very high rates in the long end because people were concerned about duration. Risk. Duration risk has for so many years been a non event and a non factor that I think the market is not as sensitive to that as it will eventually become in the next year or maybe the next couple years. So if I had to pick one thing that I think has a good probability of forming, it's that and. Over the course of this year, the curve did steepen for part of the year and then in recent months, it's kind of gone sideways. I mean, is that just A question of markets don't move up in a straight line, one needs to be patient. Or do you think there's some other factor that's overriding that, that's leading to the curve not to steepen so. Much? I think it's just the way markets trade. People put on trades and then take them off. You've got a lot of pressure from the administration to get rates lower, things of that nature. And we're in an environment where people are reluctant to really put on a lot of risk because you could very easily have such a disruptive event in terms of either policy change or some sort of geopolitical event, you name it. So you know, most traders I know are you is using less of their risk limits than. Normal. Yeah, I concur with that as well. Another one of the themes this year has been the whole AI bubble story and some people have been looking for a sharp equity correction. People have made parallels to the dot com period and people are using that as a template. And then that back then, of course then we saw credit events occurring and the Fed cut rates and so on. Do you buy into that or not? Or how do you think about something like that? Obviously it's equities, but has spillover to macro as. Well. Sure. I think it's a legitimate issue to have your risk management antenna, you know, thinking about because at the end of the day AI and AI equities have, you know, this incredible performance move that's just, you know, almost mind boggling and you know, it's a very concentrated bet in the equity markets. Right. And so I believe in AI. Believe in AI is going to continue to really change the landscape of how, you know, our industry and the global markets, you know, sort of do what they do. And you know, I don't think this is some imaginary bubble or meme event at all. I think AI is so for real it's kind of crazy and scary. But having said that, it's expensive if you look at the different companies that really had this amazing performance. So would it be normal for them to be just some sort of correction at some point? Totally. Do you think the Fed would, would there be a Fed put around equities or not? I mean people kind of, you know. Often. Often, I mean we don't even know. They. I guess we all think Hassett's going to be the next chair. We don't really know and he's sort of an outsider, not an insider. So it'll be interesting to see how much of a sort of a team mentality there is at the Fed within, you know, sort of an outsider joining the Fed, if indeed has its, you know, the next chair. And you know, I, I think with this enormous deficit and you know, with Japan in a very hawkish mode and you know, Europe sort of hawkish, all of a sudden last week Canada got hawkish. I mean, sometimes the market can get away from any central bank and we've seen that over and over again. Right. So in the long run, the central banks usually can get their arms around problems, but sometimes it doesn't happen. Overnight. And then on the inflation side, once, I guess one surprise somewhat has been that although we've had this big jump in tariffs, you know, it hasn't necessarily led to big follow through to broader inflation. I mean, that said, I mean, headline inflation still is above target. So you could argue that actually it, I mean, do you think we're still in an inflationary environment or do you think we've defeated inflation. Slightly? I mean, I don't think it's, you know, on one hand you've got two thirds of the economy slowing outside of AI, Right. So that's slightly deflationary. On the other hand, if you talk to your friends, most people are always complaining about higher prices. And then if you think about the tariffs, assuming the Supreme Court doesn't overturn them and say the executive country doesn't have the right to impose them, you know, that's a tax on consumers. You know, if you buy something from Europe, you know, whether you're paying a 15% tariff or 20% tariff, companies are passing that on, car manufacturers are passing it on. They're not eating it, they can't afford to. So it's really just a tax on the consumer, you know, unfortunately. Yeah. And in terms of risks, you know, one of the other risks many people talk about is private markets that, you know, they're, they're kind of in the shadows. We don't really understand how big they are. They've grown a lot, especially private credit. Is that a type of risk that you think we should worry about on the macro side or do you think that it's sort of secondary? Because it's. Not. Yeah, I mean, it's always out there. I may be a little overblown. I think most people in private credit, but not all are pretty good at understanding what risks they're taking. So I think there's more sophistication and good risk management in that industry than people that are really kind of bad at their job, so to speak. But of course, when Liquidity. And when there's a liquidity shock, all bets are off. Right. And we saw that in private equity. Right. And no aid and so on and so forth. So when you have a liquidity shock and people want cash, even well managed funds can all of a sudden have to suspend redemptions, do those sorts of things. And so I think we're definitely in an era where you want to be invested with a fund that has really good risk. Management. Absolutely. Now, on the fiscal side, there's a lot of speculation around what the Trump administration will do as we go into midterms next year. Obviously, there's a lot of pressure to stimulate the economy in some way or another, but then the. Mass. And hang out with the majority in Congress. Right. Exactly. So, I mean, do you think there's a possibility there could be some kind of fiscal stimulus somehow next. Year? Totally. I mean, I think Trump very much wants that. Right. And there's going to be an enormous pressure on the new chair to really stimulate the economy. And I think to, you know, I mean, the bond markets or the last few days are telling us the opposite, but that, you know, that could be overdone very easily. Right. And we could, you know, all of a sudden see the complete different psychology, you know, for, you know, as soon as the new year starts kind of thing. So I think it's a really good time to be tactical. It's a really good time to be careful. You have to wait and see. You know, one of the things I've learned, maybe you could argue the hard way, but I try not to learn things the hard way too many times because that's not, that's a particularly a fun thing, is when you don't have conviction, stay close to home. I mean, you know, our industry has, you know, there are some really aggressive traders that have prevailed over the long term. Not too many. You know, I like to run, Graham, conservatively. I like to be thoughtful about how we take risks. We're going to get some cycles that are really not good for what we do. When you get it wrong, we don't perform and we are frustrated. But over time we have generally been able to achieve our goals. And, you know, and part of being able to do that is just is having a real focus on risk management and, you know, trying to run the business. Conservatively. And then in terms of international markets, you mentioned Japan earlier. Is that a big focus for you? How about. Europe? Yeah, all of it's really important and in particular, Japan is the most hawkish that I can remember. You Know, I mean, I can't remember Japan being hawkish. I know it's been hawkish in the past, but it's been at least a couple of decades. I mean, monetary policy negative or zero there forever. So, you know, they are driving, you know, rates globally right now, which is, I don't want to use the word bizarre, but it's very, very unprecedented. And I think, you know, there's a hawkishness in Canada that's just evolved last week. There's, you know, some hawkishness in Europe and all of it in the face of economies that are, you know, maybe the Asian economy is pretty strong, but Europe's not that strong at all. You know, Porsche is talking about how they can't make money anymore and so on and so forth. So, you know, the markets are doing some things that are in some cases, not so easy to. Explain. Yeah. And then do you have a view on the dollar overall? I mean, there could be. Cases. Trading range. I mean, I think usually in Forex, the country that has the most hawkish central bank has the strongest currency. But when you have an environment where everybody's a little on the hawker side, right now the dollar's in a trading range, and I think we have to trade it accordingly, which is, in other words, not. Not have a lot of risk on it in either direction because it's just in a trading range and has been for six. Months. And then in terms of one of the bigger picture themes has been the whole US China trade war. And it seems like we're at a point now where it's apparent that the US Cannot decouple from China. So it's not a kind of a Cold War, Soviet Union type. It's a completely different. Paradigm. It's very dissimilar, I think, from what's going on. For example, Eastern Europe, where I think US and China have their differences, they're significant. There's always going to be that risk of something in Taiwan, you know, that's always out there. But we need each other too badly, you know, for things to get too ugly. On the other hand, Russia wants as much of Ukraine as they can get. And you have a guy leading Russia who I wouldn't trust 10ft. So, you know, the idea that that is going to be easy to solve, I think, is very, very. Naive. No, that's true. Now, I did want to move away from macro a bit as well and also talk about some of the work you do outside of your day job. And I understand you're involved in philanthropy, the Robinhood Fund. I didn't quite realize that you're a bit more involved than I initially thought. So could you talk a bit more about that work, what Robinhood is, and why it's important for people in finance to do things like. That? Well, you know, I think it's not just people in finance. So I've been involved in Robinhood since the early days of the organization. Paul Jones, who founded Robinhood, is old and dear friend. We've known each other over 40 years, and I joined the board about 10 years ago, something like that. I became chairman of the organization a year ago. And, you know, I just feel really strongly that if you're successful, you want to help other people and you want to do as much as you can for those who are unsuccessful and are the have nots in a constructive way and lift people out of poverty as you possibly can. And I feel, you know, no matter how much I give to Robin Hood, it doesn't change my life. But it is such a beautiful thing to see how it changes people's lives who are in poverty and to see them somehow all of a sudden have a home and have kids in good schools and be able to have food on the table, you know, it's a very gratifying thing to me personally. And so I just look at it and I say, gee, if you're successful, what a beautiful thing to try and make other people successful. And I grew up in New York. I was born in Flushing. I went to public school in Bayside, New York. I started my career in New York, started my family in New York. So no matter what the GPS says, if I'm here in Florida today talking to you, it doesn't matter. My heart and soul in New York. City. That's great to hear you. When I speak to you, it kind of makes me wonder. There's a lot of people in finance where the money does get to the head. I've been, you know, Wall street, in the city for a long, long time. And how do you stop, you know, the money getting to your head and your ego kind of getting out of control? I mean, what, what advice would. You do a great job of. That? That's true. That's very. True. You know, oh, my gosh, every time I lose my humility, I, I also usually lose money. So I, I am very much of the fact that, you know, you got to stay even keeled in this business. You've got to keep your ego. You just can't have an ego. You, you've got to have pride in what you do, you got to be. Listen, there's one thing I know for sure. If you're going to be successful in this world of investing, I will do one thing really well and that's put your heart and soul in your work. If you put your heart and soul in what you do, you are likely to have very good luck. And it's very unlikely that you will consider yourself lucky if you're not really giving it everything you've got and you're mailing it. In. That makes sense. Now that I've got your attention as well, I'll throw a question to you that I often get. I have lots of young people who are graduating from university. They often ask me advice, career advice, as they leave university, leave school and into the real world. And they ask me about AI and will they be securing their jobs. How do you answer that question? When people ask you that, youngsters ask you that and they look at the politics of the world, they feel a bit distressed. I mean, what do you say to. Them? You know, of course it's unknowable how AI will affect the workforce over time, but my answer is, I think about my career. Something that most people don't know about me is I was no academic growing up. I started my career, you know, really wanting to be an artist. I was a sculptor and I was penniless. And so eventually someone suggested to me I get into finance and I took an entry level job in Wall street back in the late 70s and I eventually became successful at it. How did I become successful at it? I showed up first, I left last. I had an attitude that no one else around me had. I seen. I just tried harder. And so my advice to young people is I don't care where you come from, what your education is, these things matter, obviously. But if you've got much more of a can do attitude and just you throw yourself into your work, the average person doesn't do that. And you will be successful, trust me. If you can outwork everyone around you, you can come in first, you can leave last, and you can always have a good attitude, you're going to find yourself very. Successful. That's great advice and a great way to end this conversation as well. And for people, if they wanted to learn more about Graham, presumably they can go to your website, I. Assume. Yes, there's quite a bit of information on it. And roughly Speaking, we're a $20 billion fund that is primarily invested in macro. And we have about 250 people with offices in Connecticut, New York, London and Palm. Beach. That's fantastic. Great. So with that, Ken, thanks a lot for the enlightening conversation. It's always great to speak to you. You have so much words of wisdom as well. And good luck to the upcoming. Year. Thank you. It's an honor to be on the call with you. Today. Thanks for listening to this episode. Please subscribe to the podcast show on Apple, Spotify or wherever you listen to podcasts. Leave a five star rating, a nice comment and let other people know about the show. We'd be very, very grateful. Sign up for our free
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