The AlphaMaven Alternative Investment Podcast

In this episode, Charlie McGarraugh and Geoff Marcus discuss inlation's impact on Commodity Trading Advisors (CTAs) and the managed futures sector in general.  View more on alpha-maven.com Excerpt: GEOFF MARCUS: Hi, I'm Geoff Marcus with Alpha Maven. Today, we're going to be continuing our discussion with Charlie McGarraugh. Charlie is the chief investment officer at Altis Partners and also the chief strategy officer of Blockchain.com. Charlie, do you expect that we'll see a revenge of the old economy moving forward? CHARLIE McGARRAUGH: Yes. Okay. So I do agree that we will see a revenge of the old economy. And by that, I think but my former colleague, Mr. Jeff Currie, means by that phrase, it's this idea of a refocus on capital intensive businesses or direction of capital into bricks and mortar and commodity capacity. Right. And I strongly think that that is the pathway forward. Markets for a long time have been focused on materialization virtualization software. You know, broadly speaking, electrons, not molecules. And and with the increase in geopolitical uncertainty, reshoring of supply chains and and supply side constraints are all in some ways related to under-investment in commodity CapEx. It is likely that markets will be much more focused on molecules and movements of molecules and the costs associated with that, storing them, providing liquidity to them. And then in recent years. GEOFF MARCUS:  Thanks, Charlie. How big will the ESG hurdle be in increasing the cost of capital in supply chain for commodities? CHARLIE McGARRAUGH:   It's a good question. I think it's still an open debate. The market seems to have go in waves of even struggling to define what is even means. But a few things do seem clear. The first is that a focus on de-carbonization is likely to get more and not less through time. Secondly, environmental concerns, whether it's regulatory or literally just environmental disasters, changing demand for various materials in the supply chain as we rebuild or change infrastructure to mitigate and cope with all those things are likely to impact the cost of capital. I believe it will likely create a lot of government intervention that's designed to direct capital flows into the space to increase capacity. And so the market clearing price of capital may be higher, but there will be instances where the cost of capital drops lower as a function of government intervention and trading dynamically around that is likely to be a source of opportunity. GEOFF MARCUS:   Charlie, how would a supercycle impact a CTA like Altis Partners? CHARLIE McGARRAUGH:   Yeah. So as the markets get more focused on the cost of commodities, there is likely to be a large divergence of opinions and greater volatility, but in the context of greater capital inflows. So we would see, I think, a broad based uptrend with higher lows and higher highs and potentially different different volatility regimes, all of which is to say that it will be a trader's market. You'll probably be paid to commit capital and space. I just through the overall upward drift in prices and and the active movement of risk associated with this will tend to benefit those who are good at measuring them in real time and positioning it. So being nimble instead of just directional as is likely, is likely to be very beneficial in the context of a business that's moving a lot of risk premium. GEOFF MARCUS:   Charlie, thanks so much for joining us today. We really appreciated having you here. Please join us again as we roll out more interviews and more panel sessions here on Alpha Maven. Thanks so much. CHARLIE McGARRAUGH:   Thanks very much for having me. It's been a pleasure.

In the first episode of the series, Charlie McGarraugh of Altis Partners discusses trading in a "Post-QE" [Quantitative Easing] environment.  He explores the current opportunity set that should persist over the next several years. View more on alpha-maven.com Excerpt: GEOFF MARCUS:  I am Geoff Marcus from AlphaMaven. Today I'm going to be interviewing Charlie McGurraugh, who serves as both the CEO of Altis Partners and as the Chief Strategy Officer for Blockchain.com. Charlie, you're uniquely positioned to talk about the convergence between traditional markets and new markets in crypto. Could you briefly give an overview of your background and how you view the role of a modern trader? CHARLIE MCGARRAUGH:  Sure. I grew up on trading floors in a traditional investment bank. I spent sixteen years as a trader at Goldman Sachs across credit mortgages and commodities. And so I've seen quite a lot in micro and macro fixed income worlds. And then in since 2016, I've been working in tech startup world first and electronic trading and in sports betting and then in cryptocurrency and, and it's all kind of the same thing, which is, is basically how do we manage risk better with software and, you know, trading liquid markets. In crypto, it's sort of like you have liquid things. It looks a little bit like foreign exchange or commodity. And then of course in futures it is for exchange and commodities and equity indices and so forth. And so it all comes down to the same principles of basically risk management, risk premia, risk factors and, and managing your bankrolls actively in liquid markets. GEOFF MARCUS:  Thanks, Charlie. What are some of the biggest market opportunities you're seeing crypto and liquid alternatives? CHARLIE MCGARRAUGH:  A big piece of it is actually exercising thoughtfully the option to be flat, not just always having necessarily something to bet on. And that's a big part of it.  Yeah, so I think it's a really interesting market environment because the long term asset inflation that has really powered forward markets with a couple of notable blips, namely simple level the dots on prices, the taper tantrum, the global financial crisis, a few of these blips along the way, but basically you've had a 40 year bull trend in bonds that just powered a bubble trend in all financial aspects. Right. And, you know, additional policy with housing and so forth, we're at the end of that long term, low inflation, excess savings cycle. And rates are going to be higher or at least more volatile, both in real terms and in terms of inflation and risks. Right. So all three dimensions of inflation, novels and the different events, that means that as an allocator of capital, being focused on just holding financial assets while they reflate more is not really going to work, I strongly believe. And that means that you need to be in the risk moving business, not just the risk storage business, because just having something sitting around doesn't mean it's necessarily going to keep appreciating. So in a world where valuations are more dynamic and less trending over the extremely long haul, buy and hold may be less advantageous. Right? Therefore, you want product that can be short. You want a product that can be nimble, and you want product that is benefiting from other kinds of risk premium other than just financial asset reflation. You need multiple risk premia and you need to be able to wait between them dynamically and liquidity. And so our systems are really focused on multi-asset risk premium, multiple dimensions of risk premia and then trading liquidity in the world's most liquid markets, which are regularly futures to capitalize on changes in that short time. Thanks, Charlie. Appreciate the insights. Now, all this recently launched a new global macro strategy, which is live on the platform. CTAs are the best performing asset class this year. Why are they so well-suited for this environment and how long do you think it will continue?  That's a great question. So most CTAs benefit from primarily one risk premium, which is trend, right. And trends are, of course, super interesting because they are the process by which markets ingest information and find new price points and they're hard to arbitrage away because they happen on different wavelengths. Like, of course, of news hits all the day. Traders react, but then, you know, they only have so much balance sheet to push the price one direction or the next, and over time, invest equities, reallocate cross-sectoral movements happen and so forth. So think of trend is like multiple wavelengths of how does a market ingest information. Right. But there is and so the last really since QE [Quantitative Easing] kicked off in a way it's been pretty hard for medium wavelength translators to make money because the Fed anesthetize the market by just providing free money, which meant price discovery didn't happen as much because you know, if the job of a trend followers to take the price where it's predicted it could go by providing your capital. The Fed just provided all that capital cheaper way cheaper. Right so it didn't work as as a risk premium very well for for the last quite some time now that that liquidity has been removed from the system. The chance to charge capital to where the variance of discovering new prices is basically much higher. The pricing power, and that's likely to persist as long as QE is being rolled back. On top of that, there are other kinds of risk in the market away from this trend. Things like valuation and intermediately like relationships, and in an environment that is highly, highly uncertain, different classes of participants in the market are going to react at different times. Right, and in different degrees of severity non contemporaneously. And that means that the relationship between the two seems to get quite out of whack for quite some time. And so the more structural volatility there is in the market, the sort of the greater the opportunity to commit your capital, to provide liquidity to bridge between these things when they're statistically predictable. And because we are likely in an environment of high structural volatility, right. With the resurgence of inflation volatility with far more uncertain policy pathways, not just in terms of monetary and fiscal policy, but also ultimately in terms of like social engineering, a war on inequality, redistribution tax and all that technological change. All these things are creating a higher degree of flux in the system than we have experienced recently, and that allows for sort of process of relationships to get a lot more out of line. So the combination of trend value and what should should be a very possible thing to provide for for the foreseeable future.   

Michelle Noyes of AIMA discusses the organization's role in the digital asset space. Transcript: So for folks who decide they may wish to use the AIMA DDQ, be them an investment manager or an allocator, essentially one of the two would have to be a member of the association in terms of membership, really, we are a broad church church that welcomes all in the industry. It is corporate level membership only, so individuals aren't able to be a part of the association. It is the company that is the member and then as many people within the organization who wish to be involved can avail themselves of the benefits. So about two thirds of our membership are investment managers. That's really the core of it. We really work with the, you know, the biggest in the industry who truly leverage the global work that we do and, you know, really rely on us for there to be their windows on the world as it is. But we have, you know, a long history of small and emerging managers in about 40% of our members are $500 million and below. So we do price membership for investment managers on a sliding scale of awam to ensure that we are accessible to those on the smaller side who need us, because we understand firsthand how challenging it is to be an emerging manager these days. We do also have allocators as members, both institutional and investors, as well as investment consultants, fund of funds, of CEOs, wealth managers, etc. And then we work with everyone else that makes this industry tick, whether they're a law firm, a fund admin, a prime brokerage, an audit. They bring a lot of expertise to the table in their specific domain area as well as, you know, working across the diverse client set. So we're really inclusive of all of the players in the industry and really try to make it a win win relationship where they can both contribute to their fellow members and members can learn from one another as well as network and meet one another to grow their business.

Michelle Noyes of AIMA discusses the benfits of membership in the Alternative Investment Management Association.   Transcript: So for folks who decide they may wish to use the AIMA DDQ, be them an investment manager or an allocator, essentially one of the two would have to be a member of the association in terms of membership, really, we are a broad church church that welcomes all in the industry. It is corporate level membership only, so individuals aren't able to be a part of the association.   It is the company that is the member and then as many people within the organization who wish to be involved can avail themselves of the benefits. So about two thirds of our membership are investment managers. That's really the core of it. We really work with the, you know, the biggest in the industry who truly leverage the global work that we do and, you know, really rely on us for there to be their windows on the world as it is.   But we have, you know, a long history of small and emerging managers in about 40% of our members are $500 million and below. So we do price membership for investment managers on a sliding scale of awam to ensure that we are accessible to those on the smaller side who need us, because we understand firsthand how challenging it is to be an emerging manager these days.   We do also have allocators as members, both institutional and investors, as well as investment consultants, fund of funds, of CEOs, wealth managers, etc. And then we work with everyone else that makes this industry tick, whether they're a law firm, a fund admin, a prime brokerage, an audit. They bring a lot of expertise to the table in their specific domain area as well as, you know, working across the diverse client set.   So we're really inclusive of all of the players in the industry and really try to make it a win win relationship where they can both contribute to their fellow members and members can learn from one another as well as network and meet one another to grow their business.  

Michelle Noyes has a comprehensive discussion on due diligence questionnaires for alternative investments.   Transcript: So due diligence questionnaires. When folks think of AIMA, it's still, you know, oftentimes they think of AIMA. Q So let's unpack what that actually means. So again, Q simply means a due diligence questionnaire. This is a document that gets into greater depth about an investment strategy, about the investor manager themselves, about the fund terms and details, it typically, in the process, will come somewhere after you have established that there is real interest in taking this further.   Okay.  We've had the first introductory call, maybe one or two, the investor will then want to do a little bit of extra work and it's, you know, we'lll see where it goes.  It doesn't necessarily mean that you are getting a check, but its is something that, you know, when you have that first introduction.  You are going to be sending over some initial materials which are probably some of your factsheets, historical letters, and your pitchbook.  And then your pitchbook.     Then this is, you know, a nice, meaty document that, as I said, gets into you both the investment side of the business as well as importantly the operational side of the business.   It can be really tedious because you look at this thing and it's asking you for a lot of information.   When I was in the seat, what would always be frustrating is you fill it out and send it to an investor and they would ask for it in just a slightly different way.   So instead of asking your PM how many years of experience he or she had in this role or this firm, the next person would ask you in which year do they begin.   Same information, but slightly different. And even if it is just a simple copy and paste, it's not an efficient use of time. It's something that takes. It'll require you as an investment manager to take longer to reply to this questionnaire and there is greater risk of mistakes.  Plus, I think that we've all agreed to this point, that there are better things that everyone can be doing with their time than copying and pasting.   So this has led to an understandable desire to standardize the process.  AIMA took this attempt in hedge funds in 1997.  Our first DDQ was unveiled in that year.  A member committee helped develop it.  It was 10 pages and everybody complained how invasive it was.  Today one would have to laugh because 10 pages seems laughably short.   As the industry has continued to evolve and there have been more and more questions from allocators, we've continued to update our questionnaire over the years to both streamline it, as well as reflect the diversity of strategies.   We have, Within our organization or I should say, within our industry, so I think the earliest iteration of the AIMA standardized queue was focused more on plain vanilla hedge funds.     But then investors keep on turning to new investment strategies and they don't necessarily neatly fit in within that structure.   Folks are launching managed accounts. Funds of one.  More and more folks are doing private market investing in a closed end vehicle.  So, we really put our heads together, back to the drawing board in 2017 to make something that became mature.   So we really broke the duediligence questionnaire process into its component parts.  You know, we figure that everybody needs to have a basic level of information about the investment manager, and most of it is going to hold regardless of strategy or regardless of fund vehicle.   So these are things about the entity as a whole, the governance structure, some of the service providers to the fund.   So that's sort of the core set of Questions. You then get into the investment strategies. So, you know, we have our sort of classic hedge fund strategy, but there's also strategies for fund of funds.  There are strategies for more systematic, quantitative driven strategies.  (The discussion continues...)  

In the second episode, Michelle Noyes covers the recent trends in alternative investment due diligence.   Transcript: Due diligence and investment diligence in general has evolved even quite a bit since I've been in the seat in the Investor Relations seat in ten years. It's not an easy process. Allocators have many, many different funds to choose from when they make a decision to allocate to a hedge fund a private credit strategy. You know, it's really a lot of information that they have to synthesize.   I think something that we have to think about is how this industry has evolved and become more institutional is that means it's no longer in the hands of a single individual. When we think back to the the history of this industry, it was a lot of raising money from friends and family, folks that have watched you invest, perhaps spinning out from your own firm.   They think that you're smart, you can do a great job, give you some money to invest alongside your own money. And that certainly happens. But we've seen this shift where much of the new funds that have come in over the past decades and this trend continues is from pension funds, endowments and foundations, more institutional and structured family offices.   And when it does come from private wealth, a lot of that also does go through different channels and gate holders, including private banking platforms. And some of these are a aggregators. We also have the investment consultants who have a whole business about choosing funds and being able to offer insight about whether that's a good fit for the particular strategy of an alligator.   So we're in a space where there is an increasing amount of demand for information, not just performance. Of course, that's always going to be important and you know, nobody's going to make an investment unless the performance stream and the numbers are a good fit for their portfolio. It doesn't always mean just absolute returns, but what sort of diversification that return stream might offer to a portfolio, but also about the business, about the operations.   You know, there's a statistic out there that, you know, a very large number of hedge fund failures come from the operations rather than the investment. So it's important that they're able to vet whether the fund has a proper infrastructure to stay in business over the long term and to be able to sustain the type of performance, to be able to retain the talent that leads to that performance.   So as more and more information is required, more and more transparency is expected. It becomes more and more challenging to go through that process efficiently. And, you know, that's changed the role of Investor Relations portfolio. I think there's a stereotype out there of folks in that position going out to the golf course or drinks and happy hours and dinners and wining and dining and again, there still is social networking and, you know, having good relationships and being a people person can be quite important.   But it's also become a lot more technical because when allocators have data, they're going to ask a lot more technical questions, and the person in that role needs to be prepared to be able to talk about the strategy, talk about what goes into performance. You know, again, lead through that operational review and really be a proxy for the portfolio manager.   So the portfolio manager in the analyst team can do what they should be paid to do, which is to look after their portfolio. Of course, there's always going to be a point in time where the investor will likely want to have at least a conversation with the with the folks in the team managing the money. But the role of the investor relations person is really to be able to quarterback the whole process and make sure it's efficient.   And, you know, I always get surprised, but perhaps it's just human nature. So it shouldn't be surprising how much of it is just being organized and having good follow up and being, you know, a really proactive yet not annoying. There's a fine line manager of the situation so that the investor has everything that he or she needs, has it in a timely manner, has it accurately has all the compliance records crossed off and and can make its way, can make their way through?   There's a lot of technology now coming into play, right? It's with all of this information, it's not always the most secure or the most efficient way to send PDFs and emails back and forth. So you're seeing a greater, greater adoption of things like virtual data rooms, automated diligence platforms, databases for directly sharing and inputting that information. However, you know, we are an industry of relatively small businesses, so that has not quite replaced the human the human in the process.   I think something also, though, that investment managers have to realize when thinking about this process is the time goes both ways. So they see how much time they and their team put into the diligence process. And it can be really frustrating when it lasts 6 to 8 months, which is a typical process. However, the allocator as well is investing a lot of time and money into the process because their team also needs to gather that data, has to analyze that, it has to aggregate it.   If they do decide that they want to go further, that's probably going to Intel, some onsite meetings that, you know, can change to a bit given COVID, but still their preferences if they are underwriting a new relationship there, probably at some point in time they will want to see that that office. So it's going to potentially involve travel hours of research, follow up.   So it's it's an exercise that's not taken lightly from the allocators side as well. So I think that's why it's really important to really enter into this in good faith and, and be really efficient, really organized, really focused partners to make it through and get everything that everyone the information they need in order to have a successful outcome.

In Episode 1 Michelle Noyes introduces AIMA by discussing its membership composition and industry roles. Prior to her position at AIMA, Michelle worked for a hedge fund manager in investor relations. As a result, she is able to address solutions to problems in the industry through an investor relations lens. Transcript:   I'm Michelle Noyes. I'm the managing director and head of Americas at Alternative Investment Management Association, or AIMA. I've been in this role now for ten years, which is pretty hard to believe, but I joined the association in 2012 when they first decided to open a U.S. office being a global trade body headquartered in London with offices in Asia and Canada.   It was only natural that we'd be here in the U.S. as well. Prior to AIMA, I most recently worked for a global asset manager in Sao Paulo, Brazil, so I was working with all of their non Brazilian investors and came across the AIMA DDQ. That was something that I needed as part of our fundraise. And through that process, and also as a volunteer with the Kenya Association, started getting involved with AIMA and building out a volunteer group there.   When I then came back to the US at that point I was just in time for Emma to open its U.S. office and I went from member to staff. So it was a great experience and really gave me a grounding in what the association was about before coming on and helping run it. So for those of you who may not be familiar with Emma or me just now, our DDQ it's really more than that.   We are the global not for profit trade association for the alternative investment industry, with about 2000 corporate members in some 60 countries. So when we say alternatives, historically that's been a hedge funds and that's really where we grew up when we were launched in 1990. So 32 years at this point. But as a hedge funds became a more expansive category, so did our remit.   So we added on private credit under the auspices of the Alternative Credit Council in 2014. And more recently, we followed our members down the digital asset rabbit hole and are spending more time in that space as well. But to sum it all up, we're we're on the more liquid side of alternative investing. So from hedge funds on through private credit, our role as a not for profit industry association is to serve as the voice of this industry along our advocacy, communication and education work.   So that really means, you know, to give you live examples. You know, the SEC has proposed a number of new rules which would drastically impact our industry over the past two months. So we are there working with our members to write responses, explain the potential consequences, make suggestions and really help them through the process. So that's what an industry advocate is all about, really representing the needs of the industry and also explaining what we do to an audience of policymakers, regulators, the media and public at large.   Because, you know, let's face it, hedge funds are pretty misunderstood. It can be quite technical and we have a story to tell. That's not all. We also have to be a practical resource because at the end of the day, if we are successful in her advocacy, it's everyone that benefits not just our members. So we want to make sure that we're really giving back to the members who fund our activities.   And that's really finding ways to help them grow their business and make money or save time and money by leveraging our resources in our community. So that can look like working with investor relations. And, you know, the things that I wish I had when I was in that seat to really lean on peers to understand the changing needs of investors, to meet them at conferences and industry events and really help one another on a peer to peer basis.   And of course there is that AIMA DDQ to be a key part of that marketing process on the saving time and money, it's really bringing together the CEOs, the CFOs with ego and compliance, all of the folks in the non-investment seats to understand what everyone else is doing. That's the age old question. We just want to know what are our peers doing?   What's the market, How can we orient ourselves? So, you know, the flip side of being so involved in that, that regulatory advocacy is we end up learning a lot about the process. So when it comes time to implement it, we work closely with our members to understand what they'll have to do to navigate that process. We're not there doing them for it for them.   We're not a lawyer giving them legal advice, but really very tangible, very practical resources, whether that's, you know, peer group discussions, webinars or sound practice library, you know, whole suite of due diligence questionnaires we have for betting cybersecurity in different vendors or what have you, or just, you know, one on one conversations with our knowledgeable staff. We're there to help, we're there to support, we're there to add value.   So what this looks like at the end of the day is we have over 250 events a year from small breakfasts to, you know, giant in-person conferences. We have a whole suite of due diligence questionnaires and some practice guidance. We have over 100 different working groups, peer groups, committees. We have the AIMA Journal and a whole suite of research publications that come out each year, really all targeted at adding practical value to our members while supporting the industry as a whole.

Angelo Robles discusses Digital Assets in Family Office Portfolios.   Transcript: No discussion on investing these days would be applicable if you didn't mention something that's just so obvious. What's happening in the world of digital assets in crypto, in Nfts. Broadly web3 in the blockchain, what's potentially happening with Dallas and eventually in time something called social tokens. Maybe you heard it here first. So to give a little context. As the founder of Family Office Association, knowing thousands of amazingly highly successful families, many of them billionaires, some of them well well above tens of billions, I would have said pre-COVID was a little bit of interest.   They're just getting their arms wrapped around Bitcoin and Ethereum. But during COVID, that all accelerated partially due to the growth of digital assets and FOMO probably played into it. So you had the challenge as well in this asset class, if I could call it that, which was so nascent and of an older audience so often in single family offices that had a bit of a hard time wrapping their arms around it.   What they've learned and how they've made financial and investment decisions of the past that that anchoring and that knowledge base and their experiences may have been an albatross relative to understanding in the world of crypto. How I defined it is you need to do research, you need to form a thesis. You don't have to make 1000 hours out of it, and it doesn't have to be a multi-page thesis.   And by the way, how do you manage your risk in an asset class like this? Most are a lot of what family offices are investing in gold, cash, treasuries, bonds. It's doing garbage, reposition a part of it. So now you start off if you're a gigantic family, maybe under 1% allocation or for many families, maybe one or 2% with assets that are doing nothing anyway, that you simply reposition.   And I mean, George Soros said invest now, investigate later. I think he meant it a little tongue in cheek. But the concept of it is not too wrong from that perspective, because you're mitigating your risk by your allocation size and then that skyrockets up, which it did. Maybe not the last two months, but much of the last year to a year and a half.   And you're like, Darn, I didn't size it up to those that went up. So this is really coming at family offices of all types like a firehose, and they tend to skew to being a little older and more conservative. But what can I say earlier? You need to have some outperformers. True inflation for the super rich, maybe 15 or 20%.   And they want to buy more of what homes in New York, Miami, the Hamptons, London in Switzerland. They want to buy sports teams, collectibles, more stocks, more crypto, all things that have been going up a hell of a lot more than five or 6%. So that brings the issue of looking at something like crypto. So Bitcoin over the last ten years, and my math could be a little wrong.   I believe what, like a 2,000,000% return, the greatest ten year return of all time. So listen to the naysayers who know too much anyway. And you missed out on the greatest return of all time. And by the way, so did I for much of it. So put me in that mix now. Bitcoin is already relatively larger in market cap.   Do I think it's going to go up that much over the next ten years? No. But then you have to look at other what's called Layer one platforms, Etherium Solana, Terra Luna that are doing, let's call it real world intrinsic things like Defi decentralized finance and Nfts. And that's this is not going to go away. You don't go from analog to digital back to analog.   Get your head out of the sand, Look at the market cap. What is it now, Ballpark? About 2 trillion. You don't think that within ten years this could be 100 x opportunity? Okay, maybe 30 to 50 X. Where else are you going to get that? So ignorance is no excuse. Now, the challenge now I'm extremely active as an investor in that community and lately even more and more an NFT, which I think will change everything.   It's not just digital art, although that's important. If it's just that that's amazing, it's scarcity and verifiable ownership of quote unquote art, let's call it that. I don't want to make this a deep, deep discussion on only nfts. I could go on for hours about it as an active allocator, but how it's going to change the world, how it integrates, how it integrates with web3 and blockchain and the opportunity for the tokenization of assets from real estate to other real world physical assets.   Nfts are not going anywhere. Yeah, the art part of it is probably volatile. Well, 98% of it is going to be worth garbage or under a thousand. Yeah, and that applies to physical art as well. Like this is bringing a whole new group of people, the Gen Z that has no interest in museums and traditional art, kind of into the art world.   It's an interesting time. So here's the challenge. Unlike me, who adapted, a lot of them are okay, Angelo, you got me interested. But like, how do I get involved in its some bearer asset? And what's this thing about a wallet and keys? And suppose I get some attack on it. I could go on and on. It scares them.   They're not comfortable with it. Some will be, and some will do over the counter services. Whatever a nice dig, a coinbase or a crack in and maybe get, you know, like among the big three or four Bitcoin, Etherium Solana. And I think overall a good move, but many of them are going to want to be more active. And yeah, I may be more of an active direct investor in those communities, but they have an opportunity to come in in what they know, which is as an LP.   So the opportunity to be active in crypto potentially NetEase and broadly part of the Web3 you know blockchain community commonly it's going to be for them coming in more as an LP they don't have to worry about institutional custody or anything like that. This is very niche. It's a little hard for them to wrap their arms around and they're willing to pay the fees because the performance has been so outsized.   Again, not as much the last couple of months, but it and I mean, there's other factors as well. So we do know here in relatively early 2022 of likely some regulatory issues coming down in terms of what the SCC and there'll be compromises on each side. And yeah, for maybe a libertarian like me, I don't think it's so great because I don't like a lot of regulatory oversight, but there is a buck coming up the institutions.   Here's what I'll tell you from traveling the world from knowing institutional level investors as well. They are chomping at the bit to get involved in crypto, especially the complexities of Defi of staking of the I didn't even mention the metaverse that's going to take a little longer to play out. That is going to be huge. I may get to that in a second depending on the time, but my big picture point is they need the institutions need further regulatory clarity.   It's coming. It may take the year to play out and go back and forth, but the institutions will be coming into crypto and boom, that's at least what I think will happen. So the opportunity for families are picking up on this. They want to be involved. It's harder for them to be direct. There are likely willing to be come in more as an LP.   Now I could go and I hinted at it relative to the metaverse, but I'll kind of leave you with this and ten years Nike expects to sell more merch online digitally. The metaverse compared to physical. Think how big that is. Look at Facebook changing their name to metal. Look at what Microsoft's doing. Every day you hear announcements from the biggest companies creating Nfts being active in Web3 the metaverse, The metaverse, the metaverse.   So what? 120 years ago, 100% of our interaction was strictly physical. And then what happens? You have the radio, the telephone, the TV, computing, the internet, mobile computing devices, social media. So we went from being 100% physical world to relatively a short time in whatever, 120 years. And I think the math is now about 50% digital, 50% physical.   And for the Generation Z, it's about 70% in terms of being in the digital world and again, are be going to go digital analog and stay analog. No, you're not going to go from analog to digital and back to analog. So what's going to happen is the advent of greater from 5 to 6 and seven G to the advent of technologies to the power of Facebook having what, 2 billion hello, 2 billion users and growing to eventually satellites popping up in the air for Elon and now the whole world's going to have access to electricity our power to power this even if there's no electricity, actually, that's what kind of makes it amazing.   So once the metaverse really takes off a lot of us. So this is a little sad. A little sad. I'm not saying it's not I think it's going to be 70 to 90% of our interaction, especially those under 30 and 100%. The massive Gen Z generation is going to be that ratio, that percentage in the digital world, and you're going to have your head in the sand and not be a part of that.   Well, then you're going to have a hard time engaging in this world. And I think more than just engaging, you probably want to make money too. Now, I think the metaverse could be a longer term play, but I do think we'll see activity now, but especially over five, ten and 15 years and same thing. Yeah, they could get some exposure through some of the public companies that I mentioned.   They could be active in some of the crypto tokens that are building things out like I am relative in the metaverse, but most of them in the big picture Web three blockchain metaverse are going to look to be active as an LP. Don't let the big funds have all the fun, be nimble, be niche, be very focused. What you're doing is a smaller fund.   There will be families that will be interested. You can tell I'm passionate

Angelo Robles describes the role of PE, VC and Real Estate in Family Office Portfolios.   Transcript: Also family offices, including single, multi and virtual family offices, are active allocators to alternatives. Among the most common alternatives will be real estate, private equity and venture capital. Now they're completely different, but they usually make up among the greater allocations in alternatives by family offices and commonly even through all the talk commonly as an LP and a fund.   Why the Family Office may not and often doesn't have the internal talent and resources to be an active direct investor. And even if they are, they have to weigh the cost of managing that and building that out and the cost of that to run it annually internally versus outsourcing the people that live and breathe it. 24 seven Now, yeah, they may have to accept paying the fees, but for many families that's going to be worthwhile.   I'll start a little bit on real estate. So real estate is the most common asset that a family alternative asset, as I would define it, that a family of great wealth, a family office would often have an allocation to during COVID. Parts of that have been gravely challenged. We know the most obvious being office in retail. Retail has been impacted by the Amazon effect as well.   But there have been certain opportunities in single family homes and niche markets and multifamily homes and correct markets in storage and data centers that have been a boon during COVID. So real estate tends to be still tactical, very regional, and family offices are still heavily active in the world of real estate. And we're not even getting into interest rates.   And how that interplays and leverage and some of the tax advantages more so perhaps as a direct investor. But again, in all the verticals of real estate, I don't know one, even among families worth tens of billions that could do it all internally. So they may do some direct, but there definitely will be some as LP interest as well.   Moving on to private equity, those are usually going to be more established companies. So the risk relative to venture is going to be more stable. The upside may not be as high, but the downside is going to be more stable. So private equity has been a very important part of single and multifamily offices as well. There still are a lot of private companies, a lot of great private companies, markets relatively more inefficient than public companies.   Hence, for the opportunity, also realize, especially in a single family office, the family commonly made their money not all the time, but commonly from founding what would become a successful private company. So they think they know the DNA, the insights in various verticals. They may have great networking and relationships and they may be able to see through the obvious numbers and look deeper as to where they could literally form an impact.   Families may feel more engaged being a direct investor, but the issues that I mentioned earlier, do they have the internal resources and time? Do they want to dedicate the amount of money to it? But there are advantages. You engage members of the family and kind of really how a business is run, you likely, depending on control or no control, have more say in matters.   That being said, I go back to what I said earlier. Most family offices are not overly institutional. They're not billion dollar plus entities, so they commonly need to be more streamlined and be more active as LPs. And even the ones that are multi-billion, do they have every vertical covered internally with internal resources? No. They're often going to look to outsource or what I would define as be an LP.   And the last one that I'll save is venture capital, which is probably among the most active that I'm personally interested in. It does not for most families get quite the allocation that real estate or private equity. Well, but and we do know it's likely going to be more volatile, but the opportunity over time of being successful and getting higher returns has been simply proven in the math.   And you look at where things are headed with a I, with technology, biotech, blockchain, all the areas that we see which has moved more away from Silicon Valley than I thought it would so quickly during COVID. But New York, Boulder, Austin, Miami, even Las Vegas and around the world, Israel in other locations have been kind of hotbeds of earlier stage from angel to venture, and that has been very exciting and opportunistic for a lot of families.   Same thing that I said in real estate and private equity. Are there some that could do some variations of it internally? Of course, but most especially below a billion can't. They may dabble a little bit personally because it is getting a little easier. Sourcing and diligence. And again, they may have the relationships and contacts, but a lot of them realize they don't want to build a big internal team.   They don't want to manage that team. And a lot of the people that are the best of the best are going to want to have control in venture capital and do their own thing. So you really would likely need an especially in niches like venture capital, probably more so than real estate and private equity, really deep knowledge on the things that I mentioned.   For me, I had a blockchain, so becoming an LP is just slightly simply a logical step. Most of the companies these experts are investing in are not going to make it, but we know it's a math game. One and White 112 will become a unicorn. One in ten does whatever five x. I mean, it's just a mathematical game now.   A challenge to being an LP in a VC, especially a top ten b c. It's not easy to get in a family could be waving a $20 million check. They're probably not going to be able to get into the big shops. They might be able to come in through a fund of funds. But this is where smaller, more nimble VC sees what a track record, even in the past of the founders and a niche of what they're doing, Let's go with blockchain or something like that creates an opportunity for the family to have a desire, whether the single family office or the multifamily office that's looking to get more than median return to potentially come   in in venture capital broadly and recapping real estate, private equity. And I'll lump in Angel into that and venture a challenge that some families have if they don't do that, is the CIO in the family office, whether single or multi? I mean what are they delivering via alpha? And that is becoming more important. Their true inflation for the super rich is a hell of a lot more than what we're hearing from the government.   So getting seven or eight or even 9% returns. Well, I mean, the public markets have roared a notch more than that. But it may not be enough, depending on the spending habits of the family, the expectations for buying more assets, increasing rapidly in value. And the reasons that I said a little earlier relative to inflation. So the purchasing power of the family declines if they're not going to be active, in my opinion, in the world of alternatives, is it more volatile?   Yes. If you're coming in as an LP or you're going to have your hands tied, more liquidity. Yes. And that's why you should have other forms of assets that are going to be more liquid. But for a family office to sustain Now, let me change that, to drive generationally over blocks of years to decades. They're, in my opinion, for the reasons that I noted, going to need to get returns greater than just blah that are happening in the market.   And alternatives could be an opportunity for part of the portfolio to make that happen.

Angelo Robles emphasizes the process of building relationships (not "selling") to Family Offices.   Transcript: I hinted at it in a prior section, but there is a nuance to interacting with families even when you're paying to be a sponsor. And I've done over 400 events. I featured some of the biggest speakers, Ray Dalio, Tony Robbins, etc., and many more in the industry. And yeah, I realize you may be a speaker or sponsor, but no, you don't approach someone and within 10 seconds your card is in hand.   And who has business cards anyway? Now. But okay, let's go with that. Like, really? That's so that's going to excite a CEO or a family member to want to call you. You're going to look ignorant. You're going to look impatient. You didn't develop a rapport. You didn't get to know someone even for a minute like, Hey, nice suit.   Where did you get it? I like the Yankee hat, whatever it might be. Remember the family or the CIO is not there to impress you. You're there to come across as a professional to them and someone who is high value. Where you have abundance, where, yeah, you could provide value to them. You don't need to show your business card.   Be careful in terms of how you engage and what you say, and maybe there's training that you could do to get that. And then there's opportunities to be a good speaker, to be a good presenter, to impart education, to leave them wanting more and not pound them and sell them from the stage. That may work a little better.   I don't know when the institutional and even MFA world really is not going to work with the ultra, ultra high net worth and single family office community knowing how to look the part. How to slow down Developer relationship and get to know people over time. Now I know institutions could take forever because of layers of management to make decision making and investing.   And yeah, you're not going to get those layers like me, which I guess is good in a single family office. But your personal connection probably has to be even more on point. And yeah, if you're a younger man in the industry and you're feeling a sense of pressure, it's going to be really hard pressure from your whatever managing directors or a fund manager that's harder to be successful in the single family office community.   There may be other markets of maybe people below 30 million where that could work or others in maybe the NFL market even. But in the single family office community, it's way more nuanced in terms of how you need to do it and go about it. And I hinted earlier there's things you could do from a social perspective. Golf or tennis or a great restaurant, an art showing, an NFT, whatever digital gallery that starts the relationship and trust.   So you get they get to know you as a person and vice versa. And then the opportunity to do business without necessarily pounding them. Now, I suppose you could say like, Hey, we're hosting an investment dinner, we have a closed in three months. And yeah, that could work because they know what they're getting into. But I would keep that short.   I would keep it there for the social interaction, the quality of the dinner and the company get to know people personally. And maybe it's a ten or 15 minute let's go with the work presentation as opposed to droning on and on and on, which is what so many of you will do. That's just not what they want. Yeah, Are some of them probably there for the free meal even though the rich vet that more carefully.   But some but like like an anything you're not going to get 100% of what you want. Getting some of what you want is better than none. So sometimes you've got to be a little bit more, you know, shotgun approach, a little bit more scattershot. But I know you wanted to be more focused. But again, that's not always it's not always easy.   It's complicated. In the single family office world, and it does take the right approach to get to know them and to have that bond where potentially in time it could lead to business.

Angelo Robles describes the do's and don'ts of connecting with family offices.   Transcript: Easily the most common question I get is like, how do I like what's the proper way to even find out and approach a family office? So the hardest one is going to be the single family office. They're are private entities. They usually don't have to register, but that gets a little complicated. But I don't want to drag you down with that.   So databases are going to be limited. I'm not saying they're not good at all. They could be valuable. And there are certain technological resources and database from FIN to others where it may be worth spending the money to have the database and access, whether traditionally mail, phone call or commonly email. So that's better than nothing. But the challenges, again, are to identify now not to be self-serving, but organizations like mine and I'm not saying I'm the only one, I might be the best one, but I'm not the only one.   So organizations that are dedicated to the family office community more so than just an events company, although that could be acceptable to some extent. But I produce original content, original thought leadership. I'm extremely active on social media. I'm Angelo Robles, Metta to show my interest in the metaverse on Instagram. I'm extremely active on Apple and Spotify on YouTube, moderately active on Twitter and LinkedIn.   So those are all things that you should be active in as well. You should be writing original creative thoughts, you should be outputting content even if you're using outside writers to help you craft that. But broadly it's your ideas. So you need to be positioned as a thought leader. You need to get access and probably pretty quickly. So an organization like mine that yes, we're going to charge you to be a member and just like an event company is going to charge you to be a sponsor, that is a way to get in front of larger groups of people that are hard to get in front of.   And simply it may be worth it from a monetary and timing perspective and some of the databases that I noted I believe could be as value as well. Where do the families hang out? What country clubs do you belong to? Do people still play golf anymore? Are looking at your rolodex of people they work with in banking and accounting and legal in developing relationships where you're giving back to them so they see value in making introductions to you.   These are all going to be valuable if you're in the investment management space or a fund or a hedge fund. Having your numbers get published, picking up on various hedge fund and like databases that families subscribe to now, yeah, that means you may have to stand out. You can't be average. But of course, none of you watching this are average are all great.   So you should have that confidence that the family should be having their eyeballs on you. And the other reasons that I mentioned earlier, they should be doing better than just average because average may not cut it relative to the reality of their lifestyle and how inflation truly is for them. So they likely, in my opinion, do need some level for part of their portfolio in alternatives of quote unquote outsized performance.   Listen, you're looking for a magic bullet of meeting whatever half billion dollar plus families. There is no magic bullet. I live and breathe this now for what, close to 15 years? It's hard. It's hard. By the way, I go to conferences, although it slowed down from Milken to the old Clinton Foundation to various things at Davos. And I spend tens of thousands of dollars because I want to get out there.   I want to learn what's the topic, Who are the people, who are the thought leaders? And I meet and interact with families. I don't judge it on one event. So I spent 15,000 that I make a return on it. That's way, way too shortsighted. It's over the course of a year or two years. And yeah, I monitor more broadly how much I pay whatever, say 70 or $80,000 a year on that, and look for that to be valuable to me.   Maybe I learned something where I had had a great investment. Maybe I met people that became friends that are valuable to me or yeah, I hope I did business as well. I became a member or an engagement partner of mine through my family office association. There is no magic bullet. There is no easy secret. I mean, going through alumni at your college, your database, so you know, who knows?   So yeah, those are all some of the blocking and tackling that you should do. Now, multifamily offices are going to be easier. They're registered entities, so therefore there's much better databases relative to that. So yeah, the single family offices are generally going to be the much, much harder ones to reach. The multifamily offices will be easier. Also, you guys in the investment management space or whatever, hedge funds, maybe you should be putting on some private dinners, some events.   If you're in the world of crypto and digital, bring in a non competing fund, Bring in a thought leader like me that could potentially come in, speak at the event. So doing things that are also proactive in terms of your reach outs, you hosting dinners, hosting events, hosting digital zooms and educate. You don't have to be pounding them with selling them every second.   That's offensive to many of them. You need to have the right balance. And yes, it would help if you know how to engage with those kind of families to do that. And there is training and method and methods you could go through to make you better relative in that role in terms of market outreach and marketing relative to engaging with families and social gatherings and functions.   I have hosted pool cabana parties no recently I know this, this presentation where we lapsed and that's when you actually get to know the families and eventually follow up with them. Art Gallery events. I do a truckload, not just during Art Basel. I'm very active in Miami, look to do things. I mentioned the country club, a little bit of a dated idea, but still works.   And the younger people may be more active as generational Investors are in crypto. Like where are they going? What do they want to see? Hosted NFT digital studio event Do something vibrant and fun that's social. There's there's lots of things to do. It is going to take some time and money if you think there's an easy way again, especially with single family offices, there's not.   You have to roll up your sleeves and you have to be proactive. You need trial and error. Some things will work, some things won't, and you just need to make it happen. You doing nothing. It's not going to come to you. You need to be proactive.

Angelo Robles defines the makeup of various forms of family offices. Transcript: Hello, everyone. I'm Angelo Robles. I'm the founder and CEO at Family Office Association, a global membership organization dedicated to family offices. I'm also the host of the Angelo Robles podcast on YouTube, Apple and Spotify. Among the most common questions I'm often asked to define what is a family office? The most traditional definition is an entity created by one family of great wealth to internally and exclusively manage their financial and often their other affairs.   Commonly, the other type of family office would be a multi-family office that would be an organization created by a series of founders active in the world, usually of wealth management, financial services, and they are dedicated to more customized services to either a small group of families. Sometimes it's 2 to 5 or 5 to 10 and sometimes it becomes more of a larger commercial enterprise, often servicing dozens to hundreds of ultra high net worth clientele.   I would say the third type of family office and theoretically you could probably find more, but I gave you the two most common, but the one that's the most fastest growing some will define as a virtual family office. I'm actually seeing many single family offices convert to be more of a virtual family office. And it's pretty much especially during COVID and the advent of technology and ushering in kind of a new era of being forced to use it and making it work.   It's an opportunity to not be located in a central location, but for a combination of the family and the executives in the non executives to be dispersed potentially anywhere in the world. So it actually creates greater opportunity for the family or entity in terms of talent, and it also provides to the talent and opportunity for them to have a lifestyle choice because commuting could be terrible and living in places like New York and Palo Alto in London are highly expensive.   So the opportunity to be a virtual family office, to be more fluid with technology and probably even in a single family office that's virtual, more outsourcing is certainly the type of family office that both I've been consulting on as many single family offices have converted to become more virtual, and that has applied to MFO's, which are multifamily offices as well.

Angelo Calvello discusses the issues surrounding Artificial Intelligence (AI) in Alternative Investment portfolios.   Transcript: AI is great at recognizing patterns in data and identifying similar situations observed in the past. It is usually at a loss on how best to act in new and previously unseen situations such as the COVID 19 outbreak. It is true that deep learning and deep reinforcement learning or trade on historical data and that circumstances not seen in the training data could prove troublesome.   But such an admission does not disqualify deep learning and deep reinforcement learning as possible investment systems. If it did, we'd also have to disqualify all human intelligence based investment methods because they too are trained on historical inputs, you know, data, human experience, and they're in a loss also on how to act to these new circumstances. Perhaps both A.I. based and human based investment models might struggle to make accurate predictions when confronted with examples not of historical data.   But A.I. has two distinct advantages over human intelligence. First, A.I. could ingest and process much more information more quickly than human based models. This allows AI to adapt to changes in the data more quickly than human models and their human portfolio managers. Second, these systems are unencumbered by human biases that might impair or delay their adaptation to new circumstances.   And also recalling what we said above what appears as new and previously unseen to humans might not appear that way to an alien intelligence. The fourth objection we hear, while the breadth of the data that can be used in finance is quite large. Time series are often very short and usually limited to a few decades limited Number of time series observations means that any model using these data is also constrained to be proportionally small.   I mean, there's no question that deep learning and deep reinforcement learning are capable of ingesting massive amounts of data, and because of their large capacity, more data generally results in higher prediction accuracy. Just as a quick aside, traditional machine learning techniques are also capable of ingesting large amounts of data, but because they are limited in their capacity, increasing the amount of data does not increase the likelihood of better performance.   Now back to the point. Defenders of the status quo often point to the large datasets required to train computer vision models for autonomous vehicles and to the fact that financial market data is much smaller. And this limitation therefore disqualifies advanced AI from use. Financial data might be limited, but the criticism fails to consider that unlike traditional quant models, deep learning and deep reinforcement learning models are capable of ingesting non-financial data, including nontraditional data like geospatial and the type kind.   And volume of these data are growing daily, giving engineers a broader palette from which to paint me. Data is basically ubiquitous now. Also, the claim that massive data sets are required to properly trained, deep learning and deep reinforcement learning models is a bit too coarse of a claim. It is true that a computer vision model benefit from a large set of images, but this is because the ratio of observation to features that computer vision models are solving complex problems.   For example, extracting the features that identify a cat from a series of 256 pixels by 256 pixels by three channel images and more observations improves their ability to extract the features from the data. A deal or DRL investment model would likely benefit from a large dataset, but using sparser financial time series data should not degrade a model's performance because the ratio of observations to features is much larger in this case.   Also, in investing, unlike computer vision, deep learning and deep reinforcement learning, investment models are not trying to attain 99% prediction accuracy. Critics also fail to realize that there are data science techniques that could be used to amplify or extend the size of an existing dataset. For example, transfer learning allows knowledge to be transferred from a larger dataset to a smaller dataset, and data augmentation tweaks existing data enough that the data I'm sorry that the network treats the modified data as new inputs also through the use of a simulator.   An existing dataset could be used to create a new environment in which to train a model. Simulators that provide all types of driving conditions are commonly used to train autonomous driving models. In the case of investing, it is possible to use historical data to create synthetic market data representing different market environments. Perhaps more importantly, those who disqualified deep learning and deep reinforcement learning from investing because of the perceived limitation of financial data.   Offer no empirical evidence to support their claim. They can't point to the live track record of a DL or DRL based investment strategy that has failed because of the sparseness of its input data and not other factors. Finally, the fifth most common objection when it comes to applying A.I. to investing is compulsory for us to understand exactly how algorithms work.   Well, we finally reached a black box. Objection. The trump card that deniers play as all other objections fail. The last stand of the status quo. The thing about this objection is that unlike the others, it's true. By its very nature, advanced AI is a black box. And while we can observe how Alphazero plays, even its designers cannot explain why it makes a specific move at a specific time.   Similarly, a manager using deep learning or deep reinforcement learning is able to provide a general overview of this approach. For example, we use a recursive neural network in the manager can provide the model's inputs and outputs, but it cannot explain why it makes a specific investment decision. This is because advanced A.I. models are not hand coded. They are deep neural nets that build themselves and learn in a way that humans cannot fully explain.   You can't just look inside a neural network to see how it works. A network's reasoning is embedded in the behavior of thousands of simulated neurons, arranged in dozens or even hundreds of intricately interconnected layers. The neurons in the first layer each receive an input like the intensity of a pixel in an image, and then perform a calculation before outputting a new signal.   These outputs are fed in a complex web to neurons in the next layer and so on and so on. Until an overall output is produced. Plus, there is a process known as back propagation that tweaks the calculations of individual neurons in a way that lets the network learn to produce the desired output. There are obvious counterarguments to this requirement of explainability.   For example, the blackness of an investment model is the product of a specific historical epoch. Option Trading Models Technical Analysis Program Trading Optimization programs instead are programs where all the black boxes of their day. Others simply point out that we hold AI to a higher standard of interpretability than we do human intelligence. Because it is not possible to explain the why of human decision making.   There was a quote from a general partner at Andreessen Horowitz, who's a former director of biophysics at Stanford. He said human intelligence itself is and always has been a black box. However, we've found that these counterarguments will not convert nonbelievers. Advanced age creation of a new type of knowledge reveals explainability to be an old world criterion that is entirely inadequate for reasons that transcend investing.   At the end of the day, we either forswear certain types of knowledge, for example, deep learning generated medical diagnoses, or we force such knowledge into conformity, thereby lessening its discomfort truths. We have to ask, do we really want our smart cars to be less smart or investment strategies to be less powerful? Explainability presents us with a choice when we want to know what will happen with a high accuracy or why something will happen at the expense of accuracy.

Angelo Calvello, PhD discusses the issues surrounding AI (Artificial Intelligence) in Alternative Investment portfolio management. Transcript: It is clear that their denial is based upon the single fundamental and universally held belief that investing is essentially and necessarily a human activity. Here's a common expression of that belief in a quote someone but not identify them. It's in the paper if you want to read it. My starting point is that one way or another, investing is and will remain a fundamentally human activity even when computer driven trading represents the majority of stock market activity.   I am prepared to take It is axiomatic that investing will remain a fundamental human activity. Such a view of investing easily accommodates the use of traditional machine learning because this machine learning merely leverages components of human judgment at scale. It's not a replacement. It's a tool for increasing the scale and speed of investing. However, this anthropocentric view of investing cannot accept A.I. that makes possible non-human investing that autonomously learns and makes all the critical investment decisions and limits the role of humans to that of developers, not portfolio managers.   What is so challenging to incumbent investment managers and allocators is that this new wave of AI requires neither programing by humans to replicate the decision making process of human experts, nor deep domain knowledge of the disciplines in which it operates. Instead, through its use of deep neural networks, data and compute power, this autonomous A.I. identifies in the data themselves nonlinear statistical relationships undetectable to human based and traditional machine learning methods.   For example, deep learning models used in cancer diagnosis and prognosis know nothing about medicine. Yet by focusing entirely on the data, they can achieve unprecedented accuracy, which is even higher than that of general statistical applications in an colleghi. According to a review published in the Journal of Cancer Letters, it is the same with deep learning and deep reinforcement learning and investing.   These models know nothing about the investment canon, the CFA curriculum value momentum. They're not programed to mimic the decision making of the greatest human investors. Instead, these algorithms just hunt through the data identifying patterns and similarities between the target and the data, and then use this knowledge to make investment predictions or decisions. An instructive example of such powerful self-learning algorithms is DeepMind Alphazero, which initially was developed to play the extremely complex board game Go.   Unlike IBM's Deep Blue, a human designed human engineered, hard coded computer program built in the 1992, played a much simpler game of chess. Alphazero started tabula rasa without human data or engineering and with no domain knowledge beyond the rules of the game. It uses a novel form of reinforcement learning in which Alphazero becomes its own teacher. The system starts off with a neural network that knows nothing about the game of Go, and it then plays games against itself.   Millions of games by combining this neural network with a powerful search algorithm as it plays, the neural network is tuned and updated and it predicts its moves even better. And over the course of millions of games of self playing, the system progressively learns the game of golf from scratch, accumulating thousands of years of human knowledge during a period of just a few days.   Alphazero also discovered new knowledge, developing unconventional strategies and creative new moves. And while many argue that deep reinforcement learning like this may be good at board games, they argue its success can be generalized to other domains. However, the unprecedented success of these and other experiments led the DeepMind team to draw the general conclusion that reinforcement learning can be used to achieve superhuman results in other domains.   This is a quote from a paper they published. Our results comprehensively demonstrate that a pure reinforcement learning approach is fully feasible, even in the most challenging domains, it is possible to train to a superhuman level without human experience or guidance. Given no knowledge of the domain beyond basic rules. At the end of the quote, In the face of this peer reviewed and highly cited research and other similarly robust research, investment managers and allocators continue to staunchly claim that investing is always a human process.   This is the exact point in the argument where good quants should provide an abundance of empirical evidence in support of their claim of the impossibility of modern human investing. Yet none is offered. Instead, the investor case and suppositions appeals to tradition and strawman arguments.

Angelo Calvello discusses issues surrounding AI (Artificial Intelligence) in Alternative Investment portfolios.   Transcript: My name is Angelo Calvello with my partner, Julie Bonifede. I co-founded Rosetta Analytics in 2016. Rosetta We're an asset manager and an asset manager that's been using advanced. I mean, we've been using deep learning since 2017 and deep reinforcement learning since 2020 to run money and life strategies for U.S. institutional investors. And by any measure, the models work, and the strategies provide investors with the investment outcomes they seek.   Yet we face a strong headwind in our business development because of what I can only describe as a cultural belief. And I'll get to that in a minute. Also, for a fuller delineation of the following ideas, I encourage you to read my essay and institutional investor entitled The Most Powerful Artificial Intelligence Knows Nothing About Investing, and that's perfectly okay.   It was published in February of 2021. Let me start with my assessment of the investment industry's use of AI or what I prefer to call machine learning or its use of an L. Today's become quite fashionable for managers to claim to be using machine learning as part of their investment process if they're truthful. And let's be clear, there's a lot of hand-waving in this space, but if they're truthful, then they have likely integrated what I would call traditional machine learning techniques, such as support vector machines, random forests, nearest neighbor into their existing investment processes.   These traditional machine learning techniques are generally used to augment an existing human based investment process, reducing AI at the end of the day to a handmaiden to human intelligence. And while such machine learning techniques have proven helpful, they remain bound by the constraints of human intelligence, and they fail to achieve the superhuman performance that comes with what many call a new wave of AI systems, this new wave.   These are programs that operate unlike traditional AI programs. They are not hardcoded and therefore they're not restricted to working within the confines of what is already known. This new wave of AI is inspired by neuroscience and is capable of learning on their own first principles. This new wave includes such systems as deep learning and deep reinforcement learning, which, unlike traditional machine learning systems, are capable of finding patterns in data directly and making predictions and decisions entirely on their own independent of human intelligence or human judgment.   And this is where Rosetta differs from other managers using ML. We embrace this new wave of AI to the point that our A.I. is our investment process. Our models develop their own predictions, their own decisions directly from the data. Most to get raw unstructured time series data. It is precisely this non-human dimension that makes this new wave of AI so powerful.   As David Silver of Google's DeepMind points out, deep learning is more powerful than previous approaches because by not using human data or human expertise in any fashion, we've removed the constraints of human knowledge and it is able to create knowledge itself. Investment managers, especially quants and quants that have adopted traditional machine learning, readily concede that these powerful algorithms can be used to solve incredibly complex problems in medicine, autonomous driving, engineering, robotics and other verticals.   But they staunchly deny that deep learning and deep reinforcement learning can be used to solve investment problems and build successful autonomous investment strategies. In my view, that denial will be their downfall.

Angelo Robles of the Family Office Association discusses the role of Hedge Funds and Commodity Trading Advisors in a Family Office Portfolio.   Transcript: I am often also asked about how active family offices, whether single or multi, are in the world of hedge funds. Now, my Family office association is headquartered in Greenwich, Connecticut, and I've been very fortunate to have interviewed at the biggest managers in the community over the years Ray Dalio, Steve Cohen, Tudor Jones, Cliff Adonis, all headquartered in Greenwich, Connecticut.   So among the smartest people that I've ever met and among the greatest investors have been hedge fund managers. Now, we do know there's varying types of strategies. And yes, there have been some more challenges in that community relative to taxable investors like family offices and it has been a little top heavy with the largest funds, bringing in a lot of the larger amounts of capital and often through institutions which may not have the same standard needs that families do, not just from a tax perspective, they may not be as hungry in swinging for the fences.   So it's been more difficult, especially for a long, short manager for much of the last excluding parts of COVID, but much of the last ten years to really get Alpha. That being said, there is always great investors as hedge fund managers, usually smaller managers that can be more nimble, where family offices are highly intrigued by them. I'm going to say that approximately, per my research of thousands of especially single family offices, that about 40% plus of family offices have some exposure to hedge funds.   Is it as much as it was perhaps in allocation percentages ten plus years ago? Maybe not. But again, almost half of family offices are going to have some exposure. What are they looking for? It varies. Sometimes outsized performance, sometimes niche markets that are not adequately covered in more beta plays relative to more passive strategies and also the true definition.   Living up to the word hedge in hedge fund. There are some managers that do that very, very well. So perhaps you're sacrificing a little bit of the upside in a roaring bull market, but you're hedging in providing downside risk, which could be very attractive to certain families. There is a saying, you know, one family office, you know, one, they're all snowflakes, they're all different.   Is it more focused on wealth preservation? Is it more focused on growth? There's a variety of factors, whether they invest internally or they outsource to managers. Most especially large scale single family offices do a combination of both. They'll do some direct investing, as I would define it, but they'll definitely and they're used to being in LP in varying funds.   And hedge funds are still an attractive and intriguing strategy for family offices.