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
Feb 16, 2022 • 48min
Dave Bizer, Co-Founder and Managing Partner, GCW
Armed with a PhD in economics and policy experience, Dave Bizer hit Wall Street, landing at Lehman Brothers in structured equity derivatives in the early 1990’s. A deep background in options pricing theory notwithstanding, he soon found that concepts like Ito’s Lemma were less important than helping clients solve practical problems like hedging equity risk in a tax efficient manner. Developing a keen understanding of the tax code as it pertained to derivatives, Dave was among the innovators in product development in this area. Leaving the US for London in the pre-GFC period, Dave was head of European and EMEA Fixed Income. Our conversation explores the investor appetite for European structured products and the manner in which risks can be recycled to hedge funds.Turning to Dave’s transition to the buy-side, we learn of the framework he utilizes at GCW, the wealth management firm he co-founded. Dave shares his views on equilibrium option pricing, seeing the clearing price for insurance as generally reflecting a risk-averse investor’s desire to truncate the potential for unwanted outcomes. On the long side of the portfolio, Dave and team believe that there is tremendous price discovery already incorporated into liquid, on the run public equities and, as a result, finding real alpha is difficult. The search for superior risk-adjusted returns is better focused in understanding complex, difficult to value situations that may be found in smaller cap equities or in private markets.I hope you enjoy this episode of the Alpha Exchange, my conversation with Dave Bizer.
Feb 12, 2022 • 56min
Robert Tipp, Chief Investment Strategist and Head of Global Bonds, PGIM Fixed Income
For Robert Tipp, Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income, an appreciation for financial market history matters. And in today’s fast moving environment, in which market prices are rapidly adjusting to expectations of Fed policy changes, Robert’s perspectives are especially relevant. Our discussion is a review of inflation and monetary policy cycles from many years prior and through this, Robert shares his insights on the drivers of inflation. Calling into question a very basic assumption, that nominal interest rates are highly connected to inflation risk premium, Robert points to the importance of demographics and the availability of capital in setting the risk-free rate. Thus, today’s longer dated Treasury yields, well below concurrent inflation, are in part due to the excess of capital looking for a home, hoping to lock in some return over a longer time frame.Through our conversation, we also learn of Robert’s views on Central Bank communication, contrasting the Greenspan era of “constructive ambiguity” with Powell’s focus on transparency. In this context, Robert sees some components of the emphasis on messaging as positive, and others, including “time dependent” forward guidance as recently abandoned by Australia as less effective. Lastly, we consider the implications of higher rates moves on the stability of the ecosystem of asset prices. Here, Robert cautions that the transition to a higher rate environment may lead to large shifts, micro flash crashes and a breakdown in liquidity with respect to the flow that wants to move.I hope you enjoy this episode of the Alpha Exchange, my conversation with Robert Tipp.
Jan 18, 2022 • 48min
Matt Amberson, Founder, Option Research and Technology Services
Matt Amberson is among those who have watched the steady and consequential evolution of the listed equity options market over the last 3 decades. Getting his start on the floor of the CBOE in the 90’s, he was in the trenches during the period of incredible single stock volatility that was tied to the original tech bubble. While markets were not nearly as efficient then as they are now, Matt sought to improve his edge in trading options, seeking enhanced methods for estimating a stock’s volatility and searching for instances where the market may have left value undiscovered.Using proprietary option valuation and hedging techniques, Matt backed traders who were tasked with implementing this systematic approach some 25 years ago. And while those days are past, the IP developed lives on in the form of the company founded by Matt, ORATS, Option Research and Technology Services. Throughout our conversation, we learn about the growth of the US-listed options market and how Matt and his partners have developed their data, analytics and option back-testing service. In the process, we consider risk events like GME and hear Matt’s perspective on risk-management protocol in light of the increasing frequency of up-shocks in stocks. I hope you enjoy this episode of the Alpha Exchange, my conversation with Matt Amberson.
Jan 14, 2022 • 1h 2min
Ari Pine, Co-Founder, Digital Gamma
The still-nascent world of trading derivatives on cryptocurrencies requires more than just expertise in the math of options and trade construction. Pricing relationships can be driven by flows, by changes in sentiment and by regulatory tape bombs. For Ari Pine, Co-Founder of Digital Gamma, adeptness in financial technology is critical as well. Disparate venues, unique margin relationships and economic nuances in products across different exchanges all require a heavy lift with respect to creating a robust risk management infrastructure.Working with his partners at Digital Gamma, Ari is mining the raft of data that is emerging from the 24/7 trading of the many new assets in the digital sphere. Our conversation is part retrospective on the history of risk events. Through our discussions of the Orange County and LTCM debacles in the 1990’s, Ari shares lessons imparted by episodes of market volatility and the pitfalls of being overly wed to pricing models. We spend the balance of time discussing the financial properties of bitcoin – both in the portfolio context and with respect to how its movements help shape the implied volatility surface of options. I hope you enjoy this episode of the Alpha Exchange, my conversation with Ari Pine.
Dec 23, 2021 • 59min
Kris Sidial, Co-CIO, The Ambrus Group
For Kris Sidial, the Co-CIO of the Ambrus Group, trading and risk management is a passion. A self-professed math nerd in college, Kris began dabbling in sports betting using a statistical approach. He soon found his way into option markets, where is now an active participant and also a humble student continuously gathering knowledge from his interaction with the markets. Through our discussion, we learn of how Kris thinks about flows, his analysis of positioning and the complex poker game that leaves him always evaluating the why of the actions of others in the market. In his view, the market has become more reflexive over time.Here he cites not only the volatility of Meme but also the substantial growth in products written on volatility itself and the huge growth in short-dated options trading. Kris observes changes in market microstructure over the past few years that leave the market leaning heavily one way or the other and creating very large bursts of volatility that come suddenly. It is this dynamic that he and partners at Ambrus Group are trying to capitalize on. We also spend time exploring the beta relationship between the VIX and the SPX. Here, again, Kris points to the proliferation of volatility products as playing a role in the outsized moves in the VIX that have become more common over the recent period. Lastly, we talk about managing the reality that options bleed premium. In this context, Ambrus engages in medium frequency strategies that seek to cover some of the theta bill. I hope you enjoy this episode of the Alpha Exchange, my conversation with Kris Sidial.
Dec 3, 2021 • 1h 12min
Dean Curnutt, Founder, Macro Risk Advisors
On this special 3 year anniversary episode of the Alpha Exchange, we turn the tables and your host Dean Curnutt is the guest. In conversation with dear friend Arthur Kaz, Dean shares perspectives developed over 30 years in financial markets. Through the discussion we learn of a risk framework focused on understanding the why of volatility events and how this study led to Dean’s founding of Macro Risk Advisors in 2008. Asked by Arthur to share a few war stories, Dean tells us of how a surge in implied volatility during the financial crisis caused certain call options to actually rise in value even as the stock plunged. With regard to market risk today, Dean has strong views on the risks of an unfriendly Fed, especially given the many signs of valuation froth that are easy to see. Lastly, Arthur and Dean talk about MacroMinds, a charitable organization Dean created in 2019 to support causes that expand educational opportunities for students. With a very successful launch event in 2021, Dean is looking forward to hosting the 2022 symposium in person, bringing the investment community together to learn and make an impact. We hope you enjoy this episode of the Alpha Exchange, a conversation with Dean Curnutt.
Nov 22, 2021 • 56min
Andrew Lapthorne, Global Head of Quantitative Research, Societe Generale
Andrew Lapthorne, Global Head of Quantitative Research at Societe Generale, shares his insights from 25 years in finance, focusing on market price analysis and risk management. He reflects on pivotal moments, like the late '90s tech bubble and the lessons from the global financial crisis. Andrew advocates for innovative hedging strategies amidst rising inflation, suggesting that certain equities can act as effective buffers against bond risks. His deep understanding of market cycles and volatility provides valuable guidance for modern investors navigating today’s economic landscape.
Oct 22, 2021 • 53min
Jared Dillian, Editor, The Daily Dirtnap
In 2008, as the global financial crisis unfolded and his employer, Lehman Brothers, descended into bankruptcy, Jared Dillian decided to go it alone. An ETF market maker with a gift for writing, Jared launched the Daily Dirtnap, a newsletter focused on identifying market themes and actionable trade ideas. Thirteen years and 3,000 publications later, the Dirtnap is widely enjoyed by a loyal readership finding value in Jared’s unique insights. Our conversation is one part retrospective, exploring the fast days of the pre-crisis period when Jared committed risk capital at Lehman, locking ETF markets in pursuit of buy-side commission business. In the process, we get a window into the formation of the Dirtnap, that being his daily client communications over Bloomberg while at Lehman. We also discuss Jared’s active imagination and love of writing, learning more of his fiction book, “All the Evil of this World”, built around the Palm/3Com pricing dislocation.Lastly, we talk macro markets, covering gold, inflation and energy. With gold, Jared takes a contrarion and bullish view, seeing the vastly negative sentiment on Twitter as an ultimate upside catalyst and also placing value in the low correlation that gold has with risk assets generally. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jared Dillian.
Oct 19, 2021 • 1h 1min
Campbell Harvey, Professor of Finance, Fuqua School of Business, Duke University
Our conversation focuses on his current work as an Investment Strategy Advisor at Man Group where he has done work on the idea of crisis alpha: strategies that can effectively offset portfolio losses suffered during risk-off events. Campbell and his colleagues find that both time-series momentum as well as a long/short portfolio focused on the quality factor both have insurance-like characteristics and can be valuable overlays for equity portfolios. He also shares his work on rebalancing, where he sees alpha destruction if done in traditional form, but the opportunity for much greater efficiencies by incorporating some of the findings on time-series momentum. Lastly, we discuss Campbell’s new book, “DeFi and the Future of Finance”. As the title may imply, he’s bullish on the breathtaking pace of innovation in the financial services industry. I hope you enjoy this episode of the Alpha Exchange, my conversation with Campbell Harvey.
Oct 10, 2021 • 57min
Victor Haghani, Founder and CIO, Elm Partners
Graduating from the London School of Economics in the mid 80’s, Victor Haghani set sail on a career in the fixed income markets. Joining Salomon Brothers and assuming a position in bond portfolio analysis, Victor became steeped in the math of bond markets and derivatives and part of a team that sought to conquer markets with science. He was among those who joined John Meriwether in the founding of Long Term Capital Management in 1993 and as a Partner experienced directly both the early spectacular success and the ultimate failure of the fund. Our conversation considers the lessons – on market liquidity, reflexivity, and trade sizing as well as the vulnerability of relative value trades to errant correlation assumptions. By 2002, Victor took up the “the case of the missing billionaires”, wondering why there were so few now given that so many individuals had over a million dollars a century ago. He set out on a journey of inquiry focused on finding an asset allocation strategy that could preserve and grow wealth over time. Today, that work has come to life at Elm Partners, an asset management vehicle that Victor founded in 2011 and serves as CIO of. We discuss the premise of Elm – that passive indexation is generally effective but can be improved upon. In this context, Elm employs “dynamic index investing”, looking beyond market cap weighting to incorporate economic fundamentals like earnings yield and factors like value and momentum. With this approach, Victor and team hope to avoid busts that periodically occur while remaining exposed to the market such that wealth can compound over time. I hope you enjoy this episode of the Alpha Exchange, my conversation with Victor Haghani.
