Alpha is Out There for the Making!

There is an incredible opportunity in the global marketplace to capture alpha and bring it into your P&L. Timing wise, it's a unique opportunity ideal for the fundamental guys/gals as it is all fundamentals with a healthy overlay that requires an understanding of the market's psychology & behavior. Systematic shops hurriedly hiring discretionary PMs & strategists to help them build and refine more interpretive algos—in the interim, there's an opportunity for the discretionary platforms to enjoy some open trade space. The fall of the markets that the press & pundits predicted of the new administration has proven wrong and today we have a fun & extraordinarily fertile investment marketplace. It's what most of you got into the business for to begin with!

The question is, are youready? Do you have the right team for this market? Do you have enough AUM deployed against the right verticals/strategies? What strategies should you be in that you're not? What are your embedded hedges intra-platform? 2018 could be one of the best recovery years ever—my advice to leadership is that it could be a good time to add to the team or move people about to take advantage of today's market. Just like one should "never marry a trade" you may need to apply this same logic to the team—don’t get rid good players but right the team to take advantage of the market opportunity. The NY Giants made an interesting choice recently. They opted to field a team that strengthened the overall team vs field the 1st round draft solo player—that’s what was called for to build the team. Two strong backs vs one solo player.

Many of my clients have great people in their seats. This said, today is a good time leadership evaluate their team's trading style & where they derive the best returns—not just in which markets but in what KIND of markets. If you haven't already done so, leadership should move so that you can take advantage of the 1Q ramp up & typical early Feb beta runs. This might mean making some changes to better the odds that you capitalize on the investment opportunities of the day. Plus, now is the cheapest time to acquire new PMs & strategies given the bonuses will be paid out and then, you use the dead months to build their books & models before going live. As always, hiring is a process that should be optimally timed.

Why I posit today is such an opportunity? A couple of years ago I heard a great quote from a candidate who at the time was Goldman Sachs. It was 2012. I was doing a search for perhaps my favorite Hedge Fund owner (because in a time when he could have cut staff to save $ but his top priority was his team & their families!). The search was for a hybrid leadership role that straddled systematic & discretionary bringing together best practices of both to create a new division. The Goldman candidate mentioned that at the Bank, "the Alpha is within". In a market which was so contrived & controlled by the ECB & Fed it was hard to generate any truly impressive P&L. (I think during that time "down 5 was the new flat" was another mantra shared by many macro platforms.) But the point is that Goldman looked internally & spent that time to rebuild, repurpose and get ready for a scenario like today! The Alpha WAS within! There is always much to learn from Goldman Sachs—look at their financials today!

Those controlled markets are over. Times have created a "fun" volatility in the marketplace that we haven't seen for 10 years. Whether you're a fan or not, the deregulation, tax reform and "new" partners—the markets are moving, there are chunky arbitrages being created AND there are true opportunities in the marketplace—there’s Alpha out there waiting to be taken!!

Many of today's opportunities are to the advantage of the fundamental or discretionary strategies but the time horizon is not indefinite. You can't really mean revert that well into this market without a little trial & error so, I just don't believe the masses of algos are going to be there—yet. When one then takes into account that our normal market paradigms & partners have changed there’s another layer of opportunity given these new pairings. We have shrugged off much of the EU as a primary & have gone directly to the far & middle east. We make a deal with the Saudi's to finance our debt in exchange for them upping their self-defense & taking a more proactive role in peace in the middle east thereby lessening our burden (cash & military). Saudis, Israel & others buying up critical self-defense & sending futures on industrials soaring. We are poised to repatriate up to $3Tril USD. There's not enough things to buy to deploy that kind of dough—the only vehicles to produce yields will be in the investment marketplace. That dump of money is going to create huge opportunities—are you ready? These are all highly unpredictable measures which again, leads me to emphasize the opportunity for discretionary platforms.

There's active building, aeronautics contracts, infrastructure plans, auto & equipment tax incentives, real estate opportunity, alternative energy & sustainability breakthroughs, so much more coming into the marketplace for us to take advantage of. I'm seeing movement from my Funds across Debt & Equity; private & public. It's amazing & it's FUN!

Clearly, I have a stake in my opinion. But, it's my business to get in front of these markets & speak frankly to Hedge Funds/Asset Managers, owners & operators, HR professionals and the sell-side partners on what to expect in the marketplace. I have seen dozens of decks over the Christmas season--some truly amazing ideas with strong track-records behind them. Critical to taking advantage of these potential opportunities & attracting the right team is to be sure that you can create a correct match with your hires. I urge you look beyond the pure numbers & listen. There are a lot of "victims" out there but there are also some very good displaced stars. And, whomever you partner with in Search, be sure they begin your search anew—don’t accepted recycled candidates from their previous searches.

Most strategies will work on most platforms on paper. But when hiring, it's important to match culture of the person & investment style—if it's not a fit, don't hire! The way a platform manages vol (in actuality vs guidelines) could stifle or explode a P&L. It's critically important that both hiring platforms and candidates be patient to get the right fit. Look behind the dip & learn about the strategy and challenge whether it will work here. I have friends & former placements/clients who are dislocated because this TRUE match wasn't there. I've done it myself. Best advice: don't take that bid—instead, find the fit. Perhaps my best example of this is a long-term client who is a mid-sized macro fund in CT. Their biz dev head at the Fund may take a long time but his hires are extremely sticky. He's fair, thorough and knows what works and avoids distractions. He calls the fit. The right fit. That’s how it should be done.

Back to light & bright—today’s market is like taking the morning’s 1st ski run in fresh powder—get out early & be prepared. Enjoy the run! This is a fun market. Find the match & you will find some true Alpha! The Alpha is out there—hire the right traders/PMs/analyst. You can bring that Alpha within and into your own P&L.

Best in 2018!!

Q-Search creates Alpha through Search Excellence! We understand strategies & what it takes to bring the right person onboard that fits the platform & it's unique culture. We work on a retained basis so that we truly partner with our clients and steward the search to its successful completion. We are thorough, professional, deliberate in our process. I would love to speak to you about your 2018 hiring plans. [email protected]

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Q-Search & Advisory creates alpha through search excellence. We have a history of partnering with our clients to help them lift their performance & generate true alpha through great hires. Our search work is guaranteed. Our approach is strategic. Our reputation for professionalism is a 2-way street requiring our clients to uphold the same standards we espouse in the marketplace. Most of all, we love what we do & are students of the market. We look forward to partnering with you in Search.