The Strategy Behind Asia’s $6 Billion Quant Fund: Quantedge

We're trying to beat the markets. 20% annualized returns, now that's a good figure. If you can do it for 10 years, we'll do it. If you can do it with 20, that's what we've done. But you know what, we're gonna do it for 50. That's the goal. Every single dollar of liquidity that I have outside that I'm not gonna spend on my daily expenses, I'm putting it here to compound. Because I think this is the best engine to compound capital. That is investors. If they stayed investor, day one to today, day death, almost 40 extra money. What are the biggest mistakes that early stage managers make that kills their business? Quite often, there is this desire and hunger in need for capital without capital is no business. What would you do then to get that capital? How far backwards would you bend to get the capital you need to scale up? If we didn't introduce our fixed term share classes and a lot of people would probably be managing a 20% dollar fund. So I'm me. Thank you so much for coming on the pod. Thank you for having me. You run ages top quant fund. Walk me through quant edges founding thesis. Right, so I run Quantage. I've been running Quantage since 2018, fair number of years. Been with the firm for 13 years. Quantage has been around for 20 years, which is a fairly long time. But we had a, shall we say, unlikely beginning. We're not like many of the quant funds that launch with a big bang with a couple of billion dollars under their belt. We started with $3 million. I wouldn't advise any investor or trader to start fun with $3 million. But that's what we did. So we've come quite a long way from $3 million to $6 billion. So going back to your question of founding thesis. Two guys, two founders, great conviction in the investment strategy that they've created thought, well, let's bring Quant investing to Asia to Singapore and start it. And then they had great ambitions and thought, we can do this. Let's go out and raise some money. Well, as it is, obviously raising money is not as easy as people think. And they managed to gather a grand amount of just slightly less than $3 million. Let's round it up to $3 million, friends and family. And as they say, fools. The founding thesis is essentially to create an investment strategy that can last for generations. A compounding machine, if you will, is something that is systematic quantitative, obviously, than its design. But something that is evergreen in terms of the signals, the philosophy, something that doesn't need to be, I suppose, tweaked and changed too often. Obviously, something that evolves with time, but nevertheless, it's an idea of building that engine and machine to compound capital over the really, really long term. That's essentially it. What are the foundations that make a strategy robust? And I guess work in all regimes. I suppose all forms of investing or all types of investing strategies can be complex. But they can also be very simple. And we like to think of investing as firstly trying to understand how markets sort of work. These sensuals of it, why do markets go up and down? What are markets for? Who are the participants in the markets? And what are they motivated by? When you think about that, a lot of quantitative investing is largely based on what drives the markets. And that's human behavior. Different actors within the markets. They're all human beings acting on their own biases, on their own limitations or restrictions. And what we're trying to do is to figure that out in quite simple terms, why do markets go up? Why does the US stock market tend to do well? Who are the risk takers? What are the expecting out of the market? I mean, that's essentially the problem that we're trying to solve. If we can understand those questions, or get the answers to those questions in simple terms, then we can understand then the biases in the markets. If you understand the biases, then that explains, I guess, the quantitative signals that you can find. And if you can find signals that are evergreen, that are stronger in a sense, that tend to last. And that's how you create a strategy that lasts generations. So fundamentally, would you say you were a strategy that quant edge runs is trying to exploit behavioral biases in a quantitative fashion? You could say that. I totally agree, right? I mean, that's a fancy way of saying it. You could say, right? I mean, essentially, we're doing things like investing. And what the investment world describes it as is, we're doing risk-premier investing. We're doing factor-based market neutrals strategies. But essentially, it's exactly what you say. It's acting on biases in the markets, driven by human behavior. And if we can identify them, and if they're strong enough those biases, then actually those are tradable. Those become tradable signals. You walk me through philosophically how quant edge thinks about edge in their research processes in their pipeline. This question about what is the edge in the investment business? You know, people have been investing for a long, long time. The investment industry has been around for decades, ages. And in the past, I used to tell-- I still tell most people come to see us, most investors. The edge is not informational. It's not about knowing more than somebody else. In the past, you used to be able to pick stocks because I know something. The market doesn't. And you get that edge. I don't think that's the case anymore. I mean, that's in abundance of data. There's too much data in the world. Everyone's trying to sell you more data and more signals. So it's not an information edge. When we talk about investing, there's two ways that you can invest well. You can have skill in the bet that you make. Or you can have more bets that you make, even if you don't have a good skill. It adds up. There's such thing as what is called an information ratio. The skill of the bet times, I think, the square root of the number of independent bets you take. So at Quantage, I think we're-- I like to think that we're quite humble in the way that we think about how we operate in the markets. We certainly don't have all the information. We don't know-- I don't think we know things above and beyond everybody else. We have some ability to understand the markets by virtue of taking in this data and statistics and understanding how markets behave. But at the same time, cognizant of the fact that we can't predict the markets. So what we want to do and what is the edge for Quantage? Number one is the fact that we probably operate one of the most diversified investment portfolios in the world, at least that I know. But we're trading in close to 300 different distinct markets-- 40 plus 50 markets in equities. I think we've got 50 different commodity types. That's real diversification. That means the number of independent bets that we're taking in the markets is huge. And that itself creates a huge advantage for us because it means that diversified portfolio or reducing credit risk goes down tremendously. You are able to then target a higher level of risk, which is what we do, all by virtue of the fact that we believe in huge diversification. So when you talk about the edge, that's number one. We want to be hugely, hugely diversified. This is all stat space. The more diversified you are, you generally lower the portfolio risk. Now, if portfolio risk drops, you have that ability to make that decision. Do I want to ramp up that risk a little bit more? Because I have such a diversified portfolio, it's more robust than many other portfolios out there. I can choose to ramp up the risk. And that's exactly what we do. We run a diversified portfolio targeting a high level of risk. It's not something easily done by many other people. Because if you run a concentrated book and run high levels of risk, you're asking for trouble. We can do it because of the investment that we've made into research to be able to trade close to 300 different markets. We run a high level of risk. Yet, a level of risk that ensures there's no risk of ruin. I mean, we run high volatility, but volatility is not-- well, I wouldn't say it's not true risk, but it's not the risk that you're most worried about. And that really is the edge for us. Because you won't be able to fund. You won't be able to find that many funds out there, that target that level of risk, that have delivered 20% annualized returns over 20 years. That's net annualized returns, returns to investors. Which is basically the promise that we set out to deliver to our investors. We said, we want to create a strategy that can last for generations. But not just any strategy. What are we spending all this time on? What are we trying to achieve? if we're trying to beat the markets. If you can do it for 10 years, well done. That's a feat. That's the goal. - Allods on Open is sponsored by Onyx Capital Group, the top market maker in oil derivatives. They just released the fourth version of their terminal, Flux 4.0, and there are two things in it worth knowing if you have oil exposure. First, it live streams fair value on 800 oil curves, including the ones that are hard to mark. Second, it carries their own positioning data, so you see exactly how the market is positioned, both long and short, and what price they got in. So Jaime made the point earlier that the edge isn't informational anymore. This is the other end of that. You can find it at Flux.live, and the link is in the description. - I love it. When Quant Edge first started, 3 million, and you really, that's not much for building out a large team, hard to garner that much talent, how did growing look like? What are the things the founders did to where they could start off, build a great strategy when it's a lean, small operation, and gradually scale it into a $6 billion fund? How do you scale a $3 million fund into a $6 billion fund? It's a great project. It's so much fun. I have to say, but it's not without its challenges, right? Especially when you run a high-vol strategy, what it basically means is there will be highs and there will be lows. We've made a lot of decisions over time, that have supported what we want to achieve, right? Some decisions are in some way sacrifices. You should, I would say. But we do it again. I don't think there's many things that we've regretted. Now, what's made it easier? It started up by saying it was easy, and I'm gonna repeat that. It's easy simply because we're not running a fund as a business. We didn't create a strategy which we think will sell to pension funds and endowment funds and try to raise capital to meet a demand of the market that was never the goal. Yes, we want to run a successful business. Don't get me wrong, right? But what underpins this business is the fact that we are running an investment strategy that not just works for our investors, but first and foremost works for ourselves, right? We are investors first and foremost. Everything that we do with respect to the investment strategy must work for us. And that means that this is a fund that is good enough for us to put almost every dollar of my own personal network. And that's the same for everybody in the fund. The funders, the senior management, this is, in essence, our own family office, right? Every single dollar of liquidity that I have outside that I'm not going to spend on my daily expenses, I'm putting it here to compound because I think this is the best engine to compound capital. And if I'm confident that it can do 20% annualized returns over the long term, it's going to be hard to find something else that does better. There may be, but it's hard, right? And we're going to keep improving. Now that's the big difference. That means that no matter what happens today or tomorrow, if I meet a prospective investor today and they say, you know what, I'm not interested, this is not for me, that absolutely doesn't change what I'm going to do tomorrow, a month from now or a year from now, because I'm optimizing for the best possible investment strategy for myself and for whoever is already invested. That's the key. And that's the same whether it was a $3 million fund or today a $6 million fund. Our focus is existing investors get the best strategy possible, which is exactly where I put my money. And if other people don't want to come along, that's fine. That makes the business simple, because I just got to focus on building on what we have, not worrying about whether we get to 10, whether we get to 20, and we'll get there, right? We started at $3 million, we're at $6 billion now. We've actually made close to $5 billion, or around $5 billion of investment gains in that time, which kind of tells you what the focus of the business in is, right? We're not out there trying to raise money. I'm at $6 billion today. I'm fairly confident that we're going to get to $7 pretty soon, but it's not as a result of new money coming in. But we're not going out there trying to sell a product, which is focusing on building our own thing. Was there ever a temptation to scale by selling the product that the allocators want? I imagine you look at the fees that you could raise with pedigree, like the ones you built up, built up in reputation, like the one you have. And it seems like a no-brainer to build something on the side that's maybe lower of all. Tillity, allocators will like it, and really just scale that strategy to be something, you know, even bigger than you are now. What are your thoughts? It's a great question. What I would say is we get this question all the time, because allocators come to us, big investors, asset owners come to us and say, so why me? You run a great strategy. Quantage is great. We've been following you for a long time. But you know what? When you target 25% annualized volatility, I just can't make the investment. Why don't you dial down the risk? Half the risk? I'm OK with half the returns, right? And I'll put in a bunch of money. So we get that question all the time. But the thought process for us is fairly simple. Do we want to compete in that space? There's so many other funds doing that. Many other funds out there that the low volatility, maybe, I don't know, 8 to 10 to 12% kind of returns, I don't think we'd stand out. That's point number one. Point number two, it's not what we want to do. If I were to run a strategy in a fund, and I go out there and tell you, this is a good product. It's what you want. If you want to invest, that's great. It's great business for me. I'll make some fees. But on the side, I'm running this other great project where I put all my money. And this is where we're getting 20% annualized returns. Where do you think the investor's going to think I'm focusing my efforts on? The only reason why Quantage works is an audacious project. When we go around and tell people, we're going to run a fund that's higher risk than almost anyone else on the street. People will think, why should I be involved in that project? But when we tell them, we're well all in on that, every single cent that I have that the team has, we're putting it there. And this is the track record. And we think we're going to last another 50 years or so. Then people start to say, well, maybe I might start to believe you. It's the conviction that counts. Whereas if I were just to run another portfolio, another strategy, how do you compete against, I don't know, AQR, millennium or whoever else, right? There's so many other people in this space. This is not us. We do what we do best. And I think why it's the best is because we believe in it. It's because we're all in. You mentioned conviction there. And at the same time, mentioned volatility. When you go through draw downs, running 25% of all, that's just going to happen. How do you maintain conviction in something quantitative where I would imagine you don't fully understand every aspect of what models are doing of what the portfolio-- of why the portfolio is positioned the way it is and correct me if I'm wrong, if I'm misunderstanding that. I do think that that requires some correction. So I can't speak obviously for all quant managers and every quant manager runs a different strategy. And it can look quite different. But at least at Quantitch, we do want to understand exactly why the model is behaving or suggesting the trades or portfolio positioning in any given environment. We want to understand it. And that maybe sets us apart from many other quant investors or managers. Because step number one, for any strategy that we want to put into the model, we need to understand why was the economic rationale. And it has to be logical. Ideally, it'd be quite simple, actually. So if you can't explain it in simple terms, there's probably not going to be a very good strategy. It probably won't last. It's probably going to decay. So we want to be able to understand A, Y, E strategy works or should work the way it does. We want to understand how the model allocates risk and capital in different market environments so that every single day when the models run, and there's a list of trading instructions that are produced, and I would CIOs or PMs look at it, that they've got to be able to say, like, this makes a lot of sense. We don't want to be the worst thing that you can do, or rather, the worst thing that you can do is to run a black box that even you don't understand. It can be a black box to the rest of the world, but you need to understand how it works. That's how we feel, for sure. That means that the model, the design of the model, model, the model and the portfolio that results from it, should be highly intuitive, it should be logical. We need to be able to understand it. So that's rule sort of number one. I would say that we like to keep things really simple, because if you want to scale, you need to start from very simple fundamentals. So logic basis is going to be key. And then second, you look at the empirical evidence. And that sort of guides the research process. You're going to make sure that the fundamentals are strong. Walk me through the research process. It's truly remarkable. Founders, $3 million. I imagine it's most of them doing all the research, the execution, all parts of the stack. What did the research process look like back then? Recess, what does it look like today? It's changed tremendously. Well, 20 years is a long time. It's impossible for any organization, any human being, not to change across 20 years. We've suddenly evolved a lot. In fact, when the founders tell the story, it's literally two men in a Bloomberg machine in the bedroom. It's obviously changed since then. We've got about 130 people now, offices in Singapore and New York. I would say that in terms of the research process, the philosophy, the fundamentals haven't changed. The rigor behind it hasn't changed. But the sophistication has. The number of people looking at the kinds of projects that we run, obviously, very different. So when we started out, when the founders started out, when we talked about the kinds of biases that they were focused on, it was the most obvious ones, risk-premium. Why the markets exist? Where's the risk transfer happening? From there, we evolved to looking at as many markets as possible. We've covered all the big ones. Let's look at smaller markets, still liquid, less investors. But it's OK. It's good enough. There's premium to be earned from there. So it's about expanding the diversity of the investment portfolio. So there's research into new markets. Then as you go on from there, we look at, well, how can we look at other types of biases? We look at factor-based market neutral sorts of strategies. So from being very directional in our focus, now we have more long-short strategies as a result of an evolution of the research focus. And beyond that, then we're looking at, OK, how can you look at portfolio optimization a little bit more, looking at margins and so on? And beyond that, maybe even how can you optimize trading? Studying trading costs and market behaviors around trading, slippage and so on. So there's that kind of evolution in terms of research focus. But the rigor, the scientific approach to research-- I think that's always been there-- that's effectively what the founders had as a core skill set, if you could say. You mentioned something when I asked a previous question about really understanding why it is models or doing what they're doing. And then they're about factor models and understanding risk premia. I have a question about the general philosophy about how the founders thought about markets and how you think about markets. How important is understanding discretionarily or fundamentally what is happening in the world to your process? And I asked that question with a context of, you want to understand what's happening. You want to understand why there is risk premia. Why you are being paid to take certain risks, I guess, understanding narratives. I would imagine understanding narratives is a component of that. Understanding narratives is a big component. It's important. But I think there should be some differentiation between trying to understand markets versus trying to figure out what the hack is going on every day in this world. And the difference is that when we study markets, when we look at history and try to figure out why markets move relative to what's happening in the markets, you have the benefit of being able to take almost like a step back, or you're a bit distance, from things that are actually happening or unfolding. You can observe the data, and you can try to rationalize things. The problem that we have today and the problem of trading on news in particular is that there's just so much of it. It's happening real time. There's so many opinions. There's a lot of untruth in what you read. And as a result, you don't get to distance yourself. You're right in there, in the trenches. It's a lot of noise. So yes, we want to understand how markets work. We want to understand how different things in the world happen and how they affect the markets. But doing that in real time is really difficult. So what we do as quantum investors is we disassociate ourselves from the news that pours out or comes at you every single day, because to us that's a lot of noise. So you can't tell what's noise and what's not. So there's a lot more emphasis on what's happened historically. What does the data actually tell us? That's more important. It doesn't really matter so much what's caused the market to go down. But the fact that if markets go down, it could be a variety of different factors. And for us, that gives you an indication of what could happen in the future. And that's good enough, right? I think if you go down the rabbit hole of trying to understand cause and effect for every single market move gets to complicate it. How do you think about identifying signal from noise within data sets, within narratives, within new technologies, and implementing or utilizing various sources of information into your pipeline? We're open to exploring all sorts of things. I would say generally that we're quite curious about all forms of technology and data, for sure. However, over time, over the two decades that we've been in this business, based on our own philosophy of investing, having a good understanding of our models, preferring simplicity, mainly because it gives us longevity. I would say that over time, despite having explored all sorts of different types of data sets, alternative data, and so on, we've usually come back to quite simple things, actually as the core drivers of the strategy. Long-term expected return of different assets classes or markets. Volatility, changes in prices, liquidity, core relations, still the fundamental stuff, actually that's good enough to give us information about how attractive a particular market is. And based on that, how much should we allocate in terms of risk and capital across the huge investment universe that we have? Typically, those are still the main drivers of our own investment strategy. So there's a lot out there, and I think you've got to be selective. We tend to, at least with time being, we've drifted to it basically the fundamentals. Do you think Gen AI or Agentec workflows, LLMs, is more signal or more noise in the investment process? We can't have podcasts without a question on AI, can we? No, I don't know. No, it's a great question. We talk about it a lot in terms of when we speak to investors, everyone wants to know. We speak a lot about it, discuss a lot about it in-house. What we're pretty clear about what AI can do and what its limits are. And what I've said before about us wanting to understand clearly how our own investment strategies or models work. You want to understand how the outputs are derived? That's key. And AI and its current form, generative AI, as good as it is. It lacks, I think, the consistency of output. And that, you can't blame AI for that. That's how AI is built. And that's how it functions. So within the model itself, our models, at the moment we have no room for AI, simply because there's no need for it. These are all just simple algorithms that we run. Based on data that we've researched to be relevant, we know what's the output. Or what we expect the output to be. It's all mathematical in nature. Having said that, I think AI is transformational. In terms of being able to increase the productivity of the work that we need to do surrounding investment management, portfolio management. So we think about how much you can add to the research process, how much you can help in terms of data management, data cleaning, all sorts of things. I mean, AI has always been, has already been used for years now in the trading process, right? We'll talk about trade execution. So at the periphery or in supporting functions, yeah, AI is great. But at least for us, I don't think we need AI to tell us actually how to invest. Because if we follow a rules-based approach to investing and those rules are clear, then there's no need for generative AI to be done. to come into actually create a little bit of sense noise in that process. - You've just done it there. Of, you know, it helps researchers be more productive. It's clearly a power tool. And, you know, I was just thinking about all the top hedge funds when you really look at them. A big component of what they run is a human strategy. And what I mean by that is, Citadel, Can Griffon will say on every single talk, we hire the best people, we give them the best infrastructure, and we help them thrive. How does quant edge think about hiring? How do you retain talent against, you know, although you are a big fund and have done exceptionally well, there are bigger funds. And so, you know, juniors, you know, I would imagine they can pay juniors more. How do you think about hiring and retaining the best talent? Talent is key. So I completely agree with this statement, we want to hire and we want to retain and keep the best people possible. Now question Mark is, what do we consider the best people? In addition to that, let's give them the best tools, the best infrastructure, let them do the best work possible. That is absolutely critical to providing this best service in terms of investment to our investors. That's our responsibility. But what constitutes the best employee or best hire? And we take quite a unique approach, I think, to managing our talent. We hire almost exclusively fresh out of school. And we don't hire mid-career sort of portfolio managers, experience portfolio managers. We have no need for that. And the reason for that is because people stay with context for a really long time. Which is, of course, evidence that I think we keep people pretty happy. And what's different with context is that collective spirit to get this done, to achieve this goal, when everybody comes and bought, when people come on board into context, I go back to this point, we're not just offering a product. It's not just a service for some investors, so we don't know. Many of the investors we know personally, intimately, they're friends, family, and so on. And we're all running an investment strategy for ourselves and for them. That is quite likely going to be a big part of their net worth. So when we hire people, we want to get smart people, obviously. And we do, I think, do pretty well. We're competing against the best people in the world. But when they come in, they see, they understand and get an appreciation of the mission that we have. They want to get on board. People who want to get on board with all mission and collective way of thinking, those are the people who are right for us. So the definition of the best, the best of the appropriate, best hire, maybe quite different for different firms. Because when you think about it, there are many other firms out there that just prioritize individual performance, shall we say. Just focus on your strategy. And when your strategy do well to be profitable. And if it doesn't work for one, two years, maybe you don't deserve a space, right? And this fund. And we take quite a different approach. We believe that when you invest in these many markets, when you invest in a multitude of different strategy types, the reality is not everything works all the time. There will be some strategies that do well when others don't. Today might be your strategy that's in the sun. And tomorrow may not be. But we want that collective because it is a diversified strategy. We are playing the law of large numbers. We know that some strategies won't work out. But we want everybody to keep sharpening their tools or sharpening their knives, right? Because if you don't keep working in your strategy, just because it's not profitable for one, two years, doesn't mean that it can't be the part of the portfolio that saves it in two, three years time. So there's a huge amount of, I think, patients, when we think about how we grew more talent, we think about, people who are willing to just hone their craft over long periods of time and share in the spoils, the gains, regardless of whether your individual strategy has worked or not for that time period. That requires both collective sacrifice as well as long-term thinking, which is not easy to get, I guess, in this market when everybody is usually obsessed with short-term gain and profit and reward. So it's something that we've had to groom over time. And we believe we're quite unique in that. But yeah, talent is key. If you're to lay it out clearly, what is quant edge, what is quant edge's mission? And how do you get people to buy into it? We have a two-pronged definition of what drives us, if you could consider, if you think about that as a mission. The first one is to compound capital meaningfully over a really long period of time. And the second bit of that is to utilize that capital to do some good in this world. So obviously, when you start really small, there's no part B, because you're just trying to stay in flow. But I think we are at this stage of phase where we said, "Look, we are making decent money. We've built a ship that is robust, that is sailing in the right direction, that has gone. All the right tools in place, the right people and the tools to make sure that this will continue for a while. If we don't screw it up, if we don't make unforced errors, I think there's going to be a decent chunk of change that we can use to do some good." And what that means is over the next couple of decades, actually part B of the mission becomes far more important. How do we really utilize the resources that we have to change the world, make it a better place? Bit by bit, systematically, right? We've always done things systematically. So we like to think about it, be deliberate about it, and not just write checks to anybody who asks, but really think about what are the greatest levers for change to make humanity better, to make society better? That's part B of the mission and that's something I'm more excited than ever to sort of think about. When did you start that part B, charitable activities? How did that pan out? How did that play out? I think the founders have always had that bone in their body. They've always felt that responsibility, but they started small. And it was only when I joined Quantage at about 2013 that we started doing it in a more systematic way. And in 2016, we established Quantage Foundation. So Quantage Foundation is 10 years old this year, in a rut. I think we've done a fair amount of good. And I think, but the best I think is going to come in the decades to come. So Quantage has been around 20 years, foundations been around 10 years. Seems like a fairly long time. I think it's still the early innings. You have a law background. How did you get into now running Asia's best quant fund? Seems like a long time ago. So this is a story that I get asked about often, probably disappoints most people in terms of whether or not it's an exciting answer. I started out as an investor. And on the founders myself, many, some of the senior management within the firm, we were of the same vintage. We were in school the same time. We happened to know each other since our early teenage years. And when the fund was launched in its early years, as I said, many of the investors were friends and family. And I was one of those investors who came in in the somewhat early years, was after a couple of years of being an investor that they thought, you know, we need to expand this team, right? It grown at the time when I joined it was half a billion dollar fund. They since I certainly come a long way already. And founders will always remind me, those were the early years when they had to do the hardest work. Of convincing people that this was a strategy worth believing in, right? Of convincing people that two guys in a Bloomberg machine could do it, right? So the hard work was really then. And by the time I joined, you know, it was no longer a startup of a fund, right? Decent track record. And I joined initially to look after legal and compliance matters. Levering. bridging on my legal background. But as with many small firms, the risk of scope creep tends to weigh on you. So I started doing all sorts of other things. I'm doing a little bit in operations and risk and investor relations. And eventually in 2018, founders said, look, we're off a size and have a decent track record. And good people here at the firm. And the right thing for the founders to do is to take a step back and hand it over to the next generation, which is when I was appointed a CEO, which is when the new CIOs were appointed. And since then, we've been running the day-to-day management of the firm with the founders supporting us in the background. So they still give us a lot of direction. It's still a firm that is built in their mold, you should say, in the sense that they guide the philosophy of it, the long-term trajectory in strategy. But it is run day-to-day by us. And they give us a lot of trust and faith and leeway to do it. How did you build up the skills to look over parts of the business that are more quantitative? I would imagine or background in conducting research yourself would help. How did you build up the skills to build out those parts of the business as well with a law background? How do you build anything slowly, step-by-step with a lot of help? I must say that it's not easy to expand your skill set to try and look after new things. But it's a lot easier to do it. I think when you have a lot of trust and faith from people who know and think that you can do it, I would say that-- now, this is a plug-in for the legal profession. Law is a great profession. People think that it's just about understanding laws and going to court, fighting disputes, and looking at contracts. But the truth of the matter is like many other disciplines out there. It can be in any field. It can be in engineering. It can be a computer scientist. What we're trying to learn over time in school is how to think logically, systematically, understanding how to make decisions. And I think law is just like many of those fields where, you know, what we do is we take an information, understand the rules set, and figure out-- in the case of lawyers, either how to make a good argument, how to get out of the rules, or how to work within the rules. And that's just a great skill set that's applicable anywhere. So it's about an adaptive mindset, I think. I'm not saying I'm going to be the best at any field, like operations or risk management, or suddenly on the investment side, people who are far better than me. But I will be able to understand what's going on, because I can apply all those same skill sets to these different areas. So adaptability, I think, is key. It's something we look for. We want people who are not pigeonholed in silo. It's almost mirrors the philosophy of the fund. We want people who don't only look at their own investment strategy. We have people who are focused in certain areas. But we want people to think big, to understand the big picture, to be able to understand how the whole portfolio works, how does your piece work with many other pieces within the model. So this ability to think laterally and to apply your skill sets, your experience to many other areas, I think has always been part and parcel of what makes Quantage great. It's just on it there where you like and law to a game. Investing, fundamental, or systematic is also a game. And I would argue a game that not enough people break down into its individual components is the game of one's career and how skill set fits into that. How do you think about building up differentiation edge alpha within one's own skill set, within one's own career? And ensuring that that alpha doesn't decay in a world where all these new technologies seem to be eroding some edges that people used to have this question about building yourself up. I like to draw an analogy to investing itself. In order to build a good investment strategy, you need a good investment philosophy, good foundations. What matters? And the same applies, I think, to building up an individual, to building a career, building your skill sets. You need good fundamentals. You need good values. You need to know what truly matters. And investing in yourself by reading, learning, getting as much exposure and experiences you can, is what helps you compound yourself, the value of your own work, what you can do over time. Things will change. The tools that you have, the competition out there, the world will change. But if your values are sound and those values are good, then you can back yourself. You can trust yourself to adapt accordingly. That's generally what I mean, I tell you nowadays. When people talk about, what should I learn? What should I pursue? What career is good? What jobs will exist? I don't know. But you know, investing yourself, build that strong base of knowledge, choose certain things that you want to specialize in, go deep. But still keep it broad. You've got to have that strong, broad base of knowledge, not be too specialized. You've got to be adaptable. You've got to back yourself in a world that's changing. Because I don't know whether programmers will be necessary in 20 years, 10, 20 years time, I don't know whether lawyers will be necessary. I think things will change. Even if those professions exist, the nature of your service, the nature of your work, will change. And we need people to be adaptable. People who are able to take in knowledge are hungry to learn more. People who are hungry to solve problems, overcome hurdles. People who are resilient to change, all those things, their fundamental truths and values that people need to have to survive in this world. Are there any differentiated takes that you think you've come up with or have thought about with regards to building up a career or building up personal differentiation? I'm really not sure whether my thinking has changed. What I can say is that everybody's different. And whenever someone is put into a leadership position, your character, your values will tend to show. And that percolates into the organization just by virtue of the position that you have. So me as a lawyer and there are many different types of lawyers. I've always been one who's enjoyed engineering collaboration. I want to see people work together. And that's my role as a lawyer, getting people together, getting people who are on opposite ends of the table to agree and to a deal for the mutual good. That's the lawyer that I was. And I think that's the leader that I think I've tried to be. Not just in terms of looking at how things could work within the organization, but also outside. So when we deal with our partners, our counterparties, people who we work with, our brokers, custodians, when we look at how we want to impact the world and the good that we do, how can we collaborate? That's the key question that I always ask myself. And that probably comes from my grounding as a lawyer, the kind of lawyer that I was. I really like the idea of one plus one should equal more than two. And I believe that it's possible. I want to go back to where do you-- I want to go back to the hedge fund business, where it is right now, and where you think it's going. Something that is always spoken about. And whenever I have guests on this podcast, they always disagree. Capital consolidation. Everyone talks about how the biggest funds are getting bigger. I mean, if the CIO of Millennium leaves to start a huge multi-manager and then comes back, what does that say? What's your tick? Where is this industry going? It's not a new industry, for sure. We've been-- we've been doing this for many decades now. I suppose the hedge fund industry, 1940s, 1950s. It's become a far more competitive space. And in recent times, absolutely right, capital consolidation. We see a lot of that. A lot of money going to the big boys, the bigger the name, the bigger the check. I don't think that's likely going to change, but it's not as if they're winning every single mandate. There is still room out there. We still see investors who, despite allocating to the big boys and the big names, are looking for smaller managers, are looking for emerging managers. There's still a lot of that going around. It is difficult to compete though when you think about it. So if you're running a similar strategy to one of the big boys, the question is, why should you do it on your own? And that's the reason why maybe there is such a great attraction to working with one of the big pot shops because it's all set up for you. It's competitive, it's tough, it's cutthroat. But there's a lot of simplicity in working for a big organization, just like any other industry, right? But I don't think that there will be a shortage of new managers coming up. Maybe not as easy as, say, 20 years ago, right? We spoke of the idea of two men in a blue-book machine. That's not going to happen today. With the amount of regulation, with the amount of costs involved, don't start a fund with $3 million. So there needs to be some scale, for sure. The bigger, I think, issue going forward when it comes to the future of the industry is the use of AI when it comes to managing portfolios. So we take a pretty clear view, I explained it earlier, right? We think there's use for AI within the business in many of the work streams that we have, but we don't want it to be something that matters with the model itself, the production models. Now, people may take a different view, and I'm sure people do, right? There's so many funds out there starting out saying, "I'm an AI fund. I'm an AI-driven fund. My investment decisions are driven by AI itself." And there's nothing wrong with that. It is possible to create such a strategy and such funds. But when you think about that possibility, that applies not just to professional managers, but it applies to anyone who wants to do investing. Family office could do that. And allocator could start doing that, and they probably would. What that means, though, is over time you will have more and more people who feel that it's possible for them themselves to make investment decisions, to run investment strategy, to create investment portfolio based on AI or using AI. Not the need for allocating two external managers, whether it's right or wrong, whether it's an impression that may be untrue, but it gives them the feeling that I'm making intelligent investment decisions using AI. That could happen, that could reduce the amount of flows to external professional managers. I think that remains to be seen. But what I think that also results in is greater pressure to deliver results. I mean, there's a couple of different factors here. You've got passive investing that's become the norm. Everybody's got a passive investment portfolio. You can get decent returns. Add in a little bit of AI into that. You can do some fancy portfolio allocation into passive investments. That's a pretty intelligent way to do things. You can get decent returns from that. And if more and more people do that, then there's a lot of pressure and professional managers to say, "What am I adding to this whole equation?" If I'm not able to produce alpha, outsized returns beyond that, I don't deserve your money. And I think that means there will be consolidation in a different sense, meaning that returns will really matter. Trek record will really matter. That might make it harder for new managers to come up. We've got a lot of, and this surprised me, but lots of PMs and emerging managers who watch this podcast. And I used to ask questions for advice for people starting out their career because I am younger. But given that our audience is actually people who want to manage money, you're already managing money. And you are sitting in a very unique seat where you've seen a fund grow from your initial investment, of course, but joining at 500 million and now at 6 billion, what are the biggest mistakes that early stage managers make that kills their business? Want mistakes can early managers make tons? I can't say for myself what I think is most dangerous. I think there are many things that could go wrong. We've made some mistakes, I think, in the past. Nothing fatal, obviously. We're still around. We're still thriving. Could we have done things slightly differently? Probably we've made some decisions that I think have huge trade-offs. We don't regret them. And I say overall, I think we've come up better and stronger for it. But if you turn and look at new emerging managers, quite often, this is my own personal of you, but quite often there is this desire and hunger and need for capital, obviously, without capital, there's no business. Well, what would you do then to get that capital? I think to me that's one of the biggest mistakes any manager, emerging manager, even an experienced manager can make. Because it goes back down to, in many ways, your values and what you really want to achieve. What I mean by that is there will be to every manager at a time where someone will come along and say, "I'll give you money" in exchange for something, whether it's lower fees, special terms, whatever it is. And often it's not really what you want, obviously, but you have to make a choice. And that's the question of how much do you bend? And I think we've managed to steer away from that at great cost. I like to think if we didn't introduce our fixed-term share classes and a lot of people will probably be managing a $20 billion fund. We made that decision because it's what we truly believe is necessary for this investment strategy. We stuck to our guns. We paid a little bit of a price, I think. But the upside to that is today, after a more challenging build-up period, we have a fund where every single investor is committed for the long term, meaning to say there's a great alignment of both interests and expectations from investors and ourselves as to what this strategy is supposed to do for them. So the downside to many other funds is there is that drift in terms of your business objectives. If you say, "I don't care, I need the money," I'm going to do it at discount management fees and performance fees. I'm going to give people special terms because it's a slippery slope. What did it look like? Actually, let me rephrase that question. Are the terms for investment always the terms that you have now? And if not, how did you go about implementing that? Because it sounds like that number one that's difficult. But number two, as you said, once you've done that, you've built an insanely robust hedge fund business. We started out like many other hedge funds, fully liquid, meaning that investor can come in this month and exit next month, no gates. If we didn't start that way, I don't think we would have raised any money at all. But we started that way. It was only in 2018, surprise, surprise when I became CEO, that we instituted the fixed M. share classes. It came as a shock, I think, to many investors. This was actually before Millennium announced their five-year redemption structure. We were ahead of the curve, you could say. I'm definitely not in line with the markets. When we announced that we were going to do fixed terms and that we were basically going soft clues. A lot. original liquid share glass. We didn't give investors much choice, but we did that from position of strength, meaning, you know, after many, many years of good returns. But it was still a difficult process to try and convince everyone. Now, the thinking was pretty simple. We run a strategy where, A, we can't guarantee returns every single year. We're taking real risk in the markets. We have been down in calendar year terms before. And we tell investors, you have to expect that going forward. We can deliver 20% annualized returns, we've done that in the past. We think we can do that in the future. But year to year, there's no guarantee. Right. Now, if I'm down for a year, I think I recover fairly quickly. We were back to a new high after the GFC within about 12, 13 months. Right. Pretty quick. So give us one year to recover from a down year. But after two years of investing in your flat, that doesn't make it a very good strategy, right. Give us a third year. You'll likely see pretty decent returns. Right. Maybe close to 20%. What that means is, for any investor coming into quantage, you should be thinking in at least three year terms. So what we're trying to do is to align the strategy to the investment horizon off investors. Anything shorter than that. And effectively, we're selling you something that you don't want and you don't need. There needs to be that alignment. So it's a hard decision, hard process. We managed to convert the bulk of the book into initially fixed-term investments. And later on, we introduced new share class, which is a semi-perpetual share class. Right. Which basically says, there's no end date. But you can only redeem 5% off your prevailing share balance every calendar quarter, which means you almost never get your money out because it's always it's an exponential decay. But what that means essentially is, and the reason why we did this is A to align, as I mentioned before, investor, the strategy with the investment horizon required. But secondly, we were trying to tackle actually one of the main reasons that funds die. Right. When you think about it, investment funds don't really die necessarily because of investment returns or poor returns, right? If they're down, they're down. Most funds, given the appropriate amount of time, should be able to recover. Not all funds should be given the chance to recover, but that's a different matter. But the point is, the reason that funds really die is because a couple of things happen. Markets go against them. Investment returns draw. And investors run for the gates. Run for the doors. Redemptions happen. There are many things that an investment manager is controlling over. You can control your strategy. You can control the terms on which you raise funds. But the one thing you can't control is redemptions, meaning that it's an obligation. Once you've taken in money and you've set your redemption terms, when that redemption notice comes in, it's an obligation. There's no negotiation. And you have to meet that. Meaning no matter what the market circumstances are, no matter how inappropriate it may be based on your strategy to sell those assets, you have to do it to raise money. So when you think about it, that's what really kills funds. And we don't want to be in that situation because we know that our strategy will involve peaks and troughs. There will be times when there were corrections in the markets when the fund, NAV will draw. But we want investors to go in with their eyes open knowing that they will sit through those down months and come up better for it. Provided that everybody sits tight. So by locking people up, by making sure that they invest for the long term, every single one of them, we're eradicating the risk of a run on the fund. And that means we're going to be survivable for the long term. What are the specifics of how the incentives look like for employees? Because I imagine if you're building a business and you want them to buy into the mission and you tell them, we've got an amazing investment product which historically is compounded at 20% a year for terms that are nearly impossible to find elsewhere. You want them to buy into not just the mission, but really buy into it with their own capital. What does that look like? Is 20% net investment returns not good enough and incentive? It should be. It should be. But it's true. We do have a share of class that is not available to external investors. In fact, it's a, we call it class Q obviously for quantity. It's made available to employees as well as our earliest investors. The earliest investors have obviously done very well for themselves. If they stayed invested and many of them have stayed invested, day one to today they'd have almost 40x their money. Nice return. Not bad. So when we pitched to them, we've got a new share class for you. It's going to be exclusive to you and the employees. It's going to have slightly lower fees which means, you know, another 20 years it'll be more than 40x hopefully, right? But the kick is this. No free lunch. You want this investment return? It's going to be a permanent share class. That means that that money is our permanent capital base that will never run out. Now you can withdraw some money from it. We allow those investors to redeem a small proportion, small percentage of it every quarter such that it is less than 10% a year. What that means essentially is it's a great compounding engine. You can max out your withdrawals 10% a year, right? And that amount based on how 20% net annualized return will still grow. It's going to be more and more money that you can redeem every single year, but you can do it in perpetuity. That requires a lot of trust in us because the idea of perpetuity when it comes to putting in money somewhere else is a foreign concept to many people, which is why it's not a share class that we make available to most people. It's only to people who have been with us a long time, who have that trust in quantity. And of course the employees, but the exchange of that in exchange, you get more than 20% annualized returns by virtue of their being lower fees. And you get to contribute to the growth of the fund in many ways because that permanent capital base is what gives other investors faith in our goals for a 50 year project. I want to hear this spiel. Let's say I'm 21, I'm 22. I've just graduated from an Ivy League or or a top school in the UK. And I'm talking to a CIO or you or a PM or a quant or a trader, whoever it may be. And I ask, why should I join Quant Edge? What's in it for me? Why shouldn't I go and work for the other top hedge funds who have a bigger name, manage more money? We'd love to hear what's the fundamentally what's the real incentive? Why do people join Quant Edge? They have so many options in this world, as you say. The strange thing is why I don't usually have to say very much because I think we show it. So we get for every position that we need to fill, probably get about 200 CVs give a take, that kind of ratio. So we've got lots of options. There's so many smart people in this world. We get great CVs. We often have the luxury of choosing between two perfect scores. But when people come to Quant Edge, when they join us for the internship, what they will see, what they will feel, it's an organisation where everyone's trying to make someone else better. The amount of time that we spend trying to build people up is tremendous. And that's because there is that spirit of collective achievement. We want every single part of the business to do well. So we spend a lot of time coaching, teaching, giving people the right space and resources to really do well. So there is that emphasis, I think, overall on the well-being of the individual for his personal and professional growth. I mean, I could say, I think we make things pretty fine as well. We've got a nice office. We have lots of perks. There's a gym and there's even a racing F1 simulator. So all sorts of nice stuff, right? But I mean, the proof is in the pudding. There's a reason why people join Quantage over some of the more illustrious competitors. There's a reason why they stay at Quantage. We have employees who travel together often because they enjoy each other's company. We have people who come back on the weekends to hang out, to do work together, because it's fun. I think we've done tremendous job of creating that environment and culture where it's not just saying that people are collegial and it's teamwork. We choose people who really believe that. And as a result, it's a real culture of collaborative good. People just want to help one another do better so that we all do better. On building great company culture, what are the most important components of that? And I asked that question with a context of, you know, you mentioned your gym, amenities. That's not what people join. I mean, it's not even wrong to be great to, you know, after work, you're going to the F1 simulator. It sounds fun. But that wouldn't be why I would buy into a mission and join. What do you think you get right about building great company culture that other businesses get wrong? I'm no expert when it comes to building company culture. We do things a certain way. I can't say whether it's the best way, but it's our way. And what we believe in this, I think, emanates from what I individually believe, what the founders individually believe. It's the need to respect and honor people. We're building an organization, sure. What's an organization without its people? And what that means is whenever we hire somebody into quantity, of course there's an obligation for that individual as an employee to do their best to roll out the sleeves and, you know, professionally deliver. But on the flip side, I tend to think that there's a huge, if not greater, obligation. For us to take care of this individual, to give them a job, a career that could last a lifetime where there is opportunity for growth individually, professionally, for them to be happy to be taken care of so that they can go out there and live a good life, build a family, so on and so forth. There is a huge degree of responsibility, I think, that we take on by hiring someone. What that means is, well, we want to hire somebody who is good, who is worth it, because we are going to devote significant resources to building that person up, to treating that person, almost like family. When we tell people we want to create an office environment that they can be comfortable in, where they can do the best work, it's not for the purpose of extracting the most value out of them. It's really to make sure people feel like this is a place they can call home, almost. Well, nothing beats home, but come away from home. Where you don't mind being in the office and doing good work. Where you like the people you surround them with every day. And if you ever get into a tough spot, whatever it is, hey, you know, doesn't have to be about work. There are no opportunities for you to be able to do things to any trouble elsewhere. Let us know. We'll try to help you, because you're now part of the Quantish family. I think that's what we do. It's a great deal for responsibility, I must say. But I think it's the right way to do things. I think we have a lot of different mindset to what's presented at a lot of top firms. And the square might never work that any of them. But it just seems that in general, they are known to be extremely meritocratic. And sometimes I imagine that comes at the cost of less security, which is also what people sign up for when going into those firms. How do you maintain a culture of maniacal meritocracy of people working extremely hard. Making your return profile what it is. How do you balance that with building a culture that cares about people and nurtures people. Because I'm not, I'm not for one second saying that those two things are directly opposed. But I would imagine there are moments where that those two can conflict. You need a balance as with many things. So the idea of being maniacally meritocratic, I think it's something that we try to avoid. We want to be meritocratic. You've got to reward and give opportunities to people who have proven themselves to be more capable. That's the only way to succeed. We want to ensure that. But you need a broad definition of meritocracy of what contribution can be. Because people can contribute in many different ways. And I think one of the mistakes that organizations even countries can make is to have a single narrow definition of what is merit. How can you prove yourself? So in our case, yeah, we hire smart people. Smart in different ways, good in different ways. And we want to give credit to them where it's due in the many ways that they contribute to the firm. We're also, I think, quite patient with our people. We believe in human potential. We want to give people time to develop, space to develop, space to make mistakes at times. I think that's key. I think. If you want to get good out of people, you've got to show that you care. So it all sort of adds up to the same thing really. The only difference is. Basically looking long term. Because what we're trying to get is not value from every single human being. It's a unit of production this year. What we're looking at is how much every individual in quantity can contribute to the greater good of quantity over a period of 20 years. And if you're looking at something over that kind of time horizon. You should be thinking just like any investment. What do I do in the early years? How much do I invest? How patient should I be? Can I afford to wait for the results to show up in later years? That's very much how we think about our people as well. And I think that helps that patience in people helps individuals to understand as well. What are we doing for them? How much are we investing in their development? I think that balance as a result of that of those different factors. I think it's what helps us to get a merit-based culture which balances with true care for the individual. I love it. Final question. It seems with quant edge from the moment it started. Talk today. We're pulling a very very long term game. Be that with your investors. Be that with your people. Be that with your mindset around how profitable the business is. I mean, even not trying to take allocator money anywhere you can find it. And really focusing on building a machine that compounds the wealth of yourself, of the founders, of employees. Do you have any advice for emerging managers? How does one build a great long term business? What is the single most important thing? And how do you do it? The single most important thing when it comes to building anything is to have that vision in mind and be patient, slowly build up to it. We've always had that, I think, as a benefit from the founders having that strong conviction in what they are trying to build. I'm sure there's stuff that you figure out along the way. but it's difficult to be in many ways strong-headed, clear-minded and determined to work towards that goal, especially if it's not a goal that other people think is possible. So when you rewind 20 years ago, two gentlemen almost fresh out of school, only been working a couple years, decided to set up a quant hedge fund in Singapore. They were not from the finance industry, not as traders, didn't have those credentials. And you go around and tell people, "I'm going to start a hedge fund that's going to deliver north of 20 percent returns to Perana. Who's going to believe you?" But I think having that long-term vision helps, especially when there's some simplicity behind so if you were to say, "I'm going to do this regardless of whether or not other people believe in me." And I'm going to do it no matter how long it takes to get there. Maybe what if quant hedge was just a $1 billion fund today? Would we stop? I don't think so. We'd be running a smaller fund, we'd have less people, less swanky offices, probably no F1 simulator. But we'd probably still do the same thing because it's the right thing to do. Because fundamentally the vision is sound, we should be trying to build this investment engine, this compounding engine for the long term. It's the right thing to do. If people don't buy into it yet, sure, we'll be patient, we'll take our time. So patience, conviction, at the end of the day, those are the things that make us stand out. And I think that's what would help many other emerging managers. Patients, conviction, and hopefully you'll win. This was wonderful. Thank you. [BLANK_AUDIO]