The Derivative

Hey everyone, it's hard to find a more interesting cast of characters in the financial world than in alternative investments, where every strategy has a story, every trade has a lesson, and every manager has a unique way of looking at the markets. That's why we started the derivative I'm your host, Jeff Malec. In each episode, I sit down with the people living and breathing futures and options, day in and day out, commodity traders, volatility experts, hedge fund managers. We even get some quants to pretend they're sociable for an hour as we dive into what makes their investment approach work.

Join us in this, our last episode of the year, where we’re talking Crypto and Bitcoin ETFs with Jason Urban, Global Co-Head of Trading at Galaxy Digital – which is perhaps better known as the folks behind the world’s largest Bitcoin Fund, the Grayscale Bitcoin Trust and its ownership of 650k+ bitcoin!  Today we step into a bit of Jason’s past when he founded and ran the equity index derivative business at a Chicago prop firm DRW and his time at Goldman Sachs where he ran its equity vol business. We talk about all the moving parts of pure flow trading, skew/cheap, skew/rich, the right side of the trade, when to get out;  and his first exposure to Crypto Currencies. Jason talks Grayscale, billionaire founder Michael Novogratz & all things Galaxy Digital, from touching all aspects of the crypto universe, from mining to trading to venture funding; being on the Institutional only side of the market, whether or not DeFi is a Disrupter or tool, the FOMO aspect, staking, and maintaining the ledger, the mining ecosystem and the decentralized way of doing things while trying to solve problems in this Crypto space. If all that doesn’t get you going about Crypto currencies, we still find room to discuss just what the Options space looks like in crypto (the implied vol is how much??), Bilateral trading, and of course - the Grayscale Trust going from premium to discount – and the potential for all the new Bitcoin ETFs coming out. Enjoy!

Chapters:

00:00-02:19 =Intro

02:20-19:04 = Goldman, DRW, and Trading House Money

19:05-31:21 = Galaxy Digital, Are you a Disrupter?, and What’s Novo Like?

31:22-44:18 =The Day-to-Day in the Global Crypto Space, the FOMO Aspect, Staking, & Solving the Problem

44:19-51:20 = Options & Bilateral Trading

51:21-01:04:47 =Create or Redeem: The Grayscale Trust and New Bitcoin ETFs

01:04:48-01:09:03 =Favorites

Follow along with Galaxy Digital on Twitter @GalaxyDigitalHQ and visit their website for more information at https://www.galaxydigital.io/

Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2, or LinkedIn , and Facebook, and sign-up for our blog digest.

And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options.

Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

In this episode, we shed some light on one of the largest groups you’ve maybe never heard of, whose new “mission” is to seek out incredible trading talent and blend them together in a multi-PM Global Macro approach. We get into just how this all works, and more, in our chat with Markian Zyga, Portfolio Manager of Mission Crest, which is a subsidiary of Lighthouse Investment Partners who oversee about 14 billion in assets across their own hedge funds, solutions and services groups.

We begin by discussing Markian’s background and start in the investment world, his college soccer days, what allocators miss, and how to avoid falling for the narrative of a strategy. Digging in deeper we talk how, why, and when to allocate to Emerging managers, the fund of funds versus Multi PM models, the Mission Crest strategy, macro investors, this history of Global Macro, the current Global Macro environment, blending discretionary and systematic together, trading tactically on the shorter side of trade duration, capturing big macro trends, seeking out capacity constrained strategies and searching for Alpha in the markets they’re trading. But we don’t stop there... Markian explains Mission Crests’ Multi-PM model, how the process of finding top trading talent includes both trust and identifying an edge. Buckle up for an interesting discussion on their global macro approach to investing for absolute returns.

Chapters:

00:00-03:38= Intro

03:39-16:16= Striker to Strategist, and avoiding the Narratives

16:17-25:40= Emerging Managers & the Fund of Funds vs Multi PM Model

25:41-46:44= The Global Macro, all Assets, all Regions, Sustainable Edge Mission

46:45-01:00:46= Finding Attractive Talent, Gaining Trust, & Maintaining the Right Mental Space

01:00:47-01:12:59= Fixing the Great Trader/Terrible Business Person Conundrum

01:13:00-01:20:21= Accessing A.I., Model Degradation & Machine Learning

01:20:22-01:24:55= Favorites

For more information please visit lighthousepartners.com 

Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2, or LinkedIn , and Facebook, and sign-up for our blog digest.

And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options.

Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

This week is a cage match of a pod, going point/counterpoint on every Alt from private equity to fine art to digital assets with Phil Huber and the knowledge he’s about to drop in his upcoming new book ‘The Allocators Edge: A modern guide to alternative investments and the future of diversification’. Phil is the Chief Investment Officer at Savant Wealth Management. As a Chicago native, we talk with Phil about his start in investments with his interests in the family business from an RIA wealth management background and decided to sink his teeth in. We dive into his book talking about everything from how the actual writing of it went – to what’s being said in it – from the current issues with the 60/40 portfolio, his blog bps and pieces, why sometimes the juice isn’t worth the squeeze, the thin line between traditional and alternative portfolios, his periodic table of investments, reviewing a huge list of Alternative Investments, including private equity, real estate, fine art, digital assets, style premia, real assets, trend following, and more, the state of Indiana sports, 80’s-90’s pro wrestling,  and Chicago pizza. Join us on this interesting Alt-tastic ride as we dig into what really is an Alternative investment by cracking open that “Other” bucket on the client statements.

Chapters:

00:00-02:37 = Intro

02:38-13:30 = Family Ties & the Modern RIA playbook

13:31-24:40 = Blogs, Muses, and the Allocator’s Edge

24:41-32:51 = The Problems with the 60/40 portfolio in today’s world

32:52-46:15 = The Periodic Table of Investments

46:16-01:08:14 = Walking through a dozen Alternative Investments ALT by ALT

01:08:15-01:20:42 = Digital Assets, and How a Portfolio of Alts might Look

01:20:43-01:26:05 = Favorites

From the Episode:

Get his book on Amazon, Barnes & Noble

Read Phil's blog bps and pieces: https://bpsandpieces.com/ & Follow Phil on Twitter @bpsandpieces

Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAltsand our host Jeff at @AttainCap2,  or LinkedIn , and Facebook, and sign-up for our blog digest.

And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options.

Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

In this episode, we sit down again with one of the OGs of VIX futures trading & options, Brett Nelson, CEO of Certeza Asset Management, and discuss their new mutual fund — Convex Core and how it relates to their Macro Vega hedge fund strategy. Join us to hear how the mutual fund aims to participate when the market is up, exploit opportunities when things get bumpy, and then protect heavily when the market is down. Brett explains why Convex Core isn't just an overlay strategy and how utilizing changes in Vega & Gamma can help protect you in a rough market. We talk about the Geometric Loss Problem, Certeza's three regimes of Volatility, their equity component, dialing through options, looking for the mathematical structure in the market, the rebalancing premium, and the importance of educating Advisors/Investors on volatility as an asset class. Finally, we ask Brett's opinions on some well-known relative value or Volatility arbitrage trades, asking when they work and when they don’t. And rounding things out is a discussion on the two new VIX ETF products coming out, and Brett’s thoughts on Delta Hedging Market Makers, just how critical "flow" is,  and what the next disruption event could look like.

Chapters:

00:00-02:46= Intro

02:47-06:04= Covid = A Missed VIXportunity

06:05-025:02= A Flawed Mentality & The 3 Regimes of Volatility

25:03-38:09= Masquerading As an Equity Strat & the Rebalancing Premium

38:10-48:21 = What Works? What Doesn’t in Vol Arb trading

48:21-54:39= VIX ETFs: Good, Bad, or Ugly?

54:40-01:11:55= Delta Hedging Market Makers: A Game within Games

Check out our previous episode with Brett here: Seeking (VIX) Certainty with Certeza's Brett Nelson

Follow along with Brett on Twitter @CertezaAM 

Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2,  or LinkedIn , and Facebook, and sign-up for our blog digest.

And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options.

Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

In this week's pod, we're doing something new and digging into the derivative market's Ag roots in our first "Way more than you need to Know" series, starting with the Global Meat Markets. Joining us today discussing all things Meat in the world is Simon Quilty, from Melbourne, Australia, and also RCM's very own Jeff Eizenberg, who handles all things Ag, including hosting the Hedged Edge podcast where they talk grown in the ground commodities once a month. Today we get an overview of the Global meat market: Beef, Poultry, and Pork, the main players and the main concerns, including labor and shipping shortages being a critical problem in securing food security around the globe. Simon talks about how he goes about hedging the various contracts providing risk management for the current disruption for in-demand meat products. We're talking Cutouts, CME vs. Wholesale prices and how to manage that risk, using swaps and removing basis risk to help manage price risk, and how the big players in the meat industry navigate it all. Bacon? Who said bacon. We briefly discuss that cut of pork belly that most of the US and Canada love so much & the future of alternative food, Beyond Meat, and their questionable mark on the industry since COVID. Also, We Want the Beef! Why beef will continue to dominate the meat market and why inflation is fueling it right along.

Chapters:

00:00-02:44 = Intro

02:45-07:18 = From Dancing Lessons in Melbourne To Escaping Tiananmen Square

07:19-23:04 = How Big is the Global Meat Market? Who has it? Who needs it?

23:05-36:59 = Big Player’s Concerns & the Tightening of the Global Beef Supply

37:00-57:57 = The Hedgers Toolbox: Futures, Cutouts, Swaps & Offsetting Risk

57:58-01:15:12 = Bacon Lovers, Beyond Meat as a Bust, and a Little Lamb

01:15:13-01:18:34 = Favorites

Follow along with Simon on Twitter @SimonQuilty and for more information visit the website at globalagritrends.com 

Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2,  or LinkedIn , and Facebook, and sign-up for our blog digest.

And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options.

Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

We’re looking into the far reaches of the search for yield in this episode, diving into investors’ interest in so-called Cat Bonds, or catastrophe bonds, and the world of reinsurance and ILS (insurance-linked securities). Yes, even the biggest risk-takers need backing – and we’re talking Reinsurance with Chris McKeown, Chief Executive of Reinsurance, ILS, and Innovation at Vantage Group Holdings. Take a trip with us and daydream about Bermuda as we define reinsurance: the secondary market & their clientele, capital protection, the risk transfer process and what efforts go into sorting through claims, what disaster gaps are, and how reinsurance is helping aid areas in vital need of protection. We’re discussing Cat(Catastrophe) bonds, ILS, Pop & Drop Hurricanes, Climatology, tight ecosystems, secret handshakes, and why Bermuda is the central hub for reinsurance. Chris explains the importance of adjusting models to deploying capital, why cat bond investors rely on these models, and what structural issues the business of reinsurance is facing in an upside market, trying to bring investors in.

Chapters:

00:00-02:39 = Intro

02:40-10:43 = Taking on Risk in the Hurricane Belt

10:44-32:41 = Off-loading Riskvia Reinsurance, Capital Deployment & Investor portfolio protection

32:42-38:21 = Cat Bonds & Structural Issues in an Upside Down Market

38:22-52:35 = Climate Change, Adjusting Models & Defining Capital in a Tight Ecosystem

52:36-58:05 = Favorites

For more information about Vantage Group Holdings please visit vantagerisk.com

Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2,  or LinkedIn , and Facebook, and sign-up for our blog digest.

And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options.

Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

How do large delta hedging flows of market makers tie in with Central Bank quantitative easing? How do ETF rebalancing’s and structured note issuer movements shift markets? We sit down with options guru Hari Krishnan talk through his new book: Market Tremors - Quantifying Structural Risks in Modern Financial Markets. 

Hari's first book, The Second Leg Down, talked about what investors can do when they're in trouble and how to structure actual options trades to keep bleed under control and maximize protection. This time, he's zooming out and asking how to know when there might be trouble lurking. How we can quantify and identify events like Volmageddon (Feb 2018), the Swiss Franc depeg (Jan 2015), Game Stop run up (2021), and more. In a world where we often get bogged down considering how specific items like this gamma, or that Fed decision, or how large ETFs flows will impact markets, Hari masterfully weaves all those 'agents' together to consider how we apply a real world risk to these agents shifting the distributions we rely on to size investment positions. Enjoy the episode.

Chapters:

00:00-03:13=Intro

03:14-06:34 = Volatility - The Last Chance Saloon

06:35-15:20 = There’s London Whales Everywhere

15:21-31:55 = Merging Normally Distributed & Networked Chaos

31:56-42:01 = Volmageddon: A Case Study

42:02-54:19 = Big Gamma: Market Making Options / Do Less

54:20-01:09:43 = The Danger of 1 / Volatility Position Sizing

01:09:44-01:17:37 = Takeaways & The Twin Heralds of Risk

Follow Hari on Twitter @HariPKrishnan2 and check out his book here.

From the episode:

Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2, or LinkedIn , and Facebook, and sign-up for our blog digest. Listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. RCM Alternatives is DBA Reliance Capital Markets II, LLC. For more information, visit www.rcmalternatives.com/disclaimer

In this episode, we're stepping away from our ordinary world of futures and options to find out why boring old corporate bonds aren't all that boring after all. Join our conversation with Greg Obenshain, Partner and Director of Credit at Verdad Advisers, as he and Jeff discuss just what running a high yield bond investments portfolio is like. Greg shares the complexities of accessing and organizing the needed data to run a quantitative model on bonds (think no central exchange nor shared order book, etc.), how he racks 'em and stacks 'em, and why there should always be a fundamental lens on quant outputs at the end of the day. He gives some real-world examples talking about the bonds of Netflix, Crocs, and Oil& Gas companies; and why there's a sweet spot between BBB and B-rated bonds.

Speaking of ratings, we ask Greg how his custom quant model assigns his own ratings, how and why those differ from the ratings agencies, and why multi-billion firms don't model this area of the high yield market similarly (he says it's not sexy enough). We finish the chat touching base on some topical bond/rates areas, such as Evergrande's potential default, the debt ceiling, yield farming, private credit, private equity's big debt appetite, and more. You'll also find some nuggets on duration, stripping out Treasury yields, and what both retail and institutional investors typically get wrong when considering holding bonds in a portfolio. Enjoy the chat!

Chapters:

00:00-02:47 = Intro

02:48-07:27 = London Tea, a Midwest Twang, and Dartmouth Green

07:28-20:50 = Becoming a Quant, Finding Verdad, and Racking and Stacking

20:51-41:24 = Finding Growth vs Getting Paid for Default Risk

41:25-56:15 = Cash in and Cash Out, and Record Tight High Yield Spreads

56:16-01:09:10 = High Yield Risk, Private Credit, and what everyone gets wrong about Bonds

01:09:11-01:14:02 =Favorites

Follow along with Greg on Twitter @GregObenshain and learn more about Verdad Advisers at verdadcap.com

Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2,  or LinkedIn , and Facebook, and sign-up for our blog digest.

And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options.

Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Jeff is “stacking” two guests in this episode, welcoming 1. Corey Hoffstein, CIO and co-founder of Newfound Research, host of Flirting with Models Podcast, and co-conspirator on the Pirates of Finance YouTube channel; and 2. Rodrigo Gordillo, President and Portfolio Manager of Resolve Asset Management and host of the Resolve Riffs Friday live stream. They’re talking about their new research paper: “Return Stacking: Strategies for Overcoming a Low Return Environment,” which takes a novel approach to solving a few problems. Such as: How do you endure the ‘line item risk’ of an alternatives allocation? How do you participate in the upside of an increasingly overvalued stock market? What value do bonds bring as a diversifier at the zero bound? The answer boils down to some new capital-efficient ETFs and mutual funds, which stack asset classes and returns on top of one another at greater than 100% exposure. How does that work exactly? What are the pros and cons? What types of products can investors look at? Listen in to find out more. 

Chapters: 

00:00-02:36=Intro 

02:37-10:30=It’s the Cayman Islands…not Caymans 

10:31-29:55=Return Stacking: The Paper, the Problem & the Solution 

29:56-38:33= Leverage and Capital Efficiency 

38:34-01:04:14= Managed Futures, Macro, and Convexity as Diversifiers 

01:04:15-01:12:09= Are you just Stacking Fees? 

01:12:10-01:26:16= I’m Scared to Buy at All-Time Highs (and to Own Bonds) 

01:26:17-01:30:24=Favorites 

From the episode: 

Download the whitepaper here: https://info.rcmalternatives.com/return-stacking 

Podcast: Noodling on Ensembles, Trend, & Convexity with Newfound’s Corey Hoffstein: https://podcasts.apple.com/us/podcast/noodling-on-ensembles-trend-convexity-newfounds-corey/id1497570451?i=1000478501833 

Podcast: Asset Allocation, AI, and the Alpha Process with Resolve Asset Management: https://podcasts.apple.com/us/podcast/asset-allocation-ai-alpha-process-resolve-asset-management/id1497570451?i=1000467460922 

Flirting with models podcast: https://blog.thinknewfound.com/podcast/ ReSolve's Riffs: https://investresolve.com/single/resolve-riffs/ The picture from space that shows why commodities are non-correlated: https://www.rcmalternatives.com/2013/10/the-picture-from-space-that-shows-why-commodities-are-non-correlated-to-the-stock-market/ Follow along with Corey & Rodrigo on Twitter @choffstein https://twitter.com/choffstein and @RodGordilloP https://twitter.com/RodGordilloP?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor Don't forget to subscribe to The Derivative (https://www.rcmalternatives.com/the-derivative-podcast/), and follow us on Twitter at @rcmAlts (https://twitter.com/rcmAlts), and our host Jeff at @AttainCap2 (https://twitter.com/AttainCap2), or LinkedIn (https://www.linkedin.com/company/rcm-asset-management/), and Facebook (https://www.facebook.com/RCMAlternatives/), and sign-up for our blog digest (https://info.rcmalternatives.com/get-our-blog-alternatives). And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer