00:24:52 · Tracy Alloway, Joe Weisenthal
[00:24:52] S0: I mean, also, if you just had the right user interface on a calendar, this would be solved too, wouldn't it? If you know you have to be somewhere at 3 p.m., 4 p.m., 5 p.m. There's a lot. [00:25:02] S2: Of things that are in so many different emails. So, for example, my daughter goes to– I take her to play rehearsals. And some days, it's from 1 to 6 in the afternoon on Sundays. But some days, they don't do the full cast for the five hours. So somewhere in the email, it says, oh, these students or these participants, they can leave at 3 and stuff. And it's scattered across so many emails. And I don't know which emails to read, which ones they're in. And so being able to say, Chad, it's Sunday, October 25th or whatever. What time am I supposed to pick up my daughter at 3 or 6? It's very easy and nice to have. [00:25:40] S0: Fair enough. I just want to go back to the beginning of the conversation. You talked about neoclouds as the sort of tip of the spear and maybe being in the beginning of the denial phase. What do you think would spook investors? What should we look out for next in terms of a degradation in the AI bull belief? [00:26:03] S2: That's a great question.
00:26:03 · Joe Weisenthal, Alex Altmann
[00:26:03] S2: That's a great question. [00:26:06] S1: Off the top of my head, I would say it would be some level of capex being reined in by one of the hyperscalers. In fact, on the walk over here, I was asked by one of my clients who was questioning whether that would actually even come up potentially in the results this week. And famous last words, it's probably still premature. Joe, to answer your question about West Coast, East Coast, if you think about West Coast, the further you are closer to the epicenter of this technology, I'm sorry, the closer you are to the epicenter, the more I would say that both the companies and investors are bought in. [00:26:44] S2: On that narrative. [00:26:46] S1: And there's definitely kind of almost like an echo chamber within that certain ecosystem. You think about the rooms that people are sitting in. So my suspicion is that it's not going to be these set of results. And that may be we have to wait till the new year that we get some kind of potential temperament of the enthusiasm. But Google kind of set this all off again for the next wave because on the CapEx side, it was actually the last set of results where they said it's going to be, I forget the exact wording they used, but they were talking about CapEx being significantly higher. And that got everyone enthused once again and got them all G'd up.
00:26:46 · Alex Altmann, Tracy Alloway
[00:26:46] S1: And there's definitely kind of almost like an echo chamber within that certain ecosystem. You think about the rooms that people are sitting in. So my suspicion is that it's not going to be these set of results. And that may be we have to wait till the new year that we get some kind of potential temperament of the enthusiasm. But Google kind of set this all off again for the next wave because on the CapEx side, it was actually the last set of results where they said it's going to be, I forget the exact wording they used, but they were talking about CapEx being significantly higher. And that got everyone enthused once again and got them all G'd up. [00:27:29] S0: Well, Oracle just said at its investor day that it was going to limit its additional fundraising to, I think, $ 20 billion through May. So we might be getting close to that. But again, the reaction so far is this is a good thing and the build-out can continue as long as people are raising a reasonable amount of capital, I guess. [00:27:49] S1: Yeah. And that kind of goes back to maybe just a slightly more holistic market view, which is This almost S & P does nothing because what's good for hyperscalers will be bad for memory. So you just get this constant violent rotation. And I call it like a knife fight in a phone booth, you know, for all these funds that have to run long, short portfolios.
00:27:49 · Alex Altmann, Joe Weisenthal, Tracy Alloway
[00:27:49] S1: Yeah. And that kind of goes back to maybe just a slightly more holistic market view, which is This almost S & P does nothing because what's good for hyperscalers will be bad for memory. So you just get this constant violent rotation. And I call it like a knife fight in a phone booth, you know, for all these funds that have to run long, short portfolios. [00:28:10] S2: It's a nightmare. I'm glad you asked this because this is a question that I wanted to ask you. So it's like we look at the core weaves and there's this anxiety and we see all the volatility. We're seeing volatility everywhere except our measures of volatility. So if we look at realized volatility, it's pretty low. If we look at the VIX, it's not that high. Can you explain why it is that there's all this anxiety about certain parts of the most important trade in the entire world? And yet, when we actually look at the way we measure volatility, it looks very benign. [00:28:41] S1: Yeah, I've been asked, this is probably the most asked question that I get in some way, shape, or form. And there's two parts to the answer, right? There's a structural part. And then there's a really technical part. [00:28:53] S2: Yeah, let's hear it. [00:28:54] S0: All right.
00:28:54 · Tracy Alloway, Alex Altmann
[00:28:54] S0: All right. [00:28:54] S1: So the structural part has got to do with the fact with the way that money is deployed these days. So obviously, equities are meant to be a long-only product, really. But in this day and age, they're not. We've got 2020, the AUM deployed in multi-manager funds was about $ 300 billion. And today, it's in excess of a trillion dollars. And if you think about the leverage- This is the pod shop, seriously. [00:29:21] S0: Yeah. [00:29:21] S1: I mean, not, not just pods, but obviously let's just think about like that sort of ilk. [00:29:26] S0: Yeah.
00:29:26 · Alex Altmann
[00:29:26] S1: And it makes perfect sense, right? Because if you, especially in a higher interest rate environment, high interest rate environment is perfect if you're running a long short strategy, because I deploy money on my gross long side and on my growth short side. And actually I'm not really deploying. I'm deploying units of risk, but the actual capital being deployed is really only what I'm actually posting as margin on my long and my short member. I can leverage that too, through the prime prime businesses. So actually what I'm doing is I'm taking a large chunk of capital and I can put that into say a high interest bearing, a high interest instrument. Mm-hmm clip a very nice coupon. And then I try and generate alpha on that gross capital deployed. That's the business model. And it's for the most part, a very good business model, right? The problem is, is that you've effectively tripled more than tripled the AUM plus obviously leverage. And the number of securities you can trade has stayed roughly the same or actually shrunk over time. So that creates crowding out. So how do I how do I organize or how do I mitigate that crowding out effect? Well, I've got all kinds of cool risk parameters. So, you know, Barra, I'm sure you've heard, or Axioma, just, you know, all these different style factors, quality, value, size, growth, you know, all these different things. You would have heard us talk about them quite a lot. They've become ubiquitous and obviously funds spend an inordinate amount of time and computing power trying to neutralize those factors. So that's cool. And you try and isolate the idiosyncratic risk of whatever you're trying to get. Now, The problem is, is that at the end of the day, everyone's still doing this, which means all you're creating is different kinds of crowding. And so that's why the volatility isn't showing up so much at an index level, right? Because ultimately a lot of this AUM is kind of index agnostic, so to speak. And you're seeing the violent factor rotations happening because ultimately you've got a huge amount of crowding sitting there. The one thing that leads me into sort of the technical aspect, which is the one thing that I think a lot of funds have not yet been able to solve is the AI factor, right?