Transcript: Ilana Weinstein – The Big Picture

 

The transcript from this week’s, MiB: Ilana Weinstein Discusses the Hedge Fund War for Talent, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, Bloomberg, Stitcher, Google, and YouTube. All of our earlier podcasts on your favorite pod hosts can be found here.

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Ilana Weinstein on the War for Talent at Hedge Funds (Podcast)

ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. Ilana Weinstein returns to tell us about all the competitive recruiting and superstar talent she’s been working with over the past couple of years. 2022 was certainly a challenging year for a lot of the hedge fund industry and it really separates the winners from the also-ran.

She is uniquely situated to see what goes on in the hedge fund industry in terms of not just performance but what makes for a great PM versus an also-ran (ph). There are few people in the industry as insightful and influential as she is. I could go on and on but rather than do that, let me just say, my conversation with IDW’s Ilana Weinstein.

ILANA WEINSTEIN, FOUNDER AND CHIEF EXECUTIVE OFFICER, THE IDW GROUP LLC: Thank you, Barry, and thank you for that lovely introduction.

RITHOLTZ: Well it’s good to have you back and the timing is perfect because there are so many interesting things going on in the world of hedge funds. But before we get there, let’s delve a little bit into your background, which I find kind of intriguing.

You go from Goldman Sachs to Harvard Business School to the Boston Consulting Group. What were your early career plans? What did you want to do with your life?

WEINSTEIN: Well when I was at Penn, I had this thought that I wanted to be Barbara Walters. That was kind of where my head was. So I loved how she was a trailblazer. She had fascinating interviews with people. She got people to the table that no one else could. She didn’t take no for an answer. And I just thought that was like, that was a very cool, unique set of skills that she embodied and was able to capitalize upon.

And I didn’t know. I mean, I was studying 19th century literature. My senior thesis was on Darwinism and Thomas Hardy. None of this, none of this lended itself to Goldman Sachs. I ended up at Goldman really because I didn’t want to go to law school, because that’s kind of what you do with an English and psych major.

RITHOLTZ: Sure. –

WEINSTEIN: Right?

So, I was, I also parachuted into Goldman in the middle of my senior year because I made the mistake of telling the guys interviewing me that I could start right away. I’d done, I’d just gotten kind of blown through my classes quickly. I was a little bit of a nerd in college, Barry.

RITHOLTZ: Did you go the full four years, or were you doing double duty at Goldman and Penn?

WEINSTEIN: I was doing double duty my senior year. Well, I finished my classes really end of my junior year, and I started at Goldman. I took some fun classes beginning of my senior year, and then I started at Goldman middle of my senior year. But what that enabled me to do, because I was on an off cycle, was go to HBS early.

And I was really young at business school. This is the time period where they wanted you to have minimum five years of work experience. So I was very conscious of not coming with a lot of experience. And BCG was really a way to play catch up. was like getting my post MBA not so much that I wanted to be a consultant but I wanted to learn about different industries and different types of problems.

RITHOLTZ: So what led you to the talent side of finance?

WEINSTEIN: Well at Goldman, you know, what I realized is I didn’t really love finance. I could do the work. I did the work well enough to get into a good business school but what really excited me was dealing with — and this is Goldman back in the 90s when it was a private partnership and attracted the most exceptional, some of the most exceptional and smartest people in the world. And dealing with them and working alongside them was super energizing.

You know, at BCG and even back to high school at Stuyvesant, I was, everyone was smart. You know, when I wanted to be in a milieu where I was really feeding off of and learning from just a super smart group of people. And I felt the way that I could best contribute was kind of a mix of my experience at BCG and Goldman. BCG being really delving into what makes industries and companies go, the strategy. And Goldman, very transaction driven in helping people to get from one side to the next, not just giving them advice. And that was the way I felt I could contribute.

RITHOLTZ: I know I have a natural ability to scout out some of the best and brightest alpha generators in finance.

WEINSTEIN: How does that happen? I was at BCG and this is when the dot-com bubble was getting bigger and bigger. I was in my second year and my entire class had left to go start a tech company of some sort in California. And I didn’t really — that wasn’t my thing. I wasn’t turned on by that. It’s not, I wasn’t passionate about that. And so I was still trying to figure out what my next step was. Don’t forget I was really young still. I was in my mid-twenties. And so I ended up joining a large search firm because I just, I felt I’d learned more about the different types of issues that were out there and how they get solved through human capital. And that might give me some insight functionally into what I wanted to do next.

And I found once I joined them that I was actually just really good at what they were doing. And at the same time, the dot com bubble collapsed. Their mainstay financial services practice, which was banking and equities, fell off a cliff. And what was percolating were all the prop groups.

And I started doing work for some of these groups and kind of like the hedge fund industry, there were only so many that were that good and really controlled and were the best and really controlled that ecosystem. And they’re very clubby and they ended up recommending, my business just grew exponentially from there. They would recommend me one to the other. And these were first of their kind types of products that these prop groups were focused on, very complex financial instruments.

So we were all learning as we went and just by virtue of doing really one search, it made me the expert because no one else was doing it and so I built my business from there.

RITHOLTZ: So you launch your own firm IDW in 2003. By the way congratulations that’s 20 years ago so you’re celebrating a big anniversary this year. What led you to decide I know I’m going to go out on my own?

WEINSTEIN: It is a big anniversary and it’s not one I take lightly given the average hedge fund lives three years. I don’t know if you’re aware of that.

RITHOLTZ: Very short lifespan, huge turnover, and it’s more than just the high watermark. There are a lot of factors that drive that constant churn.

WEINSTEIN: Exactly. I went out on my own because I really just wanted to focus on doing the kind of work that was interesting to me. I had built this business within this larger firm, primarily working with these high-octane prop groups, and I felt like I could just take that with me. They didn’t really care. They were entrepreneurs themselves. They didn’t care about being part of a big firm with hundreds of people in many offices. They cared about domain expertise, and that’s what I brought to the table.

RITHOLTZ: So you mentioned what a notoriously short lifespan so many hedge funds have. It’s also a hyper-competitive field, so staying power is something that really is of value. You’ve been in business running your own shop for two decades. What’s the secret to longevity in a space that is known for not having longevity?

WEINSTEIN: Let me define what we do, because I feel like a fair misconception might be that as a recruiting firm, our job is to help people find jobs. That’s actually not what we do. We work with the most front-footed hedge fund founders and talent in the industry to figure out what’s next and keep them in the pole position.

And when you think about the individuals that can meet that challenge for the highest impact hedge funds in the world, these are the best people out there. These are not people who are typically looking.

And so in order to engage with them, it’s not about helping them find a job. It’s really giving them information and perspective they don’t already have. So I expect my firm to be ahead on trends, themes, and have a point of view that these guys wouldn’t get if they didn’t meet with us. And I don’t care if they ever transact. I think that in time, if we make a strong enough case, they’re smart and they’ll transact and do something different if it makes sense. But with every meeting we learn more and we’re more powerful for the next person.

I’ll give you an example. We met with someone recently who sits at a fund that is having a tough time. They lost $4 billion last year. So big high watermark. They’re down again this year. And he was quite happy with how he was treated by the founder. He said, “Ilana, I’ve been there a while. I actually think the founder was really fair with me. I didn’t lose money. He guaranteed me a million bucks for this year and a million bucks for next year.”

It’s really helpful to have had five other meetings with people who sit at analogous funds that had losses that were just as big, and in fact, they may have contributed to those losses more and be able to tell him, first off, your fund, just by my math, has a $250 million management fee. So I’m not sure that that’s so generous on behalf of the founder. And number two, it may interest you to know, here are four or five different funds in the same situation. And what the founders did there was to guarantee their people who were more responsible for the losses than you, four or five X what you’ve been given.

So that’s where things start to unsettle a bit in his head. And then we come up a level and talk about whether he’s even learning the skills that will put him on his front feet to compete as things evolve in this industry.

And I would say it’s the amalgamation, Barry, of 20 years of intelligence, of speaking to the best people out there that no one can compete with.

RITHOLTZ: So I want to focus on that because you raise some really fascinating points there. When you mentioned business intelligence, and really it’s an astute use of the data that you become familiar with that isn’t, it’s not on the Bloomberg terminal, it’s not listed publicly, this is all very closely held information.

You may be in a unique situation to see the landscape that very few people see. How big of an advantage is that going in?

WEINSTEIN: It’s everything.

RITHOLTZ: It’s everything. Really.

WEINSTEIN: So think about it, you’re happy, you’re doing phenomenally well, or at least you think you’re happy. You know, by the time we’re done with you, you may not be that happy.

(LAUGHTER)

WEINSTEIN: But you are doing well by anyone’s metric. These are big numbers. There are people we’re talking to where compensation was closer to nine figures than eight figures.

RITHOLTZ: Wow.

WEINSTEIN: So it’s really not about being disenfranchised or miserable or needing to find a job. They don’t need to transact.

RITHOLTZ: Right.

WEINSTEIN: Okay, this isn’t like, you know, you’re sitting on the sell side and yes, you know, you’re on the equity sales desk and someone doesn’t need to transact with Goldman on the other side of the phone, but they do need to transact with someone. These people do not need to transact. The only reason they’re coming in to meet with us is because they’re going to learn something and there’s going to be some perspective that they’re going to walk out with, like the example I just gave you that they didn’t have before. And that is a very different dynamic than what I think most recruiting firms do or even really able to do.

RITHOLTZ: So I kind of know of your work being hand in glove with a lot of the largest hedge fund founders. This isn’t, “Hey, I need to fill a seat.” It’s let’s create a discussion about a strategy that we either want to employ or are thinking about employing, and how do we go up about putting this into place, staffing it.

Tell us a little bit about some of the work you do that’s more than just, “Hey, I found the right fund manager for EM distressed debt.” It’s much more sophisticated than that.

WEINSTEIN: Much more. Think of it, Barry, as we’re moving a battleship forward. That’s not that easy. I think you sent me this article, actually, because I was pulling up your name on my text messages and it came up. There are more hedge funds than Burger Kings now, okay?

RITHOLTZ: Yes, that’s right, nationally.

WEINSTEIN: You sent that to me.

RITHOLTZ: Yes.

WEINSTEIN: These aren’t like the little Burger Kings sitting out in the middle of nowhere. Think of these guys that we work with as, I don’t know, the biggest franchise owners of, you know, those fast food chains in the space.

RITHOLTZ: Well, the Wall Street Journal column that I read about you from, it was pre-pandemic, 2019, something like that, you’re talking to Steve Cohen of Point72 and Ken Griffin of Citadel and all of these other giant hedge funds. I know you don’t disclose your clients, but the Wall Street Journal certainly mentioned those. I would imagine that the founders of those firms have a pretty solid grasp on where they want to go and what they want to do. How do you get involved with them in terms of strategy and how receptive are they to your insight?

WEINSTEIN: Sometimes like I said in terms of moving a battleship forward it’s just making sure that they have the best investment professionals for their existing strategies. Again no mean feat because the bar is exceptionally high and there are so many things we look for and so few people that can meet that challenge, as I said.

And sometimes they come to us with the thought of, you know what, there’s an adjacent strategy we think makes sense. Let’s think about the best way to do that. Do we buy a fund? We identify someone who we think we can raise capital around, and we help them with that calculus. Sometimes I’m coming to them and saying, “This is something I think you guys should look at.” I just had this with a client who runs a very large, not multi-manager, but multi-strategy fund. And he and I have been talking about how to get his fund, which is already very big, I mean, very big, to the next level.

And we’ve talked about things like, and it’s open-ended. He told me his calculus he’s going through, which is how do I get from where I am to as makes sense, much bigger than that. And we’ve talked about whether we go deeper on existing strategies, we build new businesses, we find somebody who can help him more as almost a co-CIO with risk management, with the investment process. I’ve had a lot of conversations with him where I’ve said, “We need to take a step back and think about what you really need,” because those are different skill sets and they reside in different people. But I’ve also come to him with ideas.

What about activism? What about fill in the blank? Things that he doesn’t do today but may make sense and be adjacent and he’s exploring all of those things.

RITHOLTZ: So you’re having these sorts of conversations with large hedge fund founders and other experienced people in the industry. I got to imagine that every now and then surprises come along. What sort of things do you interact with where you’re rocked back, “Gee, I didn’t see that coming.” I bet you have a ton of great stories.

WEINSTEIN: I do, Barry. I kind of feel like, you know —

RITHOLTZ: Can you talk at school or —

WEINSTEIN: You have to wait for the book.

(LAUGHTER)

WEINSTEIN: Which there will be one day, maybe. I’ll have to be when I retire and publish under Anonymous.

RITHOLTZ: People will figure out.

WEINSTEIN: They probably will. But anyway, we’ll cross that bridge when and if we come to it.

Dealing with people, there’s constantly surprises. That’s what keeps me largely on my toes. There’s so many twists and turns. You think you can prep someone within an inch of their life and there’s every reason they should resign and go to where we’ve been working toward for the last six months them going and they end up staying.

And then there are people who just get out like this where I think it’s going to be a fight to the death to keep them.

RITHOLTZ: Really?

WEINSTEIN: But you know one of the in building my business one of the most surprising things for me and this has nothing to do with my clients it’s just kind of a funny thing to tell you for a firm that is a really unique niche in the hedge fund industry right, we recruit for the hedge fund industry and we do it at a level that I think is unusual, it is so difficult to recruit for ourselves.

It is just, it’s so hard because part of the sort of secret sauce that we were getting at earlier in terms of what makes us different, for us we need someone who is strategic, transaction driven, really into the micro, you mentioned like all the details and information that we amalgamate but then can come up a level and figure out how to commercialize that.

RITHOLTZ: Where do you find people like that?

WEINSTEIN: It’s so hard. We typically hire people out of the banks. I love just a couple years of experience so we can mold them into and teach them. More experience doesn’t necessarily help. There’s so much that they are only going to learn just through the exposure and the information that they gather in being in the seat.

But it’s hard, it’s really hard.

RITHOLTZ: So you mentioned a lot of the surprises, no shock, it comes from the human element of it. What are some of the things that really arched your eyebrows? What really gave you pause?

WEINSTEIN: There are so many good stories, Barry, but one that I’ll tell, which hopefully no one will be too put off by if the protagonists self-identify, was early on. It was year one or so of IDW. And we were working with a client who even back then was a well-known guy in the industry, amazing hedge fund founder, very focused on growth and excellence. And we did our first search for him, which was for a head of credit. I really wanted to impress him. And we got a guy to the table after a lot of trial and error, who, as I said earlier, wasn’t looking, very, and he was like one of the biggest crop — credit prop traders on the street. Phenomenal reputation. I can’t remember if he sat at Bear or Lehman, but it was one of the banks that no longer exist. And not his fault. But anyway, back then, huge deal.

No interest in coming to the table, but I explained all the reasons why he should. And optionality is a great thing. This is a phenomenal guy. And then I’m thrilled. Get the meeting set up. Let’s just say it was after the close. It was like 4 or 5 o’clock. And I’m kind of like glancing at my phone, waiting for it to ring and to hear what a great meeting this was. Because this guy was like everything. It was everything I thought we wanted for this search.

And the phone rings an hour in and it’s my client. And he says, “That can never happen again.”

RITHOLTZ: Oh really?

And by that, what does he mean?

WEINSTEIN: And by that, you could never in a million years, I could never guess what the next string of sentences was going to be that came out of his mouth, which were apparently this guy had decided it was okay to put on a t-shirt and shorts, a pair of rollerblades and skate something like 30 blocks top speed, arrives at the Four Seasons, skates right in through the entrance, right up the stairs, and slides right in for his meeting, completely dripping with sweat, wheels still turning.

(LAUGHTER)

WEINSTEIN: Luckily, my client had a sense of humor and we’ve gone on to do a lot of great stuff together, but it was a lesson for me, Barry, that you cannot confuse intelligence with common sense.

RITHOLTZ: So now how much of that is common sense and how much of that is this guy really didn’t want another job? He really wasn’t looking to switch.

WEINSTEIN: I think it’s common sense. I don’t care if you are looking to move or not. Come on.

RITHOLTZ: I mean, even within the industry.

WEINSTEIN: This was one of a kind. I’ve got a lot of one of a kind stories, but you know, the important thing is to learn from it. And now we prep people within an inch of their lives on everything.

RITHOLTZ: No rollerblading.

WEINSTEIN: No rollerblading!

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RITHOLTZ: I really love “The Wall Street Journal” article about you that began, quote, “In the overwhelmingly male world of hedge funds, Ilana Weinstein is one of the most powerful women, but Ms. Weinstein doesn’t manage money. Instead, she scouts the people who do.”

So let’s talk about that first half of that sentence, overwhelmingly male world of hedge funds, what’s it like competing in that space?

WEINSTEIN: Well let me just say we can’t forget this is still a young industry. When you compare it to law, to medicine, to —

RITHOLTZ: Centuries, right.

WEINSTEIN: Okay, so medicine, law, consulting, those industries have now over 50% women. Business school when I went was 20 something percent. Now HBS I think is 52 or 53 percent. Banking getting much better. At the senior ranks there’s still some work to do.

RITHOLTZ: Finance in general.

WEINSTEIN: Getting much, much better. Certainly at the more junior and mid and upper mid ranks it’s roughly 50 percent women. So relatively speaking this is still a young industry. I will tell you when I have these questions which I feel are like a little bit loaded all male what’s that like blah blah blah. I have felt this is the most meritocratic industry that I have ever been a part of. And I’ve been working since I was 14. I’ve had a lot of jobs. When I was at Penn, I worked at a law firm one summer. As you pointed out, I worked at Goldman. I worked in consulting. I worked with CEOs from all sorts of different industries. The difference here is it is pay for performance. It’s mark to market. You know exactly where you stand with complete clarity every moment of the day. And teams are small. So even if it’s a multi-manager, which has 100 PMs, when you pull back the curtain, the teams of those PMs are small.

You certainly know how your PMs are doing, which ones are the winners and which ones aren’t performing that well.

So founders are very clear on who the alpha generators are, as opposed to, for example, private equity, where it can take seven to 10 years to monetize your investment, or an industry where there’s just not that much clear attribution as to who’s doing what on a very big deal team.

So as a result of that, founders don’t care if it’s a man or woman or otherwise in terms of who occupies the seat. It’s all about generating alpha. When it comes to me and my, by the way, all-female team, we’d love some diversity.

RITHOLTZ: Oh, really? That’s interesting. I had no idea.

WEINSTEIN: Yes, yes. We’d love some diversity. is all about our ability to be a source of alpha-generating talent for them.

RITHOLTZ: So, is there a female perspective in the hedge fund world? Because in the academic research on investment returns, there’s a lot of studies that say, “Hey, men are too risk-embracing, they’re too stubborn, they’re over-optimistic,” and all other things being equal when they looked at a series of female-led funds versus male-led funds, the women outperformed the men.

WEINSTEIN: So let me give you a little example. Back in 2009 or maybe it was ’10, if you remember, hedge funds were largely short Lululemon. And I met with a guy who told me that his then-girlfriend, now wife, who to your point is now very successful in her own right, said to him, “Why are you short this stuff? ” And he said, “Well, because it’s for yoga, and yoga’s a fad.” And she said, “What are you talking about? We wear this, myself and my girlfriends wear this all the time for everything. And by the way, honey, yoga’s not a fad.”

RITHOLTZ: Right.

WEINSTEIN: All right, so back to your question, the reality is what founders want is as much diversity of thought as possible because there will be fewer errors and reasoning if you have different perspectives and more thinking outside the box.

RITHOLTZ: Less group think.

WEINSTEIN: Yes. –

RITHOLTZ: Can only be good.

WEINSTEIN: Totally.

RITHOLTZ: And yet it doesn’t seem that–

WEINSTEIN: Well, again, I think it’s going to take time. It just will. This is not an industry which doesn’t want women. Quite the contrary. I mean, I have been asked almost since day one, and again, I’ve been doing this for a long time —

RITHOLTZ: Find me some good women fund managers.

WEINSTEIN: We love diversity. We love, but at the end of the day, They have a fiduciary duty to their LPs to hire the best person. And if few women are coming into the industry by the time we get involved, which is at a pretty impactful level, we don’t really have anyone to pull from. So I hope over time — and I think it’s improving. There are signs that it is — more women enter the industry. They get trained at great places. And they end up being great candidates for us to put into to run the next big portfolio or start a new strategy.

RITHOLTZ: So in the Wall Street Journal article it tells of a story of you speaking at Wharton to a group of people, a group of students, someone asked you why aren’t there more women in hedge funds and I don’t want to steal the thunder but tell the story what you asked the class and what happened.

WEINSTEIN: Well a woman asked me at the end of the class what are actually it was it was more aggressive than that Barry. We did this whole I do a whole guest lecture and she of course was my last person that I called on. And she said, “What are you doing to help women have a greater footprint in the hedge fund industry?”

And I was kind of like, “Oh God.” I immediately got a little bit defensive, but then I took a breath and I stepped back and I looked at the class and it was roughly 50/50, men, women. And I said, “Let me start with the guys. How many of you are interested in working at a hedge fund?” And I would say the majority of hands went up.

RITHOLTZ: I would bet more than 51%, 70%, 80%.

WEINSTEIN: It was almost all of them. I can’t — it was the majority. It was a sea of hands. And then I asked the women the same question, and like two hands went up. Really? And I turned to her and I said, “That’s your answer.”

RITHOLTZ: Right. Go work on your peers. There’s only so much I can do.

WEINSTEIN: And there is also something too, as much as there has to be a respectful — number one, there has to be a respectful environment for everybody.

RITHOLTZ: Sure.

WEINSTEIN: Men, women, or otherwise, I don’t think we need to be treated like hothouse flowers, right? So this business of like, I mean, this is a tough industry. It’s really competitive, it’s bottom line oriented, but it’s about results, you know? And people can be curt, they can speak in bullets, they, it’s just, there’s —

RITHOLTZ: But we all know women on trading desks. They’ll snap you in half if you say the wrong thing to them. They’re tough, they toughen up that experience. To assume that a woman fund manager or trader is a delicate flower, I mean, that’s a very 19th century perspective. I can’t imagine that still exists anymore.

WEINSTEIN: I don’t know when people say what managers are doing to make the environment more hospitable, what that means. I don’t know what that means. It is completely hospitable. It is about people who do great analysis and can put up great results. Everything else, you know, it’s the same metric and same bar for everyone. It’s not different.

RITHOLTZ: So what are the broader takeaways for any woman who’s interested in working in the hedge fund field?

WEINSTEIN: Well, let me take it out of hedge funds. I think it’s just, let’s just make it more general. I mean, well, for hedge funds, it’s the same thing for a man as for a woman. It’s getting good training. It’s really being in it for the right reasons. It’s all the things we talked about earlier and honing your craft and improving and being front-footed in your approach to learning and growth and pushing yourself and reflecting on if you’re not growing wide. This is not like a special, again to my point, there’s not a special set of things for women versus men.

As a female entrepreneur, and I, you know, there are things as a woman you do need to grapple with and I would say it’s probably true of anyone who has competing priorities in their life, whether it’s a male or female primary caregiver for a child or for an elderly parent or whatever the case may be. But I can only speak from my own perspective. What I tell people is, what I tell women is, you can do everything, just not all at the same time.

Now, that being said, I started my firm, bought and renovated my first apartment and got pregnant all within the same year. But the difference was I had domain expertise and a reputation and I figured it out. I think it’s very difficult to break into a new industry where there’s a steep learning curve and be dealing with other priorities at the same time. So you have to time things in a way that makes sense.

I also think you should never apologize or feel guilty. Guilt is a waste of time for being a working mom. I was not there for every drop off and pick up, far from, but I was there for my son where it mattered. And I think it’s important that as a parent you fold your kid into your successes and your failures. I talked to him throughout his growing up about the challenges that I was facing, the wins as well as the misses.

RITHOLTZ: The challenges you were facing as a woman in a male-dominated industry?

WEINSTEIN: No, again, I felt–

RITHOLTZ: Or just a hyper-competitive industry.

WEINSTEIN: Just the challenges of building a business. Coming back to that, I think that we have been able to provide a complimentary perspective to a lot of our clients. It’s an advantage being a woman. There are things we see that others don’t.

And so, but just finishing on this point, I think that your kids will really grow and learn as a result of being exposed to everything that you do.

RITHOLTZ: So given 20 years at IDW and an all-female team, what are some of the unique perspectives that you bring as a woman to a male-dominated space?

WEINSTEIN: Well, I do think being a woman will mean that we might come at things differently and have a slightly different perspective, which can be complementary, right, to somebody who comes at things from their own lived experience, which looks different. I’ll give you a story early on, which I think speaks to that. This was maybe year one of IDW. We were still doing a lot of work for the prop desks, again, the precursors to the hedge funds. And we were working with one of the most aggressive sell-side firms on the street, certainly with respect to its prop businesses. And they wanted to build their structured credit business. And we went through a whole thing and we ended up making an offer to a guy who ran one of the biggest structured credit groups at a competing bank.

It was a great offer. It was a three-year deal, huge runway, great upside, and he could really build it and take it in whatever direction he wanted. And he was kind of fenced in where he was today. So much more open pathway.

And we went through the whole resignation conversation. We prep people within an inch of their lives before they walk in and they resign. And I told him to expect that he was this was going to be his 15 minutes of fame. He was going to go in and they were going to put more and more senior people at the bank in front of him and make him feel like if he were to leave, the bank would careen off a cliff, which we both know is not the case. They were fine with all due respect. I said to him they were fine before you showed up and they’ll be fine after. You’re great but it’s going to be fine.

And he sounded good, he sounded solid, he knew to resign to his boss and basically get out of there and shut down other conversations.

So I tell my client and everyone at this bank was involved from the CEO on down. This was a very important person to them and they wanted to make sure it got done. And I tell them I feel really good, he sounds great, we’re going to get this done.

Goes in the next day, knows to call me an hour into resignation, which he does. He tells me, “Ilana, it’s going well, but they want me to meet the head of global markets to explain my thinking.”

I said, “We talked about this.

RITHOLTZ: Right, walk out, you’re done.

WEINSTEIN: You don’t need to do this. We’re either done or we’re not. “No, no, no. I don’t want to make my boss look bad. At least I need to explain it’s not his fault. I owe them that much. I’ve been here for this long, blah, blah, blah.” There’s nothing I can say. He’s going to do it. I reinforce the reasons. This has to end after this conversation.

Anyway, you can imagine where this ends up going. He’s in a conference room. That additional conversation manifests into 10 additional conversations. They’re now trotting out the entire management committee of the bank in front of him. The head of the bank’s getting involved. His phone is now off. My team is calling onto the desk. We’re trying to get through to him any which way we can. It is impossible. Meanwhile, my client on the other side is going bonkers because we’re now late into the afternoon. We can’t reach him, and they’re second guessing their decision. Do we have the right guy? Doesn’t he know what he wants? Is this a leader? Blah, blah, blah. Doesn’t he understand? You know, this couldn’t be clearer, the reasons he should make this decision. If he’s not out of there soon, Ilana, we’re pulling the offer. So–

RITHOLTZ: Which, by the way, is really not fair for a guy who’s just trying to extract himself gracefully.

WEINSTEIN: Totally. Right, and I explained that, but this, like we started this process, whatever it was, 7 a.m., we’re now almost into the evening. So we’re beyond gracefully. He’s clearly getting bid back and they’re upset, they’re embarrassed, they feel maybe they have egg on their face and there’s a lot of positioning and jockeying that goes–

RITHOLTZ: Little ego involved also.

WEINSTEIN: Yeah, I think about it and I really feel like that movie “No Way Out” with Kevin Costner. I just don’t even know what to do anymore. Can’t get through to him.

And then I remember he always talked about his wife and she clearly, as she should be, but it was lovely the way he always brought her up, was a big influence in his life and in his decision making. And I realized I have his home number.

RITHOLTZ: Get the wife on the phone.

WEINSTEIN: So I don’t remember any of their names even, but I remember she was French. And she picks up the phone, so let’s call her Monique. And I say, “Hello, hello? I don’t know if you know who I am, Monique. I’m Ilana Weinstein.” And before I can even finish, she says, “I know exactly who you are.” And I say, “Well, you know, we have a bit of a situation.” And I explained to her that the place her husband is resigning to go to is very upset. And I recount all the reasons this is a phenomenal opportunity. And I think they’re going to pull the offer. And I just, you know, I can’t get through to him. And I thought, you should be aware of that, given, you know, this is a decision I know you both came to.

And she says, “Ilana, I understand, leave this with me.” Five minutes later, Barry, my phone rings and he’s out.

RITHOLTZ: Wow.

WEINSTEIN: So, you know, I —

RITHOLTZ: What did the firm he was going to have to say about this?

WEINSTEIN: Oh, they were thrilled, are you kidding? But my point is, sometimes it does take, I guess, in jest, it takes a strong woman to sort of, you know, in this case, move the needle, or maybe two strong women, but, and I’m not to say a man, it’s not to say a man wouldn’t have come up with this, but I do think there’s something sometimes to coming at it from a female perspective, which is helpful.

RITHOLTZ: Huh, to say the very least. I bet you have tons of other stories, tell us one.

WEINSTEIN: This is a more personal story, but I think just speaks to some of the obvious challenges of being a woman, and this was simply early days of IDW. As I said earlier, I did a lot of things within that first year, including getting pregnant. And we were invited to pitch for the business of what was one of the most exciting hedge funds at the time. It was a spin out from, so this would have been 2004, spin out from a well-known prop group, to my point on doing work for a lot of the prop groups. They had a lot of capital and they were on fire and they were building and the founder invited me to come in.

So here I am Barry, I’m eight months pregnant —

(LAUGHTER)

WEINSTEIN: And I’m looking at myself in the mirror thinking, I wouldn’t give myself this work. I mean, I look like I’m about to pop, and that’s not a negative, it’s just like, again, competing priorities, right? So this is, he has a business to build and I have a small firm, so how is this going to work?

So I do what any good entrepreneurial eight month pregnant person would do, which is swath myself in loose black clothing. I absolutely still look pregnant. I mean, just to contextualize this, you know, I’m a small person.

RITHOLTZ: You are a thin five foot something.

WEINSTEIN: Yeah.

RITHOLTZ: Right. You look like, you must’ve looked like the snake that swallowed the goat.

WEINSTEIN: Well, it was better for me in that the weight was relatively evenly distributed. So I could, I gained 70 pounds when I was pregnant. I could look like–

RITHOLTZ: So you doubled in size.

WEINSTEIN: Thank you, but yeah. I could look like a very heavy snake that swallowed a small goat. So that was what I was going for in this meeting. Because obviously he’d know I was pregnant, but if I was looking three months pregnant or four months, that’s a different story. Come in, we have a great meeting. By the way, thank God for big conference room tables because I slid myself, I kind of leaned back in the chair and slid under so he couldn’t really focus on the fact that I really looked like I was about to pop.

RITHOLTZ: Then your water breaks.

WEINSTEIN: No, no, not that, almost that good though. Almost that good. Great meeting, he awards us everything. Ilana, we’re seeing eye to eye, you understand the business, there’s all the stuff we need to build, let’s get to it.

And I think to myself, okay, we can do this. We have a month and IDW works smart and hard and fast. A month for us is like five months for other people, we’ll be great by the time I get birth. We sign the engagement letter. I’m in the hospital with an emergency C-section within days. He is off to the races, like with the minute the letter’s signed, he wants to know who do we have ready for him to meet. And I’m not returning the call, right? Because for obvious reasons. So two days later, I call him. He’s very gruff on the phone.

And I said, “Listen, I’m sorry for not getting back to you sooner. I’m uber responsive, but I think I have a good excuse.” I said, “Well, I’m calling you from the delivery room.” “Delivery for what?” And —

RITHOLTZ: FedEx? What does he think you’re talking about?

WEINSTEIN: I said, “I just had a baby.” And there is, you could hear a pin drop on this call. Silence. I mean, and this isn’t a guy who gets silenced easily. And I laughed and I said, “Listen, this should give you comfort. The fact that I’m calling you from the delivery room, you know we’re going to get this done for you. Come hell or high water.” So he laughed, and on we went.

RITHOLTZ: That’s amazing.

WEINSTEIN: Yeah. I mean, we have our own special, unique set of challenges, and that’s an example of one.

RITHOLTZ: Really interesting. So before we get to our favorite questions, I just wanted to ask you a couple of things about just the state of the industry today and some of the changes we’re going through. We are seeing the older generation begin to retire, you have Ray Dalio stepping down at Bridgewater, you have a lot of managers who are now in their late 60s, early 70s or beyond. Are we approaching a generational change over here?

WEINSTEIN: We are. It’s early though, right? We haven’t seen that much baton passing. Bridgewater is one. Davidson Kempner would be another. On a smaller scale Redwood, Sculptor, that one hasn’t gone too well. There’s been horrible fighting.

RITHOLTZ: There’s been a few of them that have kind of unraveled.

WEINSTEIN: So it’s early yet, but the key thing is that the LPs do not see the secret sauce as residing in the head of one person. I think, for example, multi-managers are set up well for this transition because by its very nature you have multiple managers managing the capital, it’s not the founder. Or you have to create a real partnership or investment committee in order to have the decision making be more a result of everyone versus one person.

Elliott just created an investment committee in 2021, I think precisely to get things ready for succession planning.

RITHOLTZ: So, I don’t want to suggest the top decile of firms are immune to this sort of succession issues or immune to a tough year in the market like 2022 or 2023, but it certainly sounds like the firms that have become more professional, more institutionalized, are better positioned to withstand these sort of transitions. Is that a fair statement?

WEINSTEIN: It is fair, but when we talk about top decile, let’s not forget a lot of the funds I mentioned in the beginning were top decile funds and they are no longer. So things can unravel very quickly. You have to be front-footed. You have to be constantly thinking about how you can improve your process, even if things are going well, whether you’re built for a different market environment and to be able to withstand the challenges that are going to be the result of that.

RITHOLTZ: Really intriguing.

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RITHOLTZ: So let’s talk about this competition out there for some of the best fund managers. How aggressive is the fight for talent?

WEINSTEIN: I would call it a feeding frenzy.

RITHOLTZ: Really? That’s quite a phrase. In terms of what people are paying or just the hunger for that sort of talent, why a feeding frenzy?

WEINSTEIN: Well, I think I need to step back and explain where we are today as an industry.

RITHOLTZ: Sure.

WEINSTEIN: So bear with me as I set the stage. Okay, and then we’ll talk about the action going on on this stage.

So more so today than ever before, we have the haves and the have nots. There has never been a clearer bifurcation between the two. In the have not category, we’ve got the long short equity funds that are directional and concentrated, which have had horrific performance. I’m not exaggerating.

RITHOLTZ: Tell us.

WEINSTEIN: I’m going to go there.

RITHOLTZ: This is what I love about Ilana, she does not hold back.

WEINSTEIN: I don’t hold back. I am a truth teller like it or not.

RITHOLTZ: So long short not doing well.

WEINSTEIN: But let’s talk about it because I’m not sure people really know. If you —

RITHOLTZ: That’s a lot of funds right?

WEINSTEIN: It’s probably 40 something percent in the hedge fund industry.

RITHOLTZ: Almost half.

WEINSTEIN: Let me give you another statistic since you’re asking about numbers. The Financial Times did an article at the beginning of this year and it talked about aggregate losses for 2022 in the industry. It was north of 200 billion of losses.

RITHOLTZ: That’s some real money.

WEINSTEIN: The Tiger Cub community, which is a relatively small number of funds relative to all the Burger Kings and McDonald’s out there, as we said earlier, there are tens of thousands of hedge funds. Do you know what percent just those funds, those descendants from Tiger management, small group of funds, do you know what percent they were of that total?

RITHOLTZ: I would guess half of that total?

WEINSTEIN: No, I mean that you can’t say half. It was 25%.

RITHOLTZ: Okay, a quarter.

WEINSTEIN: A quarter. More than 25%. But that doesn’t even–

RITHOLTZ: But that’s like a dozen funds, right?

WEINSTEIN: Well, you know, maybe a little more, but that doesn’t even include funds like other notable funds that are huge and have had huge drawdowns. Like Alkeon, which is a $30 billion fund pre its losses, or Whale Rock, which was $13 billion, or Red Mile, $10 billion. I mean, when you think about all of the directional long-short equity managers, it’s an enormous list. Tiger Communities only is small-ish percent of that. What we did is look at, I had my team pull any fund that was a billion or greater, which is again, no small fee to get to that level of AUM. So these are the material players, most of whom are many multiples of that. And we looked at their performance over ’21 and ’22.

On average, Barry, these funds are down 30% to 40%, with funds like Tiger Global down as high as 60%. Tiger Global was $100 billion pre the losses. There was an article that came out the other day. They’re now $51 billion.

RITHOLTZ: Cut in half. Wow.

WEINSTEIN: Cut in half. So that’s how much value has come out of the industry. And what that means is you have a huge high watermark to get out of. You have no performance fee and no line of sight to getting to one anytime soon, and you have AUM shrinking by virtue of the losses, as well as the fact that LPs are now rightly redeeming. That’s just long short equity. Then we’ve got macro, right? Which last year had a good year, but I feel like macro is very spiky. You have a good year, you have a bad year. So you’ve got lots of choppiness in the macro world.

And then you’ve got the other side of the ledger. So lots of funds that are having a really tough time of it. Huge percent of the hedge fund world. And the other side of the ledger are the multi-managers. We looked at their performance, the top multi-managers, over the last three years. And you know what that is, Barry? The cumulative performance there is if you’re a multi-manager is at the low end, 35%.

RITHOLTZ: Wow.

WEINSTEIN: At the high end, north of 88%. That’s Citadel leading the pack.

RITHOLTZ: Wow.

WEINSTEIN: But any of them you’re going to have done better with than the whole cabal of funds I just mentioned.

And then you also have top multi-strategy funds like Golden Tree. There’s a reason Steve Tanenbaum’s fund was $34 billion in 2020. It’s now almost $50 billion.

RITHOLTZ: Wow.

WEINSTEIN: He’s put up great consistent returns and he’s been very commercial as to how he’s grown the fund. So you would think to yourself, doesn’t talent therefore in all the have-nots want to go to the haves? And the short answer is yes, although it’s more nuanced than that because people will get into it, I’m sure, at some point. There are all sorts of things that factor into why someone may not be so quick to leave, even in an obviously broken situation. But at least more people are coming to the table voluntarily than ever before.

But the difference is, and the reason I call it a feeding frenzy, it’s not so much now we’re getting somebody who is in what they feel to be a winning situation to think more broadly about their next opportunity, which is that’s hard, right? They feel very happy. They feel they’re treated well. And we have to architect something and a pathway that doesn’t exist where they’re at. And maybe they’ll engage in a conversation to explore that further. And eventually maybe they’ll make a move.

Now people are meeting with us. And there’s a woman we met with recently who called herself, and we’ve been dining out on this phrase ever since, multi manager curious.

RITHOLTZ: That’s very funny.

WEINSTEIN: Yeah.

RITHOLTZ: So I want to

WEINSTEIN: So she’s having, they want to have conversations with everyone, and that makes it much more intense. It’s not just one conversation. It’s like seven conversations, and they really are relying on us to help guide them through that and figure out what the best fit is.

Another dynamic, Barry, that’s important to keep in mind is because these are the haves, they have grown in some cases at a rate which is not sustainable. Some of these multi-managers are two and three X what they were even a few years ago. LMR in 2020 was 4.6 billion. Now it’s 11 billion. Hudson Bay was five and a half billion then. Now it’s almost 20 billion.

RITHOLTZ: Wow, that’s four X. Geez.

WEINSTEIN: The reality is, and it’s in a very short period of time, talent doesn’t proliferate at that level. And when we talk about feeding frenzy, there’s also a question as to how these funds are going to perform if they’re not being disciplined about the amount of capital they’re taking in to meet being able to hire good people to deploy it.

You look at a firm like Citadel, which is closed to new investors.

RITHOLTZ: Right.

WEINSTEIN: They could be multiples of what they are. And the best funds are super disciplined about how they’ve grown. Balyasny lost a lot of capital in 2018. It got down to $6 billion. It took five years to get back up to peak AUM, which is $20 billion now, but they were really disciplined about how they did it. They didn’t just boom, double and triple within a few years. They built their infrastructure, risk management, and hired great PMs to lead these businesses. And that it’s so important because you’ll dilute returns without getting the talent piece right in keeping pace to AUM growth.

RITHOLTZ: That’s really interesting. So we’re going to talk more about talent in a bit, but I want to go back to some of the things you raised that’s really quite fascinating.

So it’s obvious. If you’re making a directional bet, or even worse, a leveraged directional bet, and you’re your funds going to suffer. But I’m kind of intrigued by what you said about macro. I know there’s a wide dispersion of performance in macro, but if any year macro should have done well, it was 2022 where if you had the inflation side right, if you had the Fed– –

WEINSTEIN: They did, they did well in ‘22.

RITHOLTZ: They should have crushed it.

WEINSTEIN: I think the point I was making is, it’s been choppy in that it’s like ‘22 was good, but then look at ‘21 and look at ‘23. So as–

RITHOLTZ: That’s what you mean by spiky is it’s not consistent over time.

WEINSTEIN: That’s what I mean by spiky. I mean, an AUM, by the way, has followed that. Brevan Howard at peak was 40 billion, then it drops down to six and change in 2018, and now it’s back up again. But that’s what I mean by spiky, as opposed to an entity, whether it’s a top multi-manager or a top multi-strat that is able to navigate different markets, put up consistent return stream over time, and for the multi-managers, do it totally uncorrelated. That’s all out.

RITHOLTZ: So that’s where I was going to go. Multi strategy seems to be a very attractive approach.

WEINSTEIN: Multi manager. You mean multi manager.

RITHOLTZ: No, multi strategy because if you’re a single strategy and it’s either a bad part of the cycle or you just make the bet wrong, so leverage directional or macro.

WEINSTEIN: You have your hands in many different pots.

RITHOLTZ: Something should be working and even what’s not working is non-correlated.

WEINSTEIN: Exactly.

RITHOLTZ: So is it safe to say that the top performing funds, the ones that have the best track record of attracting talent, are going to be the multi-strat, multi-managers? Or what is the distinction there?

WEINSTEIN: There’s transition risk no matter what you do.

RITHOLTZ: Meaning somebody just jumping from one fund to another may not carry their performance with them.

WEINSTEIN: Right, and they have to learn new skills. And the reality is people typically don’t leave to go to do something similar. They leave to go do something which is a market step up from where they are.

RITHOLTZ: In terms of size or in terms of strategy or many things?

WEINSTEIN: In terms of many things. In terms of autonomy, in terms of size, in terms of wingspan, all sorts of things. What I was referring to is the gap that exists at the single strategy funds where at the end of the day, the ultimate arbiter of what happens at the fund is the founder. So it is attractive to go somewhere where you will now be given the ability to manage a portfolio and make decisions, or at least be on a path to learn how to do that.

And so there’s greater receptivity to making that transition and taking on that transitional risk today, because the paradigm these people sit in is no longer working. These funds are underwater in a very extreme way.

RITHOLTZ: So let’s extrapolate this and talk bigger picture. What I’m hearing from you is a specific single strategy founder-led fund entails different risks for star performers than does a more institutionalized professional multi-strategy fund that has the ability to ride out ups and downs. It’s not whether or not their style is in favor at that moment. They’re approaching investing from a much more, I know holistic is almost a dirty word, but a much more holistic approach by making sure that they’re checking more boxes off.

WEINSTEIN: Let’s say it like this. I think that a lot of individuals sitting at these, I’ll use long-short equities as the example, okay? Single manager, concentrated long short equity funds, those funds might have done well up until 2021, not because their process was so good, but they were the beneficiary of an upmarket.

RITHOLTZ: Right.

WEINSTEIN: And you could just belong and do fine. And you didn’t have to develop a shorting skill set. You didn’t have to develop the ability to balance factors. You could just be long growth stocks. And you basically could just sort of do fine with very lazy risk management.

So in order to transition successfully to a multi-manager, which is far more disciplined in its approach to risk, you need to now learn a whole other set of skills which will enable you, and that should be attractive, to generate consistent returns over time. But these are not skills that you would have, these are not muscles you would have developed up to this point. So there is risk both sides in somebody making that transition.

RITHOLTZ: So there’s a risk for staying in a fund that is singularly focused and perhaps had the wind at their back for the past decade and got lucky, as well as the risk in transitioning. Is that a fair way to say it?

WEINSTEIN: 100%.

RITHOLTZ: Really quite interesting.

So let’s talk a little bit about the hunt for talent. You mentioned superstars before. How do you identify a rising star?

WEINSTEIN: Table stakes, good intellectual horsepower, work ethic, training, and a history of results. But I would call those things necessary but not sufficient. Because as we’ve just talked about, there are a whole bunch of funds that may have had good outcomes over a period of time but didn’t have great process.

RITHOLTZ: Right.

WEINSTEIN: So the other things we’re really looking for under the hood are insatiable curiosity, self-awareness, a growth mindset coupled with an intense desire to improve and learn and passion. And I’ll give you a quick story that I think encapsulates all of that.

RITHOLTZ: Sure.

WEINSTEIN: Real time. We just took this guy out. He hasn’t even yet started at his new gig. So there’s a person that, like I said earlier, we are in dialogue with people for a long time. We’ve been talking to him for the better part of his 10 years of investing. To put a fine point on his successes, his early successes, he was made a PM, they call it something else where he was, but basically the same thing. He was made a PM after four years, four years of investing experience, he was made a PM.

RITHOLTZ: Young, early.

WEINSTEIN: Super early, never invested before. So after four years, they gave him capital, he was running a couple billion of GMV, complete autonomy, and a clear payout. So of course he didn’t want to leave. Like again, the differences, there has to be something structurally inefficient in not working and broken to leave. So just to give that up, to go someplace else where on the margin some things would be better wasn’t enough.

And we can explain why those differences are not marginal, but at the end of the day, he had a pretty good gig and was staying put. At the end of 2022, he asks for a meeting. Oh, and I’ll give you another–

RITHOLTZ: He asks for a meeting.

WEINSTEIN: He asks for a meeting. Well, we keep in touch, but it was now something like, now’s the time for us to catch up.

RITHOLTZ: You’ve gotten into his head enough that he’s starting to see cracks in the foundation.

WEINSTEIN: Well, something specific happened. So four full years as an investment professional becomes a PM. In his second full year as a PM, he’s paid seven million bucks. So this is not too shabby.

RITHOLTZ: Oh, not too shabby, right?

WEINSTEIN: Guy’s doing great. At the end of 2022, he asks for a meeting. We sit down and he says, I had a really bad year, which a lot of people did in ’22. This is not unusual. We just talked about it. And I said, are you under pressure? What’s your relationship like now with the founder? He said, there’s no issue whatsoever. Like, no issue because a lot of those losses came precisely — or the reason for those losses came because the founder likes us, which I knew, to be concentrated and put a lot of capital where we have high conviction.

So when I step back and look at my losses for the year, they were 100% in one name. And then I went back and looked at my history of returns, and what I found is my hit rate is exceptionally high. I have a really high batting average, which as you know, Barry, is very unusual in this industry. So I said to him, “Aha, so if you’re going to win more than lose, why put all your eggs in just a few baskets?” Because the reality is it’s just not worth the risk, right?

RITHOLTZ: But that’s the structure the founder wants.

WEINSTEIN: But that’s the structure the founder wants. So what he realized, and especially in this new market paradigm that we’re in, where things are not just going in one direction, and it’s much more difficult to call things, and there was a lot more market risk entering into the equation of why things perform in the way that they do, he realized he wants to run more diversified and he wants to be somewhere that will teach him how to do that better and give him the resources to be able to do it. Because if you’re going to have a lot more names in your book, you also need a bigger team.

And what I love about this story is it shows someone who refused to rest on his laurels.

RITHOLTZ: Very self-aware.

WEINSTEIN: Exactly.

He stepped back and figured out what he’s best at, where he’s stagnating, and put himself on a path to grow. I kind of almost think that this is a metaphor for the hedge fund industry writ large. There are so many funds that don’t take that step back and think about what they need to do to improve themselves. They just kind of– like I said earlier, it’s an upmarket. What we’re doing is working. So why rock the boat? Or I won’t name the fund, but you may guess who it is. There was a founder who shut down, who in large part think his approach to risk management wasn’t that different at 30 billion of GMV from what it was at 2 billion. He just didn’t develop–

RITHOLTZ: Didn’t adjust to the scale.

WEINSTEIN: Didn’t adjust to the scale and didn’t develop the tools necessary to see correlations in the book that might not have been obvious.

RITHOLTZ: So let me circle back to the manager you were just referring to who had that high degree of self-awareness. Generally speaking, how rare are stars like that or superstars like that? It seems this guy checked all the boxes and even in an off year seemed to be trending in the right direction.

WEINSTEIN: Yes, where he had no pressure from the founder. This wasn’t like he felt that he was on shaky ground. Far from. Very rare. I would say it’s a handful of times a year that I would call someone a superstar. It’s everything I just described, but it’s also the muscle memory of having done this for 20 years where it just kicks in. You know when you’re sitting opposite someone that embodies all of that.

And some of the other things that, how do you know it when you see it? I talked about intense intellectual curiosity. One of the ways that manifests is these people are voracious consumers of information. You ask them what they do in their spare time, what they read. But it’s what they read. And it’s just it’s coming out of their eyeballs, like all of this, the subject matter that they’re interested in. It also goes to passion. And by passion, I mean a real desire to just be engaged in what they do 24/7.

But I am not talking about being passionate about their investments, because you really need to be unemotional when you’re making decisions. And that maybe goes to low ego too. It’s not about being “right” because being right and making money are two separate things.

RITHOLTZ: Right.

WEINSTEIN: By the time you’re right, you might have lost your shirt.

RITHOLTZ: So literally the title of a Ned Davis book, “Being Right or Making Money.”

WEINSTEIN: You’re kidding.

RITHOLTZ: 100 percent. The grandfather. Probably the most respected technician ever.

WEINSTEIN: So honored to be in that same breadth.

RITHOLTZ: So tell us about some of the current trends that you see in 2023 that might be a little unique or surprising versus what we’ve seen over the past couple of years.

WEINSTEIN: So in spite of everything I’ve said, people can still be quite sticky. And there is this inertia that I often see where people overweight what can go wrong in making a move, underweight what they have to gain, and turn a blind eye to staying put.

And given the clarity of the situation right now, it is just mind boggling to me that people who assess risk for a living can still be so obtuse, for lack of a better word. And I think it goes to something that’s really important, which is you have to be intentional about managing your career. Staying put cannot be just the default position.

RITHOLTZ: Is it just inertia? People just get comfortable and don’t want to move?

WEINSTEIN: I think people get comfortable and they feel like, again, it’s economic loss aversion theory at work. They overweight everything that can go wrong and they really don’t pay attention to if they make a move. They underweight what can go right and they’re just not focused on the dire situation that they’re in.

And when you’re being deliberate about managing your career, you’re asking, and I’m not suggesting people hop around for the sake of hopping around, but you do need to ask yourself the tough questions at various pivot points. And this isn’t just true for hedge funds, it’s true for any industry. How is my fund or firm performing? How am I evolving? Am I learning the skills I need in order to be effective going forward? Am I on a path to grow? Am I stagnating or am I increasing my value and optionality in the market? Am I being paid fairly?

And to the extent that they’re not and they’re just literally sticking their head under the covers and not thinking about these things, they really need to ask themselves why that’s the case. It’s the number one reason people flame out. They don’t keep pressing forward, don’t keep improving, don’t keep learning.

RITHOLTZ: So that raises a really interesting question because you’re suggesting that talent should be thinking about more than just salary and equity. There’s a lot of other things they should be looking for. When you’re counseling a superstar to switch funds, what are you telling them that they can get besides just, “Hey, here’s money, and you get some equity in the GP” what’s in it for them?

WEINSTEIN: I think there’s four main things. One is to be made better, to learn things that they’re not learning where they’re at, which more than ever today is important.

RITHOLTZ: Matters, sure.

WEINSTEIN: Number two is autonomy. And even if it’s not complete jurisdiction over the portfolio, increased ability to impact the results. Okay? So people should really want that and that sense of agency.

The second thing is clarity. Not the number per se, that’s important, but clarity around how we get to that number.

RITHOLTZ: Meaning it’s not a crazy calculation. You have an idea each month, each quarter, how you’re personally doing the terms of –

WEINSTEIN: I’m not saying it has to be. Well, I mean, if you’re on a payout, then yes you do. But even in situations where you don’t have a payout or points in the fund, you have to have clarity around why the founder makes the decisions he does. The most frustrating thing in this industry is for people who perform, who get netted, meaning the founder takes from Peter to pay Paul, and doesn’t reach into his own pocket in order to do that.

And I was– and the fourth thing, just before I forget, is stability. I’ll come back to compensation. Stability or clarity around compensation. Stability in terms of that you’re not going to get blown out at the slightest misstep. These are the four things that are important to people. And stability that the fund is on solid footing, which increasingly is a more difficult thing given how many funds look today like melting ice cubes.

But back to compensation, the founder has to be clear on what the P&L is of the fund and how he uses the management fee to the extent that there isn’t a clear formula in terms of how you’re paid. People need to understand why they’re getting paid what they’re getting paid.

RITHOLTZ: So I’m a little confused. You’re a rock star at one fund. You get an enticing offer in another fund and you may not know what your comp is going to look like even if you’re putting up really good numbers. That’s perplexing.

WEINSTEIN: If you’re sitting at a fund where —

RITHOLTZ: The guy across the hall is stinking the joint up, you’re not going to get your bonus.

WEINSTEIN: I mean, let’s just say you put up $200 million, the guy across the hall lost $200 million. There’s no pass-through model. So the founder is zero in terms of a performance fee if all he has is the two of you and he’s allocated capital to you. So is he going to reach into his own pocket to make you whole or not? And if you don’t have a payout that he has to abide by, that can be really frustrating if he doesn’t actually make you, you know.

RITHOLTZ: I think that would be good for your business, because that guy’s going to be out the door. Hey, I don’t care about who else you’re hiring. If I’m putting up good numbers, I expect you to at least have a conversation with me about, “All right, we’re only going to give you half of what you expected because Bob across the hall blew up.” But I mean, what really happens in those circumstances?

WEINSTEIN: Well, I mean, I will tell you 2022 was really interesting because I was pleasantly surprised by quite a few examples of founders who did reach into their own pocket to pay their best people like the story I told early on where some of these funds with very big holes still did substantial guarantees to retain their top people for this year and for next year.

RITHOLTZ: Seems long term smart, right?

WEINSTEIN: Long term smart, although the problem is to the extent those funds continue to lose AUM LPs are redeeming or don’t get and/or don’t get out of those high water marks in some reasonable period of time, that’s not really sustainable.

RITHOLTZ: Well, they could just dissolve and reform, then worry about that later.

WEINSTEIN: And also, those guarantees are ceilings, and really talented people want to be able to —

RITHOLTZ: Right.

WEINSTEIN: Have untapped ability to get paid.

RITHOLTZ: Clear skies above, and if they do really well, they expect to get paid really well.

WEINSTEIN: But Barry, what you’re picking up on, which is correct, is to the extent founders don’t have a pass-through model, meaning everything is out of the management fee and performance fee.

RITHOLTZ: As opposed to segmenting four different funds and the performance fee goes to each of those individual silos.

WEINSTEIN: Well, meaning they can pass through the expenses of the fund. So you can pass through the expense of paying that guy who made $200 million. All that should matter to LPs is your net return.

RITHOLTZ: Right.

WEINSTEIN: So a pass-through model is a higher bar because there’s more expenses at the end of the day, but these guys who have that very coveted fee structure are able to have that because their net returns are worthy of it. They have a high enough net return.

In any event, I do think what talent wants is a pathway where they have more agency over what they do and more control and clarity around how they get paid and just to be made better over time so they continue to evolve.

RITHOLTZ: So let’s flip the question. What are the top hedge funds looking for? It’s got to be more than just P&L. Tell us what the top funds want when they ask you to go find me a superstar in this space.

WEINSTEIN: Coming up a level, I will tell you I do think funds trip themselves up sometimes in using terms like analyst and PM and partner because those things mean very, have very different definitions depending on who we’re speaking to.

RITHOLTZ: Do they matter at some of the larger hedge funds or are people wearing multiple hats doing the same job?

WEINSTEIN: What I mean is we define, different founders define those things differently. So I’ll give you an example. We did a search about eight years ago for a well-known single manager, long short equity founder, who’d been around at that point for 20 years and had just had one of his most senior people depart. And what he told me he wanted was a partner. The guy was a partner. He wanted someone who, and he said he’s willing to give this guy substantial points and would operate really as a PM alongside him.

I want someone who’s going to be able to make decisions with me, help deploy capital, help size, help construct the portfolio, more of a PM than an analyst. And what I said to him is, “There’s no one I can find you that has 20 years of working with you.” And the way that you evolved people, because everyone there was hired basically as a young analyst out of Goldman and then homegrown, he saw what people were capable of. They had wins with him over time, and then he gave them more and more responsibility.

So to go into the market and basically find what for him would be a stranger and put that person in at a senior level, I knew wasn’t going to work. And in fact, what we ended up doing was putting in — It was a senior person, but it was someone who was less experienced, was really a senior analyst. was happy to have a seat at the table and be able to feed him ideas and over time morph into more of a PM or partner type role.

But PM means different things even among the multi-managers who do have that, you know, where that title really does mean they’re giving somebody an allocation of capital and that person does have autonomy. In some places a PM is really, really, no, it’s man, it’s always managing capital but it might be a small amount of capital.

You might start with a paper book. It’s like a mini PM, or a PM with training wheels. And you might be overseeing a very small team to start. In other places, we want somebody who can build a scale business out of the gate and can manage a lot of capital. And by the way, their definition of analysts may be different. There are places where being an analyst almost looks more like a PM. They are managing a significant amount of GMV. They do have a payout on that. Their definition of analysts may look, again, it may look more like mini PMs. So we really need to dig into these things and define what we’re after.

And I would say for an analyst, that’s idea generation, creativity, independent research, asking the right questions. For a PM, it’s risk management, portfolio construction, hedging, sizing, the ability hopefully to build and manage a team.

And where we’re looking for someone to build a strategy that’s more like a founder. It’s someone that we can raise capital around, potentially raise a fund around, and of course attract talent and also has a sense of what is needed with respect to technology and operations for their strategy. So different skill sets.

RITHOLTZ: I was going to say it sounds far more complex than I think a lot of people might assume looking in from the outside. How important is fit? How do you figure out, hey, this square peg is going to fit or won’t fit into that round fund. How do you evaluate personalities on top of all these really challenging skill sets? It sounds like it’s not an easy thing to do.

WEINSTEIN: There are things we do to see how closely the candidate maps to what we will want them to do. We do case studies, idea pitches, mock portfolios, business plans. Those are all sort of the hoops we have them jump through. But then in addition, we do soft referencing as a firm. If you think of 20 years of meeting with the most talented people at every hedge fund, odds are if you’re a candidate, Barry, I’ve met with five other people from your fund that have a point of view on you. Right? So we very quickly get a 360 on how people think, their velocity of ideas, their response time, when they spot an opportunity, their ability to commit capital, and how they systematize their process so it’s scalable and repeatable.

These are all the things we’re going to dig into in finding out about people. And I also love it when someone comes in with a clear sense of attribution. I don’t think it’s a great sign if someone has no idea what their P&L is. I get that often it’s not tracked at many funds.

RITHOLTZ: Really? I’m shocked to hear that because —

WEINSTEIN: Not formally tracked.

RITHOLTZ: But you could still export your book to an Excel spreadsheet and say, “Here’s where I am.”

WEINSTEIN: We’re saying the same thing. I expect people to have done that. I expect people to have a clear sense of attribution. To the extent that they don’t, it’s not a good sign, is what I’m saying.

RITHOLTZ: No, I would not.

WEINSTEIN: But the best people come in, I mean, honestly, some of them come in with a huge spreadsheet, This is what I’ve contributed. And by the way, here are all the things I wanted to do that the founder didn’t let me do and how I would have performed if they’ve let me.

RITHOLTZ: Right.

WEINSTEIN: Now I’m savvy enough after all these years to know and that if I add a little bit of a grain of salt and if I added up all of the returns of everyone we meet from fund A, B or C, it would probably be north of 300%. So you know, there’s that. But I do think there is still something to a sense of ownership and directional truth.

And then the final thing I’d say to you is there’s always a leap of faith. I don’t care how much work both sides do, and we do a lot of work to have a strong sense that the person will be successful. There’s always a leap of faith because we’re talking about different founders, different definitions of success and failure, different investing style, different approaches to training and development. And I always tell the clients I’m working with that they have to lead with war stories. They have to lead with all the things that might have gone wrong early on when they recruit someone and how they help that person to get out of a hole and to go on and be successful. Because that’s what’s in the minds of people before they make a leap. What happens when things go south? How will I be treated?

And founders really need to, or whoever’s doing the recruiting, and this is again any industry, you really need to lead with what constitutes failure. Losing money in and of itself, yes, you fail to make money, but why? How did you get yourself into that situation? So there’s sort of like good failure, which is a learning experience and we think we can improve you, and let’s define what is a situation where we think it actually isn’t the right fit. You need to get people clarity.

RITHOLTZ: Makes sense. A good process will occasionally have a bad outcome and you can’t just assume every good outcome is the result of a good process.

All right, so I only have you for a few more minutes. Let’s jump to our favorite question that we ask all our guests, starting with what has been keeping you entertained over the past couple of years? What have you been doing either when we were locked down or just out and about revenge traveling?

WEINSTEIN: Revenge traveling. I took a fantastic trip with my son to Italy last summer.

RITHOLTZ: I do recall we were talking about that and we didn’t know what was going to happen. There was a couple of variants. We were both talking about traveling last summer. Where’d you go in Italy?

WEINSTEIN: It’s almost where didn’t we go? We went everywhere. The only places we didn’t go were Puglia. Am I pronouncing that correctly? Soft G, Puglia. And we didn’t go to northern Italy.

RITHOLTZ: So I’ve never been to Lake Como and I want to check that out.

WEINSTEIN: Phenomenal.

RITHOLTZ: I haven’t been to Milan, I haven’t been to Modena, which is why I’d love to go.

WEINSTEIN: I have not been to Modena either. But for two foodies like us, that’s worth hitting.

RITHOLTZ: I have a friend who did this private tour where instead of staying at hotels, you stay at people’s houses and they cook dinner for you and it’s grandma making the secret family recipe and he said he came home 20 pounds heavier.

WEINSTEIN: I’m sure.

RITHOLTZ: It was amazing. Let’s talk about mentors. Who helped to shape your career?

WEINSTEIN: It’s totally my parents.

RITHOLTZ: Really?

WEINSTEIN: I had amazing parents.

RITHOLTZ: What did your parents do?

WEINSTEIN: My father ran a small insurance brokerage so he was an entrepreneur but small. I mean he was this is your classic first-generation immigrant story.

RITHOLTZ: Right.

WEINSTEIN: My dad did grow up in the States. He was born and raised in Brooklyn, part of what we often term the greatest generation.

RITHOLTZ: Right.

WEINSTEIN: He volunteered to fight World War II. He was an amazingly patriotic person. He was a tail gunner for B-29s. They used to take us out. My parents used to take us out to airfields in the middle of nowhere to look at these old planes. Really hardworking guy. And I listened to all the issues that he would bring home and discuss with my mom, who’s an amazingly smart woman. She can run circles around most people. And she was kind of the CEO of our family. She really pushed us to be our best. She helped my dad. She came here. She was a hidden child during the Holocaust.

RITHOLTZ: Oh really?

WEINSTEIN: It’s a whole story unto itself. She came to Israel, then her family emigrated to Israel, and then she came to the United States, met my father, and they were, we didn’t have much growing up. They just, they did the best they could in the way of giving us stuff, but there wasn’t really a lot of material wealth that I grew up with, far from, but I had great parents who taught me the importance of, by example, through my father and my mom, just in terms of her wisdom, of constantly pressing forward.

And, you know, there wasn’t a lot of room for whining in my house. She’s, you know, she was in the Israeli army. She’s tough. She’s strong. My dad, again, great, wonderful man who’s a phenomenal salesperson, but worked super hard. And I admired his resilience. And it was about pushing forward and not giving up. And that, I think, is that grit and perseverance. We don’t really talk too much about that. I actually think it’s one of the most important determinants of someone’s success in life and also professionally.

RITHOLTZ: Grit and perseverance, good qualities to have.

Let’s talk about books, what are some of your favorites? What are you reading right now?

WEINSTEIN: Well I love books that are about real life, could be a moment in time like Tom Wolfe type books, maybe the story is quote fiction, but loosely based on things that were happening then. or of course Michael Lewis, which is, those are real stories told in a highly entertaining way. The stuff I’m reading now is courtesy of my 18-year-old son who’s gotten into the habit of buying his mom books that he thinks she might like, and he’s hit it out of the jackpot every time.

RITHOLTZ: Really?

WEINSTEIN: Yeah, so now, thanks to Jordan, I’m reading, I think it’s called “Ticking Clock.” It’s by Ira Rosen, who was a producer for “60 Minutes,” and he bought me that because he knows I love the movie with “The Insider” with Russell Crowe, which was an expose, of course, on the tobacco industry, but also on the world of journalism. And the book is fascinating. It’s like being in the newsroom. It’s all the intrigue that went on behind the scenes. It’s just– it’s an — and it’s so funny. He’s just– he’s like this reverent, no BS, awesome, engaging storyteller. Phenomenal.

And then the other book I’m reading that my son got for me is called “The Kings of New York” which is about really the New York skyline and the whole real estate industry. And again, told almost like a thriller in terms of how it unfolded, what all the inside baseball was and the rise and fall of a number of real estate dynasties.

RITHOLTZ: Really quite fascinating. Our final two questions, what sort of advice would you give to a recent college grad who is interested in a career in either hedge funds or talent scouting and recruiting.

WEINSTEIN: For anyone, the question is why do you want to do that? What is it? And if the answer for anything is because they think it’s lucrative, that’s not a good answer.

RITHOLTZ: Right. By the way, I’ve heard that time and again from people sitting in that seat. Hey, if you’re in this game for the money alone, you’re going to be disappointed.

WEINSTEIN: It’s important to try, if you know what you want to do, that’s great. I have a candidate right now who’s been investing in biotech since he was 13. Yes, and so he knows what he wants to do. And I learned that because I said what you studied in college was really interesting. You were pre-med, which is tough enough, and also studying business. Like how did you know back then? He’s like, I just knew. I knew I wasn’t going to be a doctor. I was fascinated by biotech, but I wanted to come at it from the investing angle.

To the extent you don’t really know, I think it’s so important to try different things. To your opening questions to me, I didn’t know. And I learned through all of my experiences, what I liked, what I was best at, and just as valuable, what I didn’t like, and what I felt, you know, I wasn’t a natural at.

I think it’s okay to go on a bit of a journey early on, but you have to be on that journey aggressively. And meaning if what you’re doing is not something that really is singing or speaking to you, you have to keep moving forward till you figure it out.

RITHOLTZ: So purposefully —

WEINSTEIN: Purposefully, you can then lock in and really build something.

RITHOLTZ: Really interesting. And our final question, what do you know about the world of investing today, hedge funds, talent recruitment that you wish you knew 20 years ago when you first launched IDW?

WEINSTEIN: I’ll use your word purposefully. It’s really important for founders to manage their team purposefully, meaning you have to give people room to fail, but you also have to cut when it makes sense. And I think a lot of founders are afraid to do that because how will it look to LPs? It’s uncomfortable to have to do those, to have to manage people out. What will it do to our culture? But a killer culturally is to be someplace where it becomes a hotbed for mediocrity.

And so —

RITHOLTZ: A hotbed for mediocrity, meaning you just start accumulating key players.

WEINSTEIN: You just start accumulating deadwood. And it becomes, and I hear this time and again where people say, you know, where they haven’t really been paid that well, well, there’s this kind of smoothing effect that goes on at our firm where maybe I’m not paid as well as I should be, but in down, you know, when things don’t go that well at the firm, I also am not hit as hard perhaps as other places.

And I said, can we take a step back and look at your personal P&L history? For the most part, you’ve been a rock star every year you’ve been there.

RITHOLTZ: Why you hedging —

WEINSTEIN: Why on earth are you giving yourself an artificial ceiling here? And why are you, for someone who can never put up the goods, that’s a great paradigm. Why is it for you? And so I think again, it all comes back to being front-footed as talent, but also as an institution in managing for growth aggressively.

RITHOLTZ: Ilana, thank you for being so generous with your time. We have been speaking with Ilana Weinstein. She is the founder of the IDW Group and is known as one of the most powerful women in the world of hedge funds.

If you enjoyed this conversation, well, be sure and check out any of the previous 500 or so we’ve done over the past nine years. You can find those at YouTube, iTunes, Spotify, wherever you get your favorite podcast from. Sign up for my daily reading list at ritholtz.com. Follow me on Twitter for as long as Twitter is here @Ritholtz. Follow all of the Bloomberg family of pods @podcast. I would be remiss if I did not thank the crack team of experts who helped put this conversation together each week. Paris Wald is my producer. Samantha Danziger is my audio engineer. Atika Valbrun is my project manager. Sean Russo is my researcher.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

 

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