YouSaid · the spoken record

Paul Marshall

lines on the record: 71
first: 2020-09-21
most recent: 2020-09-21
sittings or episodes: 1
sources: podcast

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“including my own. I learnt it in 1991 big time, but I mean, you carry on learning it every day. But I think once you realize your own fallibility, the ego becomes less of a... Obstacle and less of a handicap.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“I had great parents, my sister, we were very lucky, but I'd say that it was a combination of setting boundaries and then giving freedom. They nailed it, I think, in terms of that combination and gradually releasing the boundaries”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“While I was overpromoted when I was young, I think I touched on it. I was given money to manage far too early. So my biggest mistake. was in 1991. The First Gulf War, Saddam invaded Kuwait in August 1990. And then the US invasion was until January 1991. And I got bared up on the oil price. I thought it was going to go up further and was very long oil stocks and oil service stocks going into January, February. And obviously I got wiped out. I guess there are two... Lessons first, never underestimate the American military. And then second, I mean, the age old, you sell on the sound of bugles and you buy on the sound of guns. And I didn't do that. Anna Hariba, it's terrible performance. Or six years rebuilding my performance record.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think going back to some of the earlier conversation, I think it's when people bring our industry into disrepute because by things like gating and charging fees on the gating or just letting down the investors because Effectively, fund management in Britain, it's less so in the States, for Britain has pretty mixed reputation. We have a serious responsibility which is stewarding other people's money. And it should be seen as a sacred responsibility, not just a way of getting rich. And so when I see bad behavior, it's just bad for all of us. It's bad for martial waste to be in that industry when that happens and it's bad for the industry and it's bad for the clients.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably Q barging. Is that what the Americans say? Q barging? People who jump in the queue. I don't know why. I think it's hereditary. I get so agitated by people who jump in the queue. Really, really gets my goat.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Start with the people closest to you, and then move out. But it's most about the people around you, your family, your friends, your”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“I pray every morning of my wife and it anchors you, it helps you understand there's something more important than you every day.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the speed of their success, I think, because we were going... When half a dozen people in a pub. And then they had a star quality. We had quite a lot of confidence in them. And then the speed with which they went from with their first album to getting Baftas and Grannies was amazing.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“He used to call himself Country Winston, but he announced to us he was playing guitar from early teens and he decided very early on that he was going to go into the music business. And he set up a venue in the Kings Road, which was kind of a little scene. It took over a pub and he brought together lots of musicians. And out of that came Mumford and Sons. And they've had a, they're a brilliant bunch of guys. I'm very proud to be associated with them. They're wonderful live musicians and they write great music. And so it's a great source of joy for Sabina and I, my wife and I. And our daughter is also a great musician and she's solo pianist, a vocalist. She's done an album. She's currently studying at Berkeley, Berkeley Music College virtually. Yeah, odd thing. Much better career than mine.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Want to turn to a couple of closing questions, but before we do that, as if this weren't enough, this phenomenally successful firm and the things you've done outside, you have some children that are not in this business. I don't know as much about your daughter's musical career, but certainly your son, Winston, who some may know on this side of the pond and about his path.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“I were involved in setting up with Alc. But that's also integral to the way I think about politics because I'm classical liberal approach to politics basically anchors itself in the idea of equality of opportunity and giving everybody the same chance. If you don't really commit to trying to make education work for everybody, then you're a kind of fake in my view in terms of being a traditional classical liberal. And by the way, I think the US education system absolutely stinks in terms of providing equality of opportunity. And Britain's in a better place on that. Those were the things that I spent time on and I worked closely with the education minister at the time on reforming the education system in Britain.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“A voice had a great interest in politics, and I actually stood for parliament before we stood at Marshall Wings, but I chose the wrong party, always chosen Theresa there was chosen the wrong party. But in 2005, the party that I did support, which was the Liberal Democrats, which is, by the way, a very different party today from what it was then, looked like it was on the brink of going into government. I wanted to spend some time supporting that, trying to shift their policy. on a number of issues, particularly on the economy, so behind the scenes and through a think tank to try and change their program, and then help them with getting into power. And that was 2005-2008, roughly. And I was wondering whether to go into politics at a certain point there, but I decided not to, which was a very good decision, and came back to Marshall Ways. The educational side has always been, if you like, my interest in education, which came through the charity of the ENF.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Be remiss if we didn't touch on a little bit of there was a period of time a few years ago where you stepped away from day-to-day fund management and explored a few interests of yours that led to among other things the word Sir in front of your name these days and I'd love you to talk a little bit about that interest in education and politics”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Just fallibility upon fallibility. Some of us are more fallible than others. And some of us were more fallible at different periods of our time than ourselves. Our own fallibility varies over time. But I do recognize that there are within all of that, there are people who are skillful, more skillful than others, and are able to take more advantage. But ultimately, it anchors into a kind of deeper theory of man. And Pascal said man is just a read but a thinking read. We're a thinking creature, but we're very, very fragile underneath all the thinking and our thinking is very motivated.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“This question of human fallibility hits our industry on both sides because you're making the case that markets are inefficient because of human fallibility. But then there's this question of, well, it's humans that then need to take advantage of the inefficiencies and the humans themselves are valuable. How have you thought about that kind of philosophical debate?”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“The way I wrote about it in the book is that I'm advocating empiricism versus what I call rationalism, which I think were two different branches of the Enlightenment. And I think rationalism is very damaging. Excessive belief in the power of reason and the excessive reliance on axiomatic thinking, which is what happens in the economic profession. Ultimately because it's flawed, it will become discredited. So I guess the thing that I wanted to last in the book is the thinking around that, which is in the introduction, which is how you should think about thinking.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“That message needs to be out there, especially today, because there is on a much broader scale, there is a kind of a crisis of epistemology in the world. People are arguing now not only about what they believe, but about how they know anything. Criticism versus rationalism, but then in the new woke white fragility environment, there is a complete rejection of reason as simply something that comes from the patriarchy and so on. And you must actually reject reason because there is no such thing as truth. So truth is simply what you perceive and what a person is more powerful than you tells you is the truth. So there's a crisis in my opinion of philosophy, and that applies to our industry curiously, because there is a”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I guess partly I wanted to write it before I failed so get it out. And I just thought that was... Actually, this started as a talk at a conference. I thought, actually, I wouldn't mind just getting this all down because I think it's worth writing it down if it's just enough to make a book. It's quite a short book. And the other part, I suppose, is philosophically. Something I wanted to get across which I feel strongly about because the underlying theme is you all the way through is really fallibility, new infallibility and inefficiency of markets and uncertainty and all of these things.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are people willing to contradict the founder and the driver gets impatient of being disagreed with, believes his own hype or her own hype and so on and so forth. So there are many, many reasons why it can go badly. It tends towards hubris and nemesis. And there are some great names, Julian Robertson's a great example. There's a guy in Britain, Neil Woodford, who's just had a huge blow up. I mean, there are lots of recent and old examples of it. And it also, it's amplified by money flows. So money follows people who've done well just because of the historic record. They get lots of money. Then they get too big. And they do things that they shouldn't go into a liquid areas. Then you get the unwind. There's a rush to unwind. So the fall is amplified by that kind of cycle of money, which also follows the hubris nemesis. So it's really an industry which you've got to be.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Based on an English politician called Enoch Powell who said the same thing about politics. And it's probably true in spades of fund management because first of all there's the size problems as you say. Many fund managers grow too big and then they returns just decay. They can decay gently into the night or they can decay rapidly because they're really, there's far too much hubris. That's one point. The second one is it's to do with hubris itself and the effects of being successful in our industry. It's a pretty ego driven industry fund management, especially the hedge fund end. I would say it's even worse in the US than the UK because in the US people equate your wealth with your worth. You also have the problem that in the hedge fund world a lot of firms are 100% owned by one person and that compounds it so you get culture where there isn't enough challenge, there isn't enough”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“In our case, we said, right, the maximum we can do in this strategy is X, 1 billion, 2 billion, 5 billion, it's now closed. And that put the onus on us then to say, well, how can we innovate to find other ways of generating alpha? And so that's how our growth has been slow. And it's been based on that hindrance. Constraints are also very creative. So that hindrance has been a source of creativity for us.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“A chapter which is called size matters and The real argument there is that although you need a certain amount of size to have critical mass and pay the bills, Beyond a certain level size is most of the time a disadvantage. And so it's a sadness to me in a way that there are so many barriers to entry now and that it is getting more concentrated. But the point that follows from that is we've built our business all the way through by recognizing that size matters at us beyond a certain point your returns are handicapped by the friction costs of trading or by your footprint in the market, your liquidity footprint. And that's why we closed Eureka when it was 2 billion in 2001, gave back capital, and we've frequently closed our funds all the way through the life of the firm. And the paradox about martial waste is we've grown to be the largest equity hedge fund in Europe because, in my opinion, we constantly closed because other people grew to be big and blew up because they were too big. Their size fell for the wrong reason.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things you took about in the book is the importance of size, which is a more nuanced and complex issue than size as the enemy of performance, but on the other hand, you said as the industry evolves, you get a little bit more concentration in the alpha generators. So have you thought about size of asset management firms?”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that possibly reflecting our biases and backgrounds, Ian has always been much more bullish about the systematic side of the business than me and there was a time when he was pretty cautious about fundamental investing. But I would say now actually we're in a very similar place. We're both bullish about the systematic side and we're both bullish about the fundamental side. I think the biggest difference between Ian and I is actually our biases when it comes to investing. As I say in the book, I have an optimism bias and Ian has a mean reversion bias. And that was actually very good when we were running Mani together because we de-risked each other. Our biases were completely offsetting. But it was also quite strained. We could disagree a lot.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Anticipating the opportunities of the next two to five years. So things we're looking at at the moment, we launched an ESG fund, and that's a very exciting area which having been pretty cynical about it as an alpha source, we now think actually it's going to be pretty alpha-rich. And we're also looking at the crossover space, which is a space between public and private. That's almost becoming a new place in the market, which is kind of doesn't really fit into any category and the line's getting very blurred between public and private. So there are lots of things that are changing, and those are the things areas where you have opportunities.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Active managers will still have a role to play, I think. I don't think it'll ever get to a point of being completely passive. There'll always be huge new pockets of inefficiency opened up by the way the industry evolves. I'd be very cautious about making big predictions about the industry anyway. I think what we're more interested in is...”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think about it all the time. There are some trends which are they seem to be so structural that nothing's going to shift. So the index, the trend of indexation, it's just about 2 or 3% a year, whatever, that's almost like a straight land. So there's going to be more and more money going to indexation, which I would call that hollowing out of slightly sleepy active managers in the middle of the spectrum. And you will end up with a larger amount of equity assets which are run passively. And then you'll have a small group which is run very actively, i.e. primarily through hedge funds.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fundamental investing involves but it evolves to incorporate more and more data, but still with guys pulling the trigger at the top.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Way forward is to blend the two. Now at the moment we keep our business in a way separate. So we've got one side which is fundamental, which is using more and more data and more and more processing power and all kinds of new data sets to help give our managers an edge and on the other side we have top system systematic which is always different from any other systematic system because it uses human beings as its prime in human cognition as its primary driver of the origin of the idea so we try and keep those two things apart for the good of the business actually because you want to maintain lots of different alpha streams and alpha sources and keep them distinct but wherever the industry goes and you can have all kinds of debates about where the industry will be in 10 years we think that we are an incredibly good position because we have these two building blocks and certainly you can't call the end of fundamental investing at all i think”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I started that chapter. It's not a quote from anybody, but it's a kind of paraphrasing of Kasparov. A machine beats a man, but a man plus a machine beats a machine. And that was certainly the conclusion he came to after he lost the deep blue. And so we think that the best”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“For a long time between tops and the fundamental investing, you've had some semblance of optimization and machine work sort of data crunching and investing that way. And then, of course, on the fundamental side, what's been your assessment of this question of man versus machine”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“We have rules about individual stocks, both on the long and the short side, in terms of how big we can be in the positions, but we also implemented the aggregate level. So we have a crowdedness factor. So we have a Z-score approach to measuring short crowding on every stock. And so you can get a sense of our crowded there.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“incorporate crowding as a risk factor in the way we look at our portfolios so and the irony of course is that the crowdedness of a short is a sign that it's a good short i.e. it's going to go down because smart money thinks you should be short but crowdedness of a short causes it to be much more volatile in the market and when you get these periods of mean reversion when hedge funds have to degear shorts go up in your face and that's very difficult to manage so you have there's a trade-off in terms of how much crowdedness you can tolerate in any portfolio because of the risk of a reversion in the market so that's the main way we manage it”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think the other thing I would add, by the way, for the last 10 years, the monetary regime means that companies can just Even today actually, raise capital at the drop of a hat, there's always capital to help the bailout weak companies, whereas there was a time when pre-2008 actually, when if a company got into difficulty, there was a real problem financing themselves, and therefore there was a lot of juice in the short. A lot of that juice is less easy to get. So we've evolved quite a lot of the tools we use to risk manage shorts, and we measure crowding.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you have all of those structural obstacles to success on the short side, how have you thought about delivering value on it today compared to say twenty three years ago when it was much less crowded, much less costly, rates were higher, and a lot of those headwinds today were tailwinds?”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“And against the informational bias of the market. But we held that position for two years. And then when it went, it went like a pup of smoke, went from about $12 billion market cap to zero in three days. There's a line that I quote in the book, the sun also rises from Anamingway, a guy called Jake Campbell, who was a bankrupt and was asked, so how did you go bankrupt? He said, well, it's quite simple slowly and then quickly. And it's rather that with a lot of shorts. You have to be very, very resilient over a long time. And then suddenly you get your payback.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“For your US listeners, I mean Wikipedia is pretty much the European Enron, really. It's a massive fraud in the payments market and it was a $14 billion market cap which had a AAA from Moody's, was proved, audited and approved by Ernst Young. And the BAFIN, the German regulator, suspended short selling on it in 2018 to stop people selling short on the request of the company and to the extent that one hedge fund manager has threatened to sue them. So you're up against all the usual culprits, Moody's, accountants, regulators and so on.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“make money. It's much more competitive because when you short a stock, obviously you're competing against long and short sellers, but effectively when you're borrowing the stock, you're competing only against short sellers. And they are because they're essentially hedge fund managers, they're typically amongst the smarter people in the market. And the availability of the borrow is reflected in the cost. So actually your cost, you're competing against people who, if they have the same idea as you, they drive up the cost. That's where the competition comes through. So it is a more difficult game and it requires more trading. You're up against short squeezes. You're up against crowding in a way you're not on the long side. It requires you to be much more active in the way you trade and flexible in mind. In terms of our experience, we actually just had one of our best ever experiences as a firm on the short side, which was WACA, where we were the second biggest disclosed short.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Say in the book that kind of tautology, the statement of the obvious that shorts and longs are very different. And if you look at the long-term... record of the eureka fund as a proxy our long-term annualized alpha on the long side is about 9% and on the short side about 3% and I think that short side is actually probably quite a creditable result in the context of the industry and provided your short side is positive short alpha is positive then it allows you to really deploy your long book very aggressively The first reason for a difference is that the information bias of the market is set up completely for the long sides, the brokers essentially seek to police companies 70 to 80 percent of all recommendations of buyer holds 50 plus percent of them are buys so your short seller is competing against in a world where information bias is against him or her is also competing in a world which is inherently it's more expensive because you have a borrowing cost and there's a bigger hurdle before you”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“their job convictions. And so those two things, how do they combine? Well, they don't combine at the level of one portfolio. They combine at the level of the product that you deliver to the client. So that's why Eureka evolved from being one strategy when Ian and I ran it. Being now combining 15 strategies, which we think is the kind of minimal level of diversification you need, and that then delivers to the client a set of very interesting alpha streams. Each one is relatively concentrated. You put them all together, you have a highly diverse portfolio full of high conviction ideas. That's the thing. And TOPS is even more like that.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a paradox, because the two things should be antithetical. And so diversification, Markovitz, risk managers love diversification, it brings clear benefits in terms of return per unit of risk and all good portfolio construction should be aiming to achieve a minimum level of diversification. But for stock pickers, my view is that most managers, few managers have more than 10 or 20 high convictions at any one time. And for that reason, one of the constraints in the top system is that we are the contributor portfolios, the contributors are only expect to run about 10 names in their book. We say we only want your highest convictions. Don't give us, don't you worry about diversification. Just give us your highest convictions and we'll worry about the diversification. And because we want that concentration within our individual managers, we also encourage them to put a high amount of their risk in.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“In the top part of our business, you measure alpha specifically is the thing that you're trying to capture. And in fact, the other word for tops is alpha capture. So the thing that you're putting into the portfolio is not a return, the thing you're optimizing is not a return objective. It's an alpha objective. So it's the performance of those ideas against whatever the benchmark is. And you create information ratios and risk manage around the alpha. And for our managers, it's actually the same thing. When we optimize between our managers, we optimize to their alpha. We're not optimizing to return. We're optimizing to alpha. And so they get capital if they do well with their alpha. And again, and so for our fundamental managers, we end up with the same level of complexity in how we evaluate their alpha as we do on tops.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“What we're measuring now, but I'm sure the same would apply in the macro world, the great macro investors, and there are less good macro investors, and you could measure their trades, you could measure the skew, you could measure in different regimes blah, blah, blah. I mean, it's the same thing.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Success ratios, I think in your country you call them batting average. But if you begin to see that the individual not only consistently delivers alpha but their success ratio is consistently between 50 and 60%. So they're consistently getting it more right than wrong. There's a skew in there and then you can look at how that works in different sectors in countries and so on and their longers and their shorts you get so much texture in the information that you really have high statistical conviction that there is something here which is a variable which you can call alpha which is this factor which is persisting there in the results”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“That really comes from tops in the sense that in terms of the evidence. So the founder of Vision Market Theory, never really produced proof that markets were efficient that was an assumption. And whereas proof of skill is a very, very large data set, we have 1,000, well, historically upwards of 3,000 people who've contributed to TOPS and been measured for long periods, three, five, ten years in some cases. And so you were able to measure people individuals in a whole bunch of different market regimes. And the kind of surface numbers wouldn't necessarily give you the fact that some people consistently do well and some don't. Somebody would say, well, you get a bell curve and you probably might find that there's a kind of normal distribution. But if you then dig down into it and you look at what we”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“specialized market, but at the same time as that is happening you're getting all kinds of new inefficiencies emerging. So whether it be index funds which are themselves just a form of momentum or whether it be the fact that a significant number of part of the hedge fund industry kind of totally focuses on quarterly earnings and you get this phenomenon now of massive crowding around quarterly earnings which actually is becoming less and less efficient as a way of extracting value or the recent David Portnife phenomenon, retail buying. Tesla is up 400% in three months. And so you're getting these new phenomenon due to new things happening in the nature of the participants in the market. So it's constantly changing. But it is gradually getting more professionalized, that's for sure.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the main concession I would make to the Chicago School to Efficient Market Theory, the only concession is that markets are gradually getting less inefficient. And that's because they are professionalizing. So I think the US has gone from in the 1970s, 50% retail to today 15. And I think in 1907, it was something like 85% retail. And China today is 85% retail and 15% professional. Professionals inherently have much more information, especially today than the retail investor. And therefore, as the people around the poker table get smarter, it gets more difficult. And so we are seeing a process of winnowing out of the people around the table. That leads you, therefore, to look at China as a better source of alpha theoretically at least than the United States, which is the most”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“Once you have identified sources of alpha, they persist, not necessarily indefinitely, because people can try and eventually erode that alpha, but they persist. And the way people deal and the way the agents in the market constantly evolve means that some sources of alpha disappear and other sources of alpha emerge. And that's why I talk about the need to be constantly adapting, because the markets are constantly changing, because they are effectively organic entities. That quote you gave is because I was trying to encapsulate all of the multiple ways in which they are difficult and complex and not efficient and not reductive.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“And of course, Adam Smith would say the end result of that is the invisible hand and you get the right outcomes. And I would also subscribe to that. But where I think that the philosophical underpinnings of academia have gone wrong is that in order to be able to create any tools or be useful academics had to build some assumptions and they built the assumption that markets are efficient and that in some ways is a useful assumption to make if you're trying to create the black skulls model or to create index funds or so on, but it's not true. And so as I said at the beginning of the book, there is this remarkable disconnect between theory and practice, between what's taught in schools and what actually you learn in markets. And indeed, the whole investment management industry, both allocators and managers, is built on the premise that skill is persistent.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I want to turn to the book and almost as a premise and obviously a premise of the organization is this deep belief you have in active management, which in many ways is under pressure. I'm just going to read off this quote. It just distills the essence of this. Markets are highly complex nonlinear systems created by a myriad of half-informed or uninformed decisions made by fallible human agents with multiple cognitive biases. Or in other words, markets are screwed up.”
2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source