Alpha Exchange
Dean Curnutt
The Alpha Exchange is a podcast series launched by Dean Curnutt to explore topics in financial markets, risk management and capital allocation in the alternatives industry. Our in depth discussions with highly established industry professionals seek to uncover the nuanced and complex interactions between economic, monetary, financial, regulatory and geopolitical sources of risk. We aim to learn from the perspective our guests can bring with respect to the history of financial and business cycles, promoting a better understanding among listeners as to how prior periods provide important context to present day dynamics. The “price of risk” is an important topic. Here we engage experts in their assessment of risk premium levels in the context of uncertainty. Is the level of compensation attractive? Because Central Banks have played so important a role in markets post crisis, our discussions sometimes aim to better understand the evolution of monetary policy and the degree to which the real and financial economy will be impacted. An especially important area of focus is on derivative products and how they interact with risk taking and carry dynamics. Our conversations seek to enlighten listeners, for example, as to the factors that promoted the February melt-down of the VIX complex. We do NOT ask our guests for their political opinions. We seek a better understanding of the market impact of regulatory change, election outcomes and events of geopolitical consequence. Our discussions cover markets from a macro perspective with an assessment of risk and opportunity across asset classes. Within equity markets, we may explore the relative attractiveness of sectors but will NOT discuss single stocks.
Episodes
Mentioned books
Jul 12, 2022 • 49min
Bill Birmingham, Chief Investment Officer, Osprey Funds
Amidst the ongoing tumult in the digital asset space, it was a pleasure to welcome Bill Birmingham, the Chief Investment Officer of the Osprey Funds, to the podcast. Originally trained as a lawyer and then transitioning to a role in portfolio management in the traditional hedge fund space, Bill shares his views on many aspects of the crypto landscape, at once excited by the potential in blockchain innovation but also on guard for a further leg down in prices.Our conversation explores his early interest in digital assets a decade ago, fascinated by the programmable features of smart contracts and the similarities to what he'd observed in his study of law. We also spend time reflecting on the recent systemic risk in the meltdown of LUNA and the contagion impact of the 3AC default. There are lessons to be learned here and work to be done to create a more robust system. Specifically, the recursive leverage that is enabled through Bitcoin as an electronic bearer asset needs to be managed if the overall system is not to become too leveraged. Looking forward, Bill and his team at Osprey see promising innovations in the NFT space and opportunities to deliver exposures to end users on a cost-efficient basis. I hope you enjoy this episode of the Alpha Exchange, my conversation with Bill Birmingham.
Jun 30, 2022 • 1h 8min
Andy Constan, Founder, Damped Spring Advisors
Andy Constan, former Salomon Brothers member, discusses the impact of flows on market prices and shares episodes of disruptions in supply and demand. Topics include the April 2020 negative price in front-month crude caused by ETF flows and the 2010 blow-up in the long-dated SPX variance swap market. He also explores the market's ability to adjust to higher rates and the factors influencing Fed policy. Join the conversation with Andy Constan on this episode of Alpha Exchange.
Jun 17, 2022 • 54min
Vishnu Kurella, Macro Portfolio Manager
Trading convertible bonds on emerging market underlyings in the pre-GFC period, Vishnu Kurella quickly learned that even indices can experience enormous daily moves. A macro portfolio manager who evaluates opportunities through the lens of optionality, he shares the lessons learned from trading through the frequent episodes of crisis that characterize modern markets. In this context, Vishnu emphasizes liquidity and the implications for being able to unwind trades without excessive friction. In his rendering, open-mindedness is also a critical part of the risk management process.Here, it becomes important to continuously look for shifts in the macro risk regime and to be prepared to re-underwrite existing exposures as appropriate. From here, we jump to considerations in trade implementation and seeking to overlay an expected distribution of outcomes relative to that which is implied by option prices. Lastly, we talk as well about the current risk climate, one in which equity markets have been punished by inflation and Fed policy uncertainty. Vishnu shares his views on the pressure points. Noting the incredibly favorable environment for corporates in 2021 in which both base rates and credit spreads were extremely low, he sees something considerably more fragile now. I hope you enjoy this episode of the Alpha Exchange, my conversation with Vishnu Kurella.
Jun 13, 2022 • 56min
Devin Anderson, Co-Founder, Convexitas
Over a 15 year career at Deutsche Bank, Devin Anderson watched the pendulum of risk swing. Developing solutions for clients during the ultra-low vol period before the GFC, through the crisis itself and then again during the relatively benign periods of its aftermath, Devin has observed the tendency for modern markets to lurch from quiet to chaos. In the process, he’s had a front row seat in how various hedging strategies have performed and why. We explore the poorly timed decision by Calpers to unwind its hedging program just before the Pandemic related market sell-off in 2020, a discussion through which we learn more about Devin’s co-founding of Convexitas, an overlay manager working with clients to efficiently hedge risk.In Devin’s view, the “why” of tail hedging is clear: to realize explosive gains in down markets that can be used to fund purchases of newly cheapened assets. The hedge vehicle should generate and deliver cash at the right time and because of this, structure and implementation become important parts of the product. Next we explore the VIX, the ubiquitous but also poorly understood metric. Here, Devin differentiates between products like vanilla index options that have convexity with respect to spot prices and those, like VIX options, that are written on vol itself. Both serve important roles, but require different monetization game plans. I hope you enjoy this episode of the Alpha Exchange, my conversation with Devin Anderson.
Jun 10, 2022 • 58min
Robin Wigglesworth, Editor, Alphaville
With a curious mind and keen desire to learn how things work, Robin Wigglesworth has always found the complexity of financial markets fascinating. Now the editor of the well-regarded Alphaville markets blog, Robin has been with the Financial Times since 2008 and through this period he’s covered episodes of crisis in traditional markets, and more recently, within the cryptocurrency realm. Robin shares his perspectives on how vastly the terrain has shifted in the delivery of financial media, pointing to the emergence of Twitter as a source of important information. In Robin’s words, “journalism is best when it is quite heavily criticized”.The balance of our conversation is about Robin’s excellent book, “Trillions”, a deep dive into the history of index funds and the massive growth in passive investing. Through his work we learn of the key developments and the key people whose contributions led to the juggernaut that is passive indexation today. Laying out the early academic research that called into question the notion that active management consistently generated alpha, Robin walks through the initial, inauspicious attempts to create vehicles that simply bought the market. With a view that the massive growth in passive investing is a very positive development, Robin reflects on some of the risks. In addition to the proliferation of questionable ETFs, he cites concentration – among the money managers, among the index providers and even the proxy vote advisors – as considerations to keep an eye on.I hope you enjoy this episode of the Alpha Exchange, my conversation with Robin Wigglesworth.
Jun 8, 2022 • 56min
Jon Kalikow, President, Gamma Real Estate and AFC Gamma
For Jon Kalikow, more than two decades of experience in the derivatives and converts market provided important lessons on risk management and the reality that even well designed trades rarely go strictly according to plan. Our conversation explores lessons imparted by Mr. Market, both during the Dotcom bubble and the Global Financial Crisis. In the former, efforts to strip out the optionality embedded in convert positions were stymied by basis risk across markets. And in the period leading into the GFC, Jon grappled with the burden of option carrying costs, even as his firm was well positioned with long convexity on subprime and US financials.Today, Jon is President of Gamma Real Estate and AFC Gamma, a public REIT in the cannabis space. Through our discussion, we learn more about the risks and opportunities in real estate lending through Jon’s lens as a creditor. Noting that lending has a similar economic profile to equity put selling, he contrasts the two by drawing attention to the complex decision-tree required to “take delivery” in a real estate transaction, something Gamma ultimately did in 2017 after a borrower defaulted.Next, our conversation explores credit extension in the cannabis industry. We learn more about the unique regulatory issues in the space and how Jon and his team evaluate borrowers in seeking to construct a diversified portfolio of loans. We learn more about the differences in state regulations and how that impacts AFCG’s appetite for lending. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jon Kalikow.
Apr 29, 2022 • 58min
Puneet Kohli, Assistant Vice President, Fixed Income and Derivatives, Healthcare of Ontario Pension Plan
With a background in math and an inclination to embrace complexity, Puneet Kohli has always found managing capital in the derivatives market both interesting and challenging. And at the Health Care of Ontario Pension Plan, Puneet is also finding meaning and purpose in his work. Sitting within the Fixed Income and Derivatives team at HOOPP, Puneet helps play a role in delivering the pension promise for hundreds of thousands of front-line workers within the 110 billion dollar defined benefit plan.In pursuing this, HOOPP employs a derivatives-centric risk management process that is quite sophisticated, more resembling a US hedge fund than a US pension fund. Through our conversation, we learn more about how Puneet thinks about capitalizing on risk dislocations, utilizing the edge in HOOPPs long-dated capital and strong balance sheet but also incorporating the lessons provided by markets that are subject to episodes of extreme volatility that result in a significant liquidity shortfalls. With this in mind, we talk about liquidity management and also about playing defense through the search for negatively correlated assets. Here Puneet discusses rate contingent puts on the S&P 500, a trade that embeds short equity, short bond and long volatility exposures, all while achieving a healthy discount to vanilla put structures.Lastly, we reflect on market vol episodes including the global financial crisis, the blowups experienced during March 2020 and also the Meme stock up-crash of early 2021. I hope you enjoy this episode of the Alpha Exchange, my conversation with Puneet Kohli.
Apr 22, 2022 • 1h 1min
Cameron Crise, Macro Strategist, Bloomberg
Armed with the power of the terminal, and bringing together a gift for writing and a deeply curious mind, Cameron Crise is a macro strategist at Bloomberg, contributing pieces on the big picture topics investment professionals are wrestling with. The author of the Macro Man column, Cameron utilizes a framework developed over years on the buy-side in portfolio management roles in which managing interest rate and FX risk were among his primary responsibilities.Through our conversation, we gather Cameron’s views on some of the overarching areas of uncertainty, focusing on the US interest rate vol surface and what it tells us. In this context, Cameron emphasizes the degree of uncertainty – via elevated options prices – embedded in the shorter maturities of the curve, ultimately a result of how much work the Fed has ahead of it. We talk as well about pricing incongruities and here he notes that the equity market multiple has not contracted nearly to the degree elevated inflation would imply it should. Lastly, Cameron points to curious differentials in the Euribor versus Eurodollar curves. Here, he notes that even as forward prices suggest the US may shift from an aggressive tightening cycle to actually easing in 2024, the Euribor curve implies ongoing tightening during this period. According to Cameron, The ECB has never actually hiked rates as the Fed was actively cutting, as is priced in 2024. Something to think about.I hope you enjoy this episode of the Alpha Exchange, my conversation with Cameron Crise.
Mar 29, 2022 • 50min
Vadim Zlotnikov, President, Fidelity Institutional Asset Management
Over a 30-year career in markets, Vadim Zlotnikov has gained a strong appreciation for the value of time horizon in risk management and alpha generation. Noting that being sufficiently early in expressing a view on markets is not much different from being wrong, Vadim stresses the importance of implementation in achieving a successful outcome. Here we talk of trade construction that is not necessarily burdened by high carry costs. We also discuss the endogenous nature of many market risks, an area that Vadim has focused on considerably and has developed a view that crowding plays a role in market vulnerability.Now the President of Fidelity Institutional Asset Management, Vadim is highly focused on portfolio construction and the exposures that should comprise the strategic allocation of his firm’s clients. In this pursuit, he’s thinking about the mix of assets that, in combination, is diversifying and able to deliver attractive returns. In this context, we discuss the changing interaction between risky and risk-free assets and the need to include additional sources of diversification including strategies focused on commodities, long/short equities and potentially, digital assets.Lastly, Vadim shares some of his thinking on the importance of diversification through strategies that have unique time horizons. Here, he makes the point that the alpha generation found in value investing takes place over a much different time horizon than does the alpha that accrues from momentum-based strategies.I hope you enjoy this episode of the Alpha Exchange, my conversation with Vadim Zlotnikov.
Feb 25, 2022 • 48min
Lindsay Politi, Head of Inflation Strategies, One River Asset Management
Amidst a fraught backdrop for macro risk, uncertainty around inflation is a new and vexing challenge for investors. And with this in mind, it was my pleasure to host a conversation with Lindsay Politi, the Head of Inflation Strategies at One River Asset Management. Through our discussion, we learn about the framework she has developed over two decades in fixed income with an emphasis on trading inflation. In Lindsay’s rendering, inflation is not a single variable but needs to be understood through unique cycles and in specific geographies and economies. Fiscal and monetary factors matter in driving inflation, but so to do structural components of labor markets, like demographics, and the degree to which wage and price growth can become linked in how employees and employers think.Today’s environment is unique in the impact of Covid and how it has created supply chain risks that are not easy to reverse, leaving the potential that today’s elevated inflation levels will not soon recede. We next turn to the ecosystem of products that pay out specifically on realized inflation. Here, Lindsay comments that shorter-dated, income oriented products have done quite well as the realized level of CPI has far outstripped anything that was implied even a short time ago. Rounding out our excellent conversation, we explore the Fed and how it impacts market prices. Lindsay sees lots of manipulation in prices but still valuable information to be derived from metrics like the break-even inflation curve.I hope you enjoy this episode of the Alpha Exchange, my discussion with Lindsay Politi.
