In Conversation with Julie Segal

Hedge funds charge too much and deliver too little. That’s a familiar — and admittedly changing — verdict from investors. But here’s a not-so-well-known fact: many of the largest and elite hedge funds have been missing from the numbers many institutions use to reach their conclusions.

That’s because hedge funds voluntarily report their metrics to commercial databases — and many funds are reluctant to share information that may be sold to competitors.

In a live podcast recording of In Conversation with Julie Segal at the Allocators’ Choice Awards Roundtable in late September, I interviewed Paul Zummo, CIO of J.P. Morgan Alternative Asset Management, and Jon Caplis, CEO of hedge fund research firm PivotalPath, about the hole in the data investors use to determine whether hedge funds are worth it and other practices that can distort how much money they put into everything from relative value funds and credit to multi-strats.

The good news, Zummo says, is that investors that are less bound by rigid investment policies, such as family offices and sovereign funds, have been increasingly allocating to hedge funds over the past few years.

These bullish-on-hedge-fund investors have been upending their asset allocation assumptions: plugging in higher expected returns and alpha and lower volatility and correlation with markets into their models. “If returns go up by a percent and a half and beta actually is zero… and vol comes down a bit, that’s going to look a lot better in an optimizer,” says Zummo.

But pension funds and other more traditional institutions have been lagging. These investors have far less flexibility in how they divvy up their portfolios (and there are plenty of good governance reasons to do that) and end up baking “flawed” hedge fund data into these influential capital market assumptions that determine their asset allocation.

Another problem Zummo points out is the widespread and wrongheaded assumption that hedge funds are somehow one asset class. Investors look at aggregated numbers on the entire industry to form their views, masking (After listening to these two guys, I’d say burying) what’s happening with individual strategies or managers. Listen to the whole podcast to hear Zummo’s colorful — and elucidating, at least to me — description of the limits on thinking in averages. (And learn his favorite restaurants.)

Even as investors continue to debate if hedge funds are worth it, Caplis pointed out other material changes in the industry. For one, labels that managers slap on funds don’t mean quite as much as they once did.

Macro managers are building out equity books, quants are developing fundamental research, and multi-strategy funds are becoming some of the biggest allocators to outside managers. “There was a time where they were the ones that were really finding these emerging portfolio managers, swallowing them up,” says Caplis. Investors could only get access to the best talent through a fund. The biggest trend to watch, he adds, is the use of separately managed accounts and how they’re changing the equation to find the next best investor.

So back to the original question. Caplis says PivotalPath’s Relative Value Index, which focuses on strategies that are designed to be uncorrelated with the market.

Caplis says over the last three years, the index generated annualized returns of about 9 percent and alpha of about 6.5 percent per year. The index includes roughly 200 funds representing $600 billion in assets.

That means investors can put that 6.5 percent into the model rather than the zero that some investors have been using for years. As Caplis says, “That’s the difference between being in hedge funds, and not being in hedge funds.”

Go ahead and listen to the whole thing. And give me your feedback and ideas for my next guests. Email me at [email protected].

More on some of the topics mentioned on the podcast:

Everything Investors Know About Hedge Funds Is Based on Flawed Data

A CIO’s view: Insights from 30 years of hedge fund investing photo

Between 2010 and 2020, a period many hedge funds call the ‘Alpha Winter,’ the Federal Reserve, the European Central Bank, and the Bank of England made only 22 quarter-point-equivalent interest rate moves. Fixed income and macro traders had little volatility to work with for those 10 years. Since 2021, global central banks have made more than 80 interest rate changes in response to inflation, war, and spiking energy prices, among many other things. Now traders have four times as many potential opportunities to make money.

But Ken Tropin, chairman and founder of Graham Capital Management, says the volatility and uncertainty hanging over markets also makes it much more difficult to have conviction. That requires his portfolio managers to trade smaller positions more tactically, “match risk to conviction,” and remain open to having misunderstood an unfamiliar environment. Tropin, a former sculptor who launched Graham with the backing of Paul Tudor Jones three decades ago, has continually made changes so his firm could adapt to markets that never behave as expected. 

The challenges for institutions are many: a single factor, AI, driving markets and bonds’ diminished role as a diversifier. 

For institutions, macro funds can provide uncorrelated returns. But, says Tropin, “Don’t think of me as a hedge. Think of me as something that should provide diversification over some number of market cycles.”

Listen in to Julie Segal’s conversation with Institutional Investor’s 2026 Hedge Fund Lifetime Achievement Award winner.

Robert Koenigsberger isn’t rattled by uncertainty, at least when it comes to markets. 

That may be simply part of his natural constitution. He started his career in the 1980s when emerging markets were essentially a collection of bank loans in default — and he founded Gramercy, the emerging markets alternatives firm, in 1998 when Russia devalued its currency and kicked off the restructuring of its government debt.  

That experience comes in handy now as developed markets are facing the kind of uncertainty once reserved for emerging markets. Investors are facing wars in the Middle East and Ukraine, shaky global alliances, and rising inflation, debt, and interest rates. 

When we met to record the podcast, Robert said people will look back at the last three decades as a time of “extraordinary peace,” which translated into an environment that was “extraordinarily friendly to investors.”  The tools that investors have come to take for granted, he said, probably won’t work for the next 35 years. 

Institutional investors need to make peace with the uncertainty hanging over markets. Koenigsberger said he and Mohamed El-Erian, the chair of Gramercy, agree that “Our highest conviction is you can’t have conviction.” Not particularly reassuring, of course. But investors need to accept that volatility isn’t going away and then construct portfolios that use it rather than “get whipped around by it.” 

Which brings me back to investing in emerging markets, which is an object lesson in how not to deal with uncertainty. Institutions let  well-intended asset allocation rules and governance policies prevent them from being flexible and opportunistic.

In episode 23, Koenigsberger told Julie that “If you were Rip Van Winkle and you owned the asset class, it did everything it was supposed to do,” including outperforming. The problem was that investors weren’t earning those returns. The culprit was behavioral mistakes.

Counterintuitively, investors added emerging markets to their portfolios by buying the index, rather than making bets in which they   had the highest confidence. That meant they had a big slug of their portfolios in Argentina in 1999 and in Russia and Ukraine in 2022, to name a few. The pattern repeated itself over and over: investors bought in when markets were exuberant, held on too long, and then sold at the worst time. Then they blamed it all on the instability of emerging markets, explained Koenigsberger. 

A month before Russia’s invasion of Ukraine in 2022, sources on the ground told a Gramercy analyst that there was a 40 percent chance of an invasion. “And if that happened, Russian bonds would drop X and Ukraine would drop Y.” Koenigsberger said he didn’t need to hear more. He sold the exposure and decided to wait and see. “How could you go to bed at night thinking” Russian tanks could be in Ukraine by the morning.

“Performance doesn’t just come from what you own,” he said. “It comes from what you don’t own.” 

Institutions repeat flawed investment behavior despite understanding the negative impact of slow decision-making and following rules that don’t fit what’s actually happening in the market at a specific point in time.

Now, when investors are more concentrated than ever, emerging markets offer much-needed avenues for diversification and resilience, which have been repeatedly tested since the global financial crisis.  In fact, as Koenigsberger said, the landscape has changed over the last few years, with the gap between emerging markets and developed ones narrowing significantly.

“I think you have developed markets and emerging markets and you have submerging markets.” 

Other topics of discussion include: 

• Koenigsberger and El-Erian wrote a piece in late 2019 warning of a coming dislocation in emerging markets. But when it came in March 2020, interested investors said they might get board approval by July or October. “Boing, they missed the entire V-shaped recovery,” he said.  
• On legal protections and contracts: What’s different about emerging markets is “we have to underwrite the people…. Contracts matter when you get the people wrong.” 
• On why investors index: “If that’s what everybody else is doing, then I’m not really taking a career risk with this. Hey, we all got smoked from Russia.” 

In this episode, Julie Segal speaks with Matt Harvey, head of direct lending at PGIM Private Capital, about how he evaluates opportunities as more companies tap both public and private credit markets for financing. The episode is a follow on to my podcast of July 17th, “AI’s Debt Boom Is Giving Credit Investors Rare Leverage. PGIM’s Greg Peters Says They Should Use It.”

Harvey explains why he views illiquidity as a hurdle rate rather than simply a premium, why PGIM integrated its private and public credit teams, and how demanding covenants, which are often misunderstood, allows lenders to actively manage risk after a loan is made.

The discussion also explores AI-driven concentration risk, why private credit deals, contrary to popular opinion, can often provide more information than public ones, and how all these shifts are changing the way credit portfolios are constructed.

AI is fueling the largest borrowing boom in at least a generation. But Greg Peters argues that focusing on AI alone misses the bigger story playing out across credit markets.

In this conversation, the co-chief investment officer of PGIM Fixed Income explains why PGIM is pursuing some AI-related financings while walking away from many others, why he believes we're entering a true credit-picker's market after years of the opposite, and what lessons he learned from the tech bubble in the late 1990s. You’ll enjoy his story about false diversification and an invented market sector from that time.

Peters also discusses the uncertainty surrounding AI's long-term economics, why he readily admits what he doesn’t know, and how the lines between public and private credit continue to blur, and why that matters to investors. 

Other topics we touched on: 

The debate inside PGIM over AI companies’ claims about future revenue and the difficulty of getting information.

Why "30 years is a long time" when financing a rapidly changing technology.

What protections investors should get when financing data-centers

Why Peters believes credit investors have unusual negotiating power despite being late in the credit cycle and why they should use that power. 

How investors should think about diversification when so many assets share similar underlying risk drivers.

Private credit isn’t the new story anymore. The more interesting questions are about what happens as the industry matures. That's where my conversation with Churchill CEO Ken Kencel begins.

I found myself coming back to one phrase from our conversation: "the sediment at the bottom of the barrel." It's how Kencel explains why the highest-returning private credit manager isn't necessarily the best one. In credit, headline returns can look attractive for years until the weakest loans finally reveal themselves. Only then do investors discover what was really sitting at the bottom of the portfolio.

The same thing comes up again as we turn to retail. Kencel argues that recent redemption pressures say less about private credit itself, but rather that investors and managers are still adjusting to the realities of an illiquid asset class. As he puts it, private credit isn't "semi-liquid." It's fundamentally illiquid, and products need to reflect that.

Another part of the conversation I found particularly interesting was Churchill's role as both a lender and an investor in hundreds of private equity funds. I asked why private equity firms would allow one of their lenders into their funds. Kencel's answer was that Churchill isn't just another lender. As a long-term LP, the firm has relationships that extend well beyond individual loans, giving it a different perspective on managers, businesses, and opportunities across private markets.

We also discussed where he sees legitimate stress building today, why relationships still matter in the middle market despite the industry's growth, and what institutional investors should be paying closer attention to as private credit enters its next phase.

More than a decade ago, I wrote a story called "Is Alpha Dead?" The premise was simple: Markets had become so competitive, so efficient, and so crowded that generating excess returns was getting harder and harder.

Andre Perold, CIO of HighVista Strategies, was one of the people I interviewed for that piece.

So I was curious how he thinks about the question today.

Perold argues that we're living through a period of such rapid technological and economic change that opportunities for alpha may actually be expanding. In a world shaped by artificial intelligence, breakthroughs in healthcare, and shifting business models, markets don't always adapt as quickly as investors assume.

As Perold says, “the ability to get an edge is much greater when new things are happening, for better or worse. You can see things, understand things, and react more easily in this new world.”

That doesn't mean alpha is easy to find. Perold has always believed investors need to look in what he calls "beautifully inefficient" markets, smaller corners of the investing world where size, specialization, and human behavior still create opportunities. That may be more important than ever.

We talked about biotech, small buyouts, risk, the real definition of a mistake, diversification, and why some of the most interesting investors are what he calls "small geniuses" operating far from Wall Street's spotlight until great performance attracts more capital and the search for the next small genius begins again.

We also discussed a topic that feels particularly relevant today: why networks (of people) still matter. At a time when we’re swimming in information and AI-generated stories about that information, Perold believes the edge comes from long relationships with people whose judgment you trust, and who help you see opportunities and risks that aren't obvious from the data and endless crunching of it. And data won't introduce you to that next great investor. Take a walk and listen to my conversation with Andre. 

In this episode, I spoke with Stuart Fiertz, co-founder and president of Cheyne Capital.

I've known Stuart for years and one of the things I appreciate most about him is his willingness to say things that many people in the industry are thinking but few will say publicly. This conversation was a good example.

We started with private credit, because, well, there’s a lot to say. Stuart argued that many of the concerns he and other investors have raised over the years are beginning to surface. He discusses the rise of payment-in-kind loans, concentration in software and technology, and why he believes the industry still hasn't fully absorbed the consequences of the dramatic interest-rate shift that began in 2020.

As Stuart put it: "You just can't have such a momentous change in an interest-rate regime and not have fallout from that."

But he doesn't expect a dramatic collapse. In fact, the industry has become remarkably good, perhaps too good, at delaying any reckoning. Loose covenants, refinancing activity, continuation vehicles, evergreen capital, and fresh sources of funding are all helping extend the credit cycle. The problems are showing up, Stuart argues, but they're unfolding far more slowly than many expected.

We also discussed what may ultimately unlock the industry's enormous backlog of unsold private companies. Stuart has been thinking about this question for a while. When he entered the business, private equity often created significant value by taking public companies private and improving them. Today, many businesses have been passed from one sponsor to another through multiple ownership cycles.
Stuart’s question is a simple one: "Who is leaving value on the table?" he asked.

His point was not simply that valuations remain too high. “I think there's a little bit of a challenge here that is more fundamental than I think people realize. It's part that the lemon's been squeezed. I think it's going to take a meaningful valuation haircut to move them. And I'm just not sure why the PE firms would mark them down.”

We also get into why Stuart believes transparency may be the industry's biggest challenge. He argues that investors, regulators, and managers would all benefit from more consistent reporting and warns that private credit firms risk inviting heavy-handed regulation if they don't become more forthcoming about what is happening inside portfolios.

And there’s more. Listen in for other topics and tidbits we covered:
• The difference between "cockroaches" and "termites" when assessing risk in credit markets
• Why semi-liquid credit funds may increase cyclicality and pressure managers to deploy capital
• Whether the industry's push into retail was driven more by asset gathering than investor need and why it matters
• What continuation funds reveal about today's private equity exit environment
• Why Europe remains both attractive and frustrating for private market investors

In this episode, I speak with Luke Sarsfield of Ridgepost Capital about what’s actually changing in private markets — and what isn’t.

At the center of our conversation is a tension that’s easy to miss: investors in private markets aren’t just dealing with slower distributions or questions about liquidity. They’re adjusting to a broader mix of investors that are participating, but don’t behave the same way when markets turn.

We also discuss:
• How institutional investors are thinking about the flow of capital — with distributions taking longer and recycling becoming less predictable
• What the last real stress test for private markets during the financial crisis taught investors — and what’s different this time
• Why more than 80 percent of capital gets invested in 10 to 15 percent of private companies and what it says that the top financial firms “climb over each other” to finance and invest in them.
• How investors should think about putting money to work during dislocations, a fundamental tenet of investing — and why some are leaning in while others hesitate
• What risks may be building outside of private credit that investors seem to be ignoring

In this episode, Nick Liolis explains how Guardian reworked its investment model, moving its investment function into partnerships with HPS Investment Partners, Janus Henderson, and Hamilton Lane. Instead of simply allocating capital, the firm consolidated mandates, transferred teams, and structured those relationships to share in the upside — not just pay fees — while keeping core decisions around asset allocation, risk, and liabilities in-house.

Nick’s initial pitch, which would affect a lot of people and shake up the company’s structure, got buy-in for an unexpected reason: for years, private equity’s big, sometimes controversial, bet on insurance showed just how profitable managing these portfolios could be.

We also talk about private credit — and why some of the current anxiety around the asset class looks a little different from an insurance perspective. While risks are building in more leveraged, growth-dependent parts of the market, Liolis emphasizes that insurance portfolios remain heavily investment grade, shaped by regulation, long-dated liabilities, and a focus on predictability.

Along the way, he pushes back on some common assumptions, acknowledges real risks, and raises the psychological issue around a lack of transparency — when investors don’t have perfect information, they tend to fill in the gaps with worst-case scenarios.

The conversation also covers:
• Why lack of transparency in private markets leads investors to assume the worst — even when fundamentals haven’t changed
• Why “private” doesn’t automatically mean riskier
• How scale is shifting power toward large asset managers — and forcing insurers to rethink how they access deals and talent

At a moment when parts of credit are being tested, Liolis asks whether investors understand what they actually own, and who is really capturing the value. In doing so, he didn’t just restructure Guardian’s investment function — he blew up the traditional insurance CIO model and made sure Guardian shared in the upside from asset managers.