A Multi PM (Global) Macro Masterclass with Markian Zyga

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.


Find the full episode links for The Derivative below:




Check out the complete Transcript from this weeks podcast below:


A Multi PM (Global) Macro Masterclass with Markian Zyga


Jeff Malec  02:26

Hello, everyone, before we get to our guests, a quick note that we’ll be taking a break from publishing the pod, Thanksgiving through the end of the year. Well, you guys get a break as the listeners, but we’ll still be recording and setting things up for a killer new season in 2022. So we’ve got two more before the break this one and one next week with some greyscale people talking Bitcoin ETFs. So we’ll see you back here at the start of the year, enjoy the last two episodes of the year. Thanks. So today, we’re shedding some light on one of the largest headphone groups you’ve never heard of probably, whose mission it is to seek out and find incredible trading talent. See what I did there marking. We’ve got Mark in Zega. And I forgot to ask you how to pronounce your last name. Yeah,


Markian Zyga  03:15

You pronounced it perfectly.


Jeff Malec  03:17

We’ve got Markian Zyga with us today, the portfolio manager of mission crest subsidiary of Lighthouse investment partners who oversee about 14 billion in assets across their own hedge fund solution group and services group. So welcome our Markian.


Markian Zyga  03:32

You know, thanks for having me, Jeff. Great to be right.


Jeff Malec  03:35

Yeah, so we’ve known each other what now? 10 years or something. It’s been too long. Yes. We’re getting old. And you’re there in Chicago in the home office?


Markian Zyga  03:46

Yeah, here in the home office in Chicago. Love it.


Jeff Malec  03:49

We could we should have done this in person. Next time next time. So let’s get started. How did you end up in this crazy hedge fund business?


Markian Zyga  03:59

Yeah. So you know, I think it’s been a long time coming. Since I was little, always interested in statistics, making predictions. And even as simple as studying batting averages in the newspaper, you know, I think was always attracted to analysis, whether it be technical or fundamental. I did come out to Chicago for my undergrad at Loyola University. Chicago. Interestingly enough, originally was a pre law major, or started in political science, but somehow found my way and econ courses, started getting really interested in supply and demand analysis, understanding how economies work. And I think probably because I played a lot of sports growing up. This was the closest thing I eat competing in financial markets, trying to figure out how to ride trends, you know, accumulation of things that ultimately got me into in financial markets, I think that I was lucky enough just to be based in Chicago futures market hub clearly with the exchanges here. I actually interned at HFR while I was taking coursework that level during my senior year, and then was fortunate enough to land with a good group in Lighthouse when I was graduating.


Jeff Malec  05:21

Awesome. And where was hometown? You came to Chicago from when?


Markian Zyga  05:24

Yeah, I grew up just south of Cleveland, Ohio, a small township called Hinkley in Medina County.


Jeff Malec  05:31

Hinkley. Um, and then you had some so you were like Alan Greenspan, during the batting averages on the fly.


Markian Zyga  05:39

I wouldn’t put myself in that same stratosphere. But I’d say I’ve always been fascinated with numbers and technical analysis. And I think, you know, not that I knew that the CTA or macro world existed at that point in time, but it’s funny how things work out and you end up where you do.


Jeff Malec  05:58

Yeah, those are Who knows if those are true, right. But he used to sit in the stands and say, if he gets a hit here, his average will be X or Y, which isn’t all that hard, I guess, but probably impressive at the time. And so you were an athlete. You played college soccer?


Markian Zyga  06:12

I did. Yeah. No, that was part of the reason. I think why I ended up at Lidl the opportunity to play soccer there and then also be in a bigger city. So the polar opposite of where I grew up. So yeah, it was it was a fantastic experience. Well,


Jeff Malec  06:26

The Ramblers, Ramblers, you know, is what position


Markian Zyga  06:32

So I played up front. I played as a striker. Nice,


Jeff Malec  06:35

you hold the goals record at Loyola. And I was not I was not that


Markian Zyga  06:39

good. But, but no, thankfully, we had a good a good group of guys a little bit of success. You know, the guy that played next to me up front, he scored a lot of goals. So I don’t know how much credit I can take for that.


Jeff Malec  06:54

They all the defense was collapsing on you. And he got the open shot.


Markian Zyga  06:57

Exactly. Yeah, I should, I should say.


Jeff Malec  07:01

And so then join up with lighthouse. So yeah, it’s sort of I don’t know if that’s a good thing or a bad thing, but sort of a, I don’t think your everyday person would know it if they heard the name, right. Versus a Bridgewater, some huge group. But you got 14 billion, it’s nothing to shake a stick at. So tell us a little bit about the lighthouse story?


Markian Zyga  07:23

Yeah, for sure. Um, yes, a lighthouse has actually been around for 20 plus years. The firm was founded by our current CIO. His name is Shawn gold, Shawn, as well as a few other senior individuals that the firm actually started their careers working in different functions at a CTA called trout trading. So a pioneer within the within the systematic trading space.


Jeff Malec  07:47

But they were they were them out in Bermuda.


Markian Zyga  07:51

So yes, so some of them actually were, in Sean’s actual responsibility was taking some of the excess cash that they had, since a lot of the trading that they were pursuing was quite efficient, and investing internally and externally and other strategies. And, you know, the first fund to funds multi pm type of type of outfit. So yeah, he developed experience there and then ultimately, ultimately moved to a family office, operating the alternative investment arm there. And in 1996, started, what became lighthouses flagship fund the funds light has diversified. And then since then, firms have all been grown. So really, building a separately managed account platform has been the backbone of the business historically, and where we’ve ended up today. And so you touched upon it. But today, there are really three core business lines. So that traditional Fund of Funds business that we call hedge fund solutions, we have a platform services group that offers the pipes and plumbing for large institutions that don’t have the infrastructure that we do, but one investigate managed account and leverage our technology. And then the third piece is because of that technology and platform that we’ve built, today, we have to hedge funds to Multichem funds, one of which is called North rock, which was founded back in 2013. And then a newer effort, a macro fund called Mission crest, which we founded back in 2019.


Jeff Malec  09:25

And so, we kept bumping into each other in your role at Lighthouse and kind of doing due diligence on CTAs trend followers, global macro type traders. What are some of the lessons you took away from that role when you were pounding the pavement? How many meetings would you do a year? Hundreds, right?


Markian Zyga  09:45

Yeah, for sure. And honestly, I think that’s one of the huge benefits of landing and that type of position. So at the start of my career at Lighthouse was part of the, for all practical purposes, the CTA team We were evaluating primarily systematic traders within the feature space, but also commodity folks, foreign currency, macro traders as well. And the amount of osmosis that would happen as it relates to learning was quite staggering. So I think earlier, when you asked, How did I end up as a hedge fund guy, or in this space, it was something that is naturally interesting given the mystique or prestige of the industry historically, when you’re in school. And then also just the experiences and lessons that you learn, you know, making investments working with different hedge funds being a partner to these groups.


Jeff Malec  11:21

And so what do you think a lot of allocators missed that you guys had, you know, some skill in doing or that you learned over time in that role of like, really digging into these guys or being able to see through the facade sometimes?


Markian Zyga  11:39

Yes, maybe saying that other allocators miss something is a bit harsh. Yeah. And the reason I say that, Jeff, is, yeah, honestly, I was really fortunate that shone, the broader Lighthouse team, the platform that was built and the amount of data that I had at my fingertips, you know, I’d be blind to say that that wasn’t an advantage in terms of everything that I got to see and learn, as it relates to the interaction with the different trading managers that we had on our platform relative to other fund funds, where you wouldn’t have that exposure, that transparency. So I think I have to recognize that, you know, that was an advantage for us. But having said that, I think, looking back, one of the main things that I’ve learned is too often, whether it’s because your clients want it described in a certain way, or it’s just easier than a narrative, just it’s associated with why strategy’s working, why cam is outperforming or underperforming, we’re really there’s probably a lot of different principal components that are driving any particular price path at any point in time. And maybe we can get into this later. You know, ultimately, to me, it’s a series of edges, that isn’t just one star trader that, you know, determines whether you make money or not, it’s a lot of different factors and functions. And I think not being reactive, but rather proactive is is something that we see as a mistake, and something that we’ve tried to learn from over the years.


Jeff Malec  13:16

And just going back into the data, and Joe Codd was that both pre investment and post like it makes sense post investment, you’re tracking everything in real time, but we’re also ingesting as much data as possible and doing analysis before investment.


Markian Zyga  13:32

Yeah, exactly. And in every situation is different on certain PMS, certain funds, the amount of transparency that they will share ahead of investment will vary. And that will ultimately also drive the amount of conviction or decision that we would be making on our side. But I think what was really valuable is one seeing the trading live on an ongoing basis, because there’s so much due diligence you can do ahead of an investment. But then post making that investment, there’s a constant feedback loop of seeing the trading throughout the day, no further verifies whether you like something or not, and whether it’s meeting objectives. But then because of that approach, or because of that process, building out naive models, really trying to determine what is beta and what is alpha within any particular hedge fund strategy that we’re trading across our platform. You know, we can do that because of the live trading that we see. So I think they work hand in hand.


Jeff Malec  14:29

Do you ever think of it as like, I’m going to take a taste. Sometimes I try and talk investors out of that. Right? Like you’re going to the taste doesn’t really matter. I guess in this scenario, maybe because you’re getting you want to see the live data first.


Markian Zyga  14:42

Yeah, I think it’s I think it’s hard. I think you have to have the structure to do it if I understand the approach that you’re trying to describe. And honestly, the name of the firm is Lighthouse investment partners. We want to be partners to each pm each fund that we’re working with we Do these relationships as long term. And so we’re not really in the business of bringing out a bunch of flyers and putting them on E unwatched right away, and then seeing which ones work out, you know, treating them like call options, it’s really a different approach. And, you know, maybe some could argue it’s a little bit harder from the standpoint that we need to be right more often from the standpoint of being more selective as like subgroups that we’re partnering with. But we think that the experience and the data, and all these lessons learned, helped get us to that place.


Jeff Malec  15:33

Thats what I always talk investors out of that because whatever time period you’re looking at, is gonna, by definition, be some abbreviated period, right? And maybe they got lucky over those two months, you’re testing, and then you ramp up the allocation and or vice versa, they were unlucky, you don’t do the allocation, then they go on to prove their stripes. So it seems it adds a bit of timing luck to the equation.


Markian Zyga  15:54

Yeah, it’s a tough model. And in particular, you know, the space that you and I know quite well, the CTA space, a lot of those strategies have negative autocorrelation. So yeah, that typical approach is almost the worst thing you want to do. Exactly.


Jeff Malec  16:15

And so you mentioned kind of not taking fliers and call options, but at the same time, I feel like you guys are a little at the forefront of talking to and allocating to what I would consider kind of emerging managers. Right, you’re not going only to you’re not like a CalPERS RF P, where it’s only billion plus and yada, yada, yada. So talk to me a little bit about emerging managers and how you guys view that space?


Markian Zyga  16:40

Yeah, that’s exactly right. So investing with emerging managers, younger groups has always been a part of our process, one, because there’s a lot of value in terms of building relationships with those types of firms, as it relates to where they’re at in their lifecycle. But to if we think about the fund to funds business, going back 20 years, that was a place where we could develop an advantage. And what I mean by that is, when you’re an early investor, there’s inevitably a more intimate relationship and partnership that you’ll have from supporting that manager early on. And I think ultimately, that benefits the clients. And that also extends to the to potentially negotiating better fees, having capacity in something that ultimately might be more constrained. So I think inevitably, all those things lead us to always be attracted to making us investments. I think earlier, when we were talking about things that allocators miss or where we’ve tried to be more progressive, we’re also able to make those investments with emerging managers because we have all the data and because of the platform, and so without that, I think it’d be much harder to do it successfully. And ultimately, that experience partnering with hedge funds, investing with groups on an early basis, was really the evolution that led us to building the multipin business and essentially deciding that we wanted to go down the path of building your own hedge fund as well.


Jeff Malec  18:20

No, I’ll get to that. And women, they just brought up I thought in my head, do you ever on that emerging side, and you’re their largest client, probably by far in the beginning? Ever? Is there any scenarios where kind of your bias leaks? And I’m like, Are you sure you want to be taking that kind of trade? Are you sure you right? Does the partnership extend that far of kind of helping them structure? Maybe not trade by trade, but kind of, Hey, there, I see what you’re trying to do with this type of trade, you could do it in the options cheap, more cheaply, or something of that nature?


Markian Zyga  18:53

So yes, and no, I think we need to be honest with ourselves as it relates to what we’re ultimately good at. And I think, for me, personally, that’s building trust, building relationships with the PMs, observing trends, what’s going on across the broader market, and then putting the PMs in the best position to succeed. Having said that, though, inevitably, we would like to think that our experience within the space and everything that we’ve seen, can also be a sounding board for our PMS. And I think what you’re touching upon is actually one of the differences between moving from the fund of funds model to the multi pm model, where in the fund of funds model, that’s not really our job, but within the multi pm model. We’re building every part of the process out in tandem with the team or the pod. And yes, inevitably, we are involved in research and where we take that strategy, but it’s different, right? Because in that scenario, we are the PMs only client, and we’re working hand in hand where is in the fund a fun situation VPM will have multiple clients and they’re essentially trying to come up with the optimal solution for the aggregate as opposed to what we directly would need for our clients.



Jeff Malec  20:15

And we could I was going to jump into that multi pm later. But maybe since we’ve touched on so how explain the difference between fund of funds and multi PM, you just gave us a third of it. But tell us the difference between those two?


Markian Zyga  20:30

Yeah, sure. I mean, look, I think it is an evolution. Moving from a fund to funds to multi pm type of approach. I don’t think we could have gotten here without all that experience. You having been investors previously, and then moving to the structure that we built, but I think structure is probably the right word to start with. That is the biggest edge and advantage that we have, from the standpoint that the managers are exclusive to us. We are working in tandem in concert in lockstep as it relates to not only the trading strategies, but risk management, how we can upsize or downsize positions, all of that, you know, we think is advantageous. And I think as a part of that, too, the costs are better, because there’s synergies in terms of paying for data paying for servers, setting up execution. And I think not only does that lead us to a better outcome, but it also gives us a much deeper understanding of developing conviction within a particular PM. And so what I mean by that, or We’ve even talked internally about this, that we go back 10 or 15 years ago, there are things that are critical to us today, or that we think about when evaluating hiring a prospective PM, that we previously wouldn’t have necessarily considered. And that was just because we hadn’t built a hedge fund from scratch and just hadn’t thought of every single thing that can go wrong as it relates to technology, infrastructure, execution, research, and how all these things fit together. And that’s really what I mean, when I talk about all these small edges that ultimately make the difference between something that you know, it struggled to generate returns and something that, you know, I think could be much more attractive. And so I think in doing this, though, it wasn’t evolution, but it was also making an observation of what are different asset managers that we interact with an observed and what are the pros, those different approaches? And how can we bring all those things together, and put it into one unique solution that we think is attractive. And so I guess just explained a little bit further, there is a very strong advantage for fund of funds from the standpoint of the breadth of talent, they have access to all the different things they could potentially invest in. Now, if I think about a prop model, where you have a number of traders that each are managed to tight stop losses, they’re organically taking down exposure, when they’re losing money and bringing it back up when they’re making money. You know, that can work quite well. And then on the third side, with a very successful hedge fund that has a lot of resources, that can be adaptable, that can move and change with the market environment. There are advantages there too. And so ultimately, taking those pieces, or those pros of each one of the approaches that I described, is ultimately what we were trying to do when saying we wanted to transition and build out a multi pm platform or this infrastructure that could house traders.

Jeff Malec  23:54

It seems like it’s the confluence of a couple of different things, right? Like the manager, the hedge fund manager himself that the fund of funds might have allocated to things are just progressively getting more and more expensive, right? Compliance, data, technology, talent, like all that stuff. So you have that issue, the investors are kind of saying I don’t want to pay extra layer of fees. And then as you’re saying, your knowledge came in. So it seems like those could come together and like, hey, we can we don’t have the extra layer of fees necessarily. We can provide all those shared services for all these managers. Right? Maybe the manager is managing 100 million internally for you versus 300 million externally, but it’s a better deal for them because they don’t have to deal with all the headaches.


Markian Zyga  24:42

Exactly. And I think in terms of achieving our objective function, which is trying to maximize risk adjusted returns. I really feel like this structure is absolutely necessary. We wouldn’t be able to do it in the other structure because each one of the trade aters is, is an extension of what we’re trying to accomplish, whether that’s risk constraints as it relates to a drawdown level, or the amount of exposure that they’re taking. But then also how they adapt and evolve. That’s an ongoing and constant dialogue that we have. And we’re helping shape their business we’re working together. And, and ultimately, in terms of achieving those objectives for our clients. I do think it’s the optimal route, because the focus is solely on on the exposures and positions that they’re taking it within the partnership with us.


Jeff Malec  25:47

Let’s zoom back out and talk. So we kind of got into the inner workings of mission crest there, but let’s zoom back out in the mission press strategy, overalls, multi pm global macro, give us kind of the elevator pitch of, of what you’re trying to do with Mission grasp.


Markian Zyga  26:05

Sure. Um, yeah, so I guess taking a step back. So global macro multi PM, as he noted, trading across all asset classes, all regions. And ultimately, we’re trying to exhibit limited correlation to not only other risky asset classes, but to other hedge fund strategies. We touched upon this, we’re really ultimately trying to leverage our experience as macro investors towards pursuing those strategies or approaches that we think have sustainable edges in trading across the macro space. And so that means equity indices, fixed income currencies and commodities, we want to have exposure across all those areas. And then I guess, just taking that a step further. So how are we attempting to accomplish that, we think it’s a combination of both discretionary and systematic approaches, we want them balanced, or the core part of the portfolio to be assets, asset class or regional experts. So today, we have an inflation specialist, we have a commodity specialist in the emerging markets specialist. And you know, each one of these individuals needs to be very experienced, expresses his or her positioning in a positively convex manner, is used to managing risk very tightly on the downside. And so you can almost envision a number of lumpy idiosyncratic return drivers with positive skew that are positioned around the globe to take advantage of the opportunities within their market when they occur. And then we want to blend those portfolio managers with trading strategies that can perform in a differentiated manner. And that’s where the systematic piece comes in. And so today, it’s roughly 60%, discretionary 40%. Systematic, and so whereas on the discretionary side, we’re really trying to profit from views that occur. over weeks, over months, I’ll be at our, our portfolio managers will trade tactically every day. But ultimately, they try to capture longer views, we recognize that sometimes macro opportunities really occur over short trading horizons or at market inflection points. And to capture those opportunities, we wanted to use the systematic side to take advantage there. And so on the systematic side, we’ve been attracted to approaches that tend to be machine learning driven, some more sophisticated statistical modeling techniques that can recognize patterns that tend to have a better chance of success in periods of expanding market volatility, and in that way, are very complementary to what we’re doing on the discretionary side. And then so from here, today, we have 10 teams that trade for us to 10 Senior risk takers that may be supported by some PMS or researchers. And we actually have two new teams that will likely join us over the coming months that are sitting out there non competes and really excited about where we’re headed from here.


Jeff Malec  29:21

And so why label a global macro? Like instead of all weather or absolute return, right, sort of in those, but I’m guessing it’s because it’s trying to have this positive skew. It’s trying to have that kind of classic macro profile.


Markian Zyga  29:38

Yeah, I wouldn’t disagree with any of the terms that you described. We do view it as an absolute return fund. The intention is that the strategy could perform, regardless of the market environment, whether we’re in a bullish or bearish type of environment. But ultimately, I think those trends Have you used absolute return all weather positive skew? I guess to me, that’s ultimately what a global macro approach should be doing. Yeah. And, and so that is ultimately what we’re trying to accomplish here. And we want the ability to be able to go anywhere, and trade opportunities sets as they evolve. And, you know, one example I’ve used this year is heading into 2021, I think we were really interested about the opportunity set within foreign exchange. And ultimately, the opportunity set has been more in fixed income and commodities for the things that we’re doing. And I think that just kind of shows you why we need to have a diversified set of risk takers, they’re positioned to take advantage when these things present themselves.


Jeff Malec  30:46

And talk a bit about that for a second. So if I have all these positive skew kind of right in the content, they’re going to take a lot of small losses and have some outsized gains. mixing those together, what do you do when they’re all? Like, do you have any negative skew or any kind of carry strategies in there to cover the bleed during the times when they’re not seeing those pops?


Markian Zyga  31:11

Yeah, that’s a great question. So we do have a little bit, we want to be very mindful that each Portfolio Manager serves a specific role within the portfolio, we do think that there are opportunities within macro to provide liquidity to take advantage of convergence opportunities, ie related assets that have some fundamental or technical relationship that couldn’t drive. Those two securities are baskets of securities moving in concert with one another. And those strategies tend to have a more consistent return profile. But on the downside, are probably the one place where we need to be aware of liquidity risks, just broad based liquidations and changes in market regime. And so just the same way that I was describing the systematic part of the portfolio where we’re trying to take advantage of person volatility changes in market regime, you know, the part that you touched upon, while we’re not really trading outright carry approaches that are based more on reversion and liquidity provisioning. When those types of approaches struggle, which are in more severe, severely stressed smart environments, we would hope that the other strategies have a better chance of success.




Jeff Malec  32:32

And that does each, is each strategy informed as what to the others are doing? Do they see the whole book? Or do you try and silo them and say, No, you just concentrate on your piece?


Markian Zyga  32:42

Yeah, they do not. So the pods and teams which continue to grow and has been an effort of ours, clearly, they’re working as colleagues with one another. But the 10 teams are siloed. And that was done on an intentional purpose, from the standpoint of the value proposition that we’re trying to provide to portfolio managers that we think is attractive as it relates to why they should join mission crest be a part of what we’re trying to do is, is flexibility and really more of an entrepreneurial environment. So we’ve been long term investors within the macro space, we believe we have a lot of insights as it relates to how to successfully build a macro fund. And so ultimately providing that infrastructure that backbone to a very senior trader, to take that next step in his or her career, and have the support of our platform as it relates to achieving their goals, which would need to line up with how we’re trying to ultimately generate returns for our clients as well.


Jeff Malec  33:47

And did they have, like netting risk if they do really well, but the rest of the managers don’t the fund overall doesn’t get an incentive fee or whatnot.


Markian Zyga  33:54

Yeah, so the portfolio managers do not so the portfolio managers each have their own specific budgets and deals, some of those costs are shared, others are not, but ultimately, they will be paid in an incentivized based on their own individual performance.


Jeff Malec  34:15

They like that, I think, um, and then, so you mentioned it’s kind of go anywhere, like expand on that do all the way into NF T’s and things like that, or it’s just more broadly sector based geography based?


Markian Zyga  34:31

Yes, I think the starting point is, is it liquid, and is it exchange cleared? And then we go from there, so something like NF t’s not at the moment? Do I think the decentralization of finance is potentially a large macro trend that provides opportunity over the coming years? I do think that is a possibility. So to the extent that those securities can be traded in a in a custodial manner that we’re comfortable with With an illiquid manner that we’re comfortable with, potentially in the future, but but that is not something that we’re doing today. So liquid futures that are exchange cleared or an exchange, cash swap futures expressions of fixed income, that’s really where the bulk of our exposure is. But having said that, if we think about equities, fixed income commodities currencies, we do think we’re touching. Broadly speaking, most asset classes traded across the globe and across the globe. That’s a key point two. So while we think there’s plenty of opportunity within developed markets, we also think that there’s a lot of opportunity across emerging markets. And that is a place where we want to have adequate exposure, because at times, information travels less slowly in those markets, there might be more movement or greater price ranges, and for some of our strategies that’s going to happen.


Jeff Malec  35:57

Is that mostly client base, like I always sometimes give global macro hard time or like, Hey, you didn’t catch the run up and Canadian real estate or NF T’s are cryptic, right, like, all these things that are sort of big macro moves, but are in the exchange traded world. So they kind of get ignored by macro and by CTA, and all the rest. So it’s kind of always to me of a, you know, why is that? And I know the answer is because it’s not exchange traded. And it’s hard to scale, it’s hard to allocate to. But what are your thoughts on that?


Markian Zyga  36:32

Yeah, so we have liquidity objectives, the liquidity is, the strategy that we’re pursuing is quite liquid. So it needs to fit there, there is an assessment of risk made with any trade anything that our portfolio managers make Hold on. So I think that all goes into it as well. Um, having said all that, though, I think there are also derivatives that you can trade have a specific view. So even though you may not be able to treat a specific asset, there may be other ways to express that particular view. And that’s what we are hiring our quote unquote, experts to do on a daily basis. And I think part of that, too, is when we think about the overall objective of the fund, when we’re talking about exhibiting low correlation, managing products tightly and exhibiting positive skew. At times, we may have to pass uncertain trades that we think ultimately can make money, but may not provide the profile that is in line with the return objectives of the strategy that we’re trying to pursue.


Jeff Malec  37:45

Right. And crypto could probably be a good example of that, like, Sure, it might increase 200%. Or we could lose 80%. Tomorrow. Exactly. Yeah.  Do you feel you’re on the shorter side compared to some of the other groups and what drives that?


Markian Zyga  38:12

Yeah, I think so. Um, we do believe we trade relatively opportunistically and tactically and so it’d be fair to say that roughly half of our half of our strategy is short term. And how we classify short term is anywhere from minute to hour type thing periods. And we’re not really holding positions for more than a few days and in a particular direction, but we’re actively trading. And I think that was critical to us, when we were thinking about how do we ultimately build the type of macro fund that we desire. It’s that diversification that we talked about across regions and across asset classes, but also across timeframes. Because macro trends will occur in a variety of manners, and we want to be positioned when things occur over very sharp or drastic periods. And then also when things trend over a longer timeframe. So I think it’s both, but you I think it would be accurate in saying that having a short term component has been a key focus of ours and, and it will ultimately that also means that the capacity of what we’re trying to do with a macro isn’t infinite. But we do think that there’s enough to do and we have enough talent, accessing different opportunities to make something that is potentially attractive.


Jeff Malec  39:41

Now, I’m gonna come back to capacity in a second, but it seems to me a little counterintuitive, right? Of like, how do you capture these macro moves when you’re going minutes to hours? So is that right to say there’s a huge move up in oil or something? You’re getting back into that every day, essentially, for a simplistic way to view it?


Markian Zyga  39:58

Yeah, so I wouldn’t say this. as true for all our strategies, but we didn’t have systematic strategies that may flip the direction of their exposure in a particular market, like crude oil multiple times throughout the day. And, and so to that point, there is a place where that strategy starts to degrade because of trading costs and the amount of impact that you would have on the market if you become too big. And I think that goes back also to what we were talking about earlier, as to why we felt we needed to build our own multi pm hedge fund is, for a specific manager to trade that strategy for multiple clients, there probably wouldn’t be that much capacity available for multiple clients, but for trading it solely for mission crest, it becomes much more interesting. And then if you find a few groups that are uncorrelated to one another, put them together, you know, that’s how we’re trying to approach the Nirvana type solution.


Jeff Malec  41:02

The zero technology? Do they place the orders direct? Or does it come through a platform and net amount? And then place them right? If you have one guy buying one guy selling crude at the same time? Do you net those out and are not placed the order?


Markian Zyga  41:15

Yeah, so today, because the teams are siloed, they’re largely executing on their own. And that’s why it’s critical that each one of the teams is pursuing something that’s distinct from one another are focused on different opportunities. That’s, I think, longer term, as we think about where mission crest gross to, what you’re describing will, will become a part of what we did.


Jeff Malec  41:37

And then I also saw a lot of it is in emerging markets. What’s the story there just there’s more opportunity there.


Markian Zyga  41:47

So we like liquid markets, we like volatile markets, we like large price ranges, and are certain emerging markets that is a part of that. I think in for systematic trading strategies, those things are quite important. And then on the discretionary side, it’s where do we think we can take advantage of Miss pricings relative to the market relative to what central bank policy may be suggesting, and where our portfolio managers may be forecasting that, that certain market prices move. And at times, emerging markets may may provide more opportunity to develop markets where information just travels much more quickly, and prices get aligned, or convert to the fair value much more quickly. But having said that, I, I wouldn’t say that we’re focused on emerging markets, it’s just, it is a place that we find just as attractive as the other regions that we trade. And so we’re gonna want to wait and accordingly from a risk perspective.





Jeff Malec  42:54

right, I view it as probably easier to find some great trading talent, who knows Brazil or some other market versus trading the E Mini s&p or something, right, that’s, you can kind of get a better signal to noise ratio problem.


Markian Zyga  43:09

If you’re I think that’s a probably a more eloquent way than what I was saying to describe it. Right? It’s potentially there’s more opportunity to be rewarded for having good analysis and good forecasting ability in some of those markets relative to the E Mini or the US tenure.


Jeff Malec  43:29

And then that leads to we mentioned it that some of these are capacity constrained strategies. And even it seems like you seek out capacity constraints strategies, maybe because there’s not going to be as much competition in those. So the edge might last longer. But two part question, why didn’t Why do you seek out the capacity constraint? And two, how can you not yourself be capacity constrained? You know, by combining all these different capacity constraint guys.


Markian Zyga  43:57

So I think he did touch upon a number of important things there. As it relates to the capacity side. What we’re ultimately searching for, is alpha, within the markets that we’re trading, and maybe taking a step back, what is alpha, in my opinion, it’s that part of return that is not describable by other market factors. And so then macro that would be momentum reversion carry some type of price pressure from an event that occurs, principal components that you can identify and associate some type of return and benchmark and then ultimately, access them cheaply and efficiently as an investor. And so we want to focus on those returns that aren’t necessarily as easily explained or our function of understanding when you want to trade any of those factors that I want to describe. And so in doing so, I think by definition, an alpha oriented strategy can’t be very large in its capacity, right? Because then everyone is trading it, it becomes a factor and it’s understandable by others. So So I think that’s implicit to what we’re trying to do so. So it’s not that we need to have a strategy that can only manage a certain amount. But I think that’s partially why we end up where we do. The other main reason why we’ve taken this approach is man managing risk. And so one of the risks that we think about frequently is not just the direction of our positioning, but the positioning of other market participants, and what occurs when those participants all act in a similar fashion. And so the idea is that, for pursuing these approaches that we do think are distinctly different from what other participants are trading that we will be less impacted by periods of broad based market liquidation, when, you know, there really isn’t any place to hide because physicians are being sold because people just need to raise cash. So I think it’s really those two pieces that have driven why we’re attracted to these types of approaches. But having said all this, the capacity is still meaningful enough, that when you can hire a diversified group of teams and put them all together, you get to a place that I think can provide enough capacity in an attractive format for our clients. And that’s ultimately what we’re trying to do.


Jeff Malec  46:49

I think there’s been some recent this year last year research on once the factor becomes a factor, it loses its ability to be a factor it once it becomes known, and everyone piles into it, it it loses most of its usefulness for the short term. digging in a little bit more into the multi pm model. So you mentioned there’s 10 of them. We talked a little bit about difference between the PMs and the fund of fund a pm is Portfolio Manager, right? Correct. Yeah. So talk a little bit about like, what’s most important for you in hiring? What are some of the things you’re really focusing in on on their skill level, or their track record? Or their some of these might not even have a track record that that’s their own? Right? So yeah, let’s start first of like, how are you finding them? How are you hiring them?


Markian Zyga  47:47

Yeah, so we really leverage the experience of the broader team and firm. The fact that we’ve been involved in hedge funds for close to 25 years, has built out a pretty broad network as it relates to where we think attract a talent may exist. And then in the same vein on an ongoing basis, as we continue to build out our efforts and scale our efforts, there’s a certain level of branding that occurs, and we’re using different cell side by side, you name it type of relationships to introduce talent that we may not know, or be


Jeff Malec  48:25

aware of RCM


Markian Zyga  48:29

exactly on an ongoing basis. Um, and I think the interesting part about where we’re at today is there’s also a significant amount of reverse inquiry. So assuming that we do our jobs well, and are good partners to the PMs that we’re hiring, they’ll recommend to the respective peers that they should consider working with Mission crest or with lighthouse. And, and I think that’s been to our advantage as well, in particular, in the recent, recent time, I guess to answer your question, though, what are we looking for when we’re hiring a portfolio manager? There’s a few things that I think stood out to me. So number one, there has to be a level of trust. If we’re hiring a portfolio manager into our hedge fund. Inevitably, there’s going to be a drawdown period. And we need to be on the same page as it relates to how we think about risks, how we philosophically think about the opportunity set for that particular strategy that they’re pursuing, and the pros and cons. And we need to be in sync as it relates to managing through good periods and bad and so I think that becomes pretty apparent philosophically. Are we speaking the same language pretty early on in our conversations? That gets us to the second point, though, there needs to be an edge, there needs to be some definable reason as to why we think there’s efficacy in an approach. So on the systematic side, why do we think the research processes robust and will continue to evolve? And is capturing trading opportunities that other competitors are not. And then similarly on the discretionary side, is it because of the structuring of trades that a pm pursues? Is it because of the market set that they’re trading? Is it because of their experience within the markets that they understand how price moves. To give you an example, one of our portfolio managers, worked on the buy side, worked on the sell side in terms of building up trading desks at the different banks, and then worked at a real asset manager where he was managing one of the largest fixed income books on the street. And that experience in its totality, I think, gives him a pretty good understanding of how different participants interact or react to prices when they occur. And so we need to identify those things as it relates to making any type of hiring decision. We are quite selective, as we’ve talked about previously. And so we do think about these things from a long term perspective as it relates to the town that we’re ultimately trying to bring into the fun, but it is somewhat limited. On any given year.


Jeff Malec  51:16

Do you have a I don’t know what nice way to put this, uh, no Asshole Rule. I was we met with a manager the other day that I had some lunch and we were talking outside and we’re like, Hey, is it is it hard to separate the man or the woman from the model? Right? Sometimes you think you love the model, you love the structure, you love everything you just talked about? Like, I get it, how they do all these trades like that. And then the person themselves rubs you the wrong way. I’m just curious if you ever go through any of that stuff.


Markian Zyga  51:47

So I think trust is the word that I would use. And that’s why I mentioned it previously, is that inevitably, there’s going to be an environment or a period that we haven’t anticipated. And we need to work through that period. And ultimately, hopefully manage risk in a very effective fair fashion so that we can then go on the offensive. And I don’t think we can do that successfully, unless there’s a mutual level of respect and relationship between the pm and myself. And yeah, it’s a critical piece. So I don’t think that means we need to be best friends or see everything. I think on the contrary, when I talk about wanting to hire diversified types of trading opportunities, it’s attractive to me to have portfolio managers that think about the world in different ways that come from different backgrounds. I think inevitably, that does seep into how he or she may be putting on a position. But in the same vein, we have to work very well together. Otherwise, you know, I don’t think I don’t think the process could work long term.


Jeff Malec  53:02

And now the flip side, which it sounds like, you don’t do a lot of this because you’re partnering long term, but even back in the fund to fund days like how do you think about firing? And you go into those drawdown periods, you go into those, there’s new risk and thought about, like, what are some of the guardrails you have in place? And some of the metrics you use to say, hey, this, this model is not working anymore.


Markian Zyga  53:22

Yeah, so permission crest, for any individual portfolio manager, there’s a really strict stop loss that’s agreed to ahead of time. So everyone’s on the same page, ie, Jeff, if you lose X amount for us, we know that the relationship likely ends and inevitably the portfolio manager will start taking down risk ahead of that level. But ultimately, we’re looking for professionals. And so if, through a more challenging period, the portfolio manager has not managed risk in the way that we thought he or he or she should, that that is an issue for us. But managing risk is not only from the investment level, it’s also in infrastructure and research and execution. So if we think just because the strategy has been working, and may not continue working, and as the portfolio managers not researching new types of strategies to trade continuously thinking about how to evolve, that may be concerning for us as well, just as much as the technology side effects. locution doesn’t continue to improve if they aren’t aware of their place within the ecosystem. These are all things that feed into the process. But at a high level, there are a series of risk constraints to not only stop losses, but exposure limits, liquidity limits, margin limits, that all are critical and act as those guardrails that you would have been hinting at.


Jeff Malec  54:55

And how do you view naively I think of stop losses or As you crystallize the losses if all 10 of them go into the right at the same time you’ve crystal, if they’re 10% Each, you’ve lost all your money, which you obviously wouldn’t have it that far down to lose all your money, but how do you view that crystallize the losses and still giving them the upset?


Markian Zyga  55:17

Yeah, so that that is an ultimate risk, I guess if a VPN team just didn’t make any money, but I guess we have bigger issues if we’re Mario. So I think that speaks to simply look at. So both from a qualitative and quantitative basis, we do want to have teams that are distinctly pursuing unique opportunities to one another, and the pairwise correlation across our teams is expected or that we target something that should be quite low over time. And so that can be tracked quantitatively. But qualitatively, that needs to be the case to IE, when we’re thinking about the book, we’re thinking about the opportunity set, the positions that we’re coming into the market with on a daily basis, are there actually is it one or two principal components that we’re trading? Or are there actually seven or eight different return drivers that, you know, we’ll determine whether we make all this money on any given day. And so ideally, we’re trying to target the ladder. And that’s ultimately a part of this process as well. I do think it’s different, though, by strategy type. So with a systematic team. I think we talked earlier, some of these strategies exhibit negative autocorrelation. And having drawdowns on a frequent basis is part of the strategy and then they exhibit. And so I think, I think the key is, we try to offer a large amount of flexibility when we’re recruiting the portfolio managers into intermission crust. And that flexibility extends to how we partner with them in the structure, it also extends to how we put them in the best place to succeed, whether it’s location or resources or data. But But But ultimately, each situation needs to be treated differently, because I don’t think there is a cookie cutter answer to trade, all these different approaches have been macro. And I promise, I’ll get to the point that I’m trying to make, but it’s with a discretionary trader, if Jeff, you’re trading for us and the last three CPI releases, you’ve just been done wrong, or you’re consistently not predicting which direction monetary policy is headed in and pretty much sovereign that you’re looking at, you know, I think we’ll we’ll have conviction that you’re probably not going to get the next one, right. Whereas with a systematic strategy, I think it’s a little bit different, it’s a little bit more complicated. And I think, you know, we spend a lot of time doing is thinking about what really is the appropriate benchmark for a trading approach, have has that approach exhibited alpha, and then really thinking about the market environment and did a strategy, make money or lose money, but really over a coin flip type of event that really isn’t representative of whether that strategy should have performed. And so we’re trying to think about all these things, not only as it relates to being fair to the talent that we have trading for us, but also ultimately, in terms of making thoughtful decisions and not jumping to that narrative to describe why something worked or didn’t work that we would have talked about earlier.


Jeff Malec  58:40

And then digging in a little more on the discretionary guys like one or these main single person, right? Do you think about like bus risk if they get hit by a bus and they can’t just keep placing their trades? You just replace them with someone else? But then to like, do you have to go through a different level of due diligence of like they’re getting divorced, their trades are off or things of that nature to come into a more personal space?


Markian Zyga  59:06

Yeah, it’s it’s all critical. The headspace of a portfolio managers is absolutely important and, and clearly critical on the discretionary side of the business. So I joke some time, for some of our portfolio managers. I feel like I do act as a life coach where we have to check in regularly, not only to talk about markets than anything else, and look, that’s if that’s what helps them succeed, then definitely happy to do it. And then there are other scenarios where we have very seasoned individuals that don’t want to be micromanage, know what they want to do and accomplish on a daily basis and are harder on themselves than I may ever be. And so from that perspective, that kind of goes back to the flexibility in terms of how we manage each Portfolio Manager and these relationships that we have But But you’re right, all these things. It’s part of the mosaic. So I think earlier, I was touching upon more of the country, statistical things, ie, what’s the quality of your execution? What’s your hit rate? Have you gotten your forecasts, right. But there are other pieces that come into play. And we expect our portfolio managers to be fully passionate about the opportunities that they’re pursuing, and that they’re trading. And there will be good times and bad and we need to work through each one of those accordingly


Jeff Malec  1:00:32

I think you’ll ever get to a place where you’re like a NBA team. And they have right you’ve got hired trainers and whatnot to keep them in the right mental space.


Markian Zyga  1:00:41

So it’s interesting that you asked a few of our PMS have stated that a prior employers, they’ve had something like that, and I think some have actually found use in it. So look, I would say Never say never, if we think that it’s beneficial, and we think that it’ll improve performance, then I think it’s something we would have to look at. Right?


Jeff Malec  1:01:08

I think of that Twitter meme, that’s like, guys will do anything except to not go to therapy, or buy a tungsten cube to not go to them. You guys offer some very unique things in terms of your structure, right of like, I think they can keep their track record things of that nature. I don’t know if that’s still the case. They can work from wherever they want. So talk a little bit about how you’re unique in some of those regards.


Markian Zyga  1:01:36

Yeah, exactly. And so I think I’ll be the first one to say jet, anything that I’m going to describe here in isolation probably isn’t rocket science or particular edge, but I think holistically are offering maybe attractive to certain individuals that are looking for something more entrepreneurial. And so what I mean by that is, you know, as it relates to mission crest, we do hire traders, researchers directly to be to be employees. But separately and more meaningfully, we do partner with experienced portfolio managers, that would have been part of a larger operation or, or another hedge fund somewhere that maybe should be running their own hedge fund. And in that way, will help in allowing them to set up their own trading advisor that trades exclusively for mission crest for a period of time, we’re supporting the cost of their business and ultimately, providing an on ramp that allows them to achieve their ultimate dream and objective, which is running and owning their own hedge fund. And I think there are many forms of that geographic flexibility, intellectual property, just support for the business and getting the resources that you need. I think all those things can be quite appealing to, to the portfolio managers that that we’re speaking with. I think, in addition to all of them that just an ongoing basis, trying to be good partners, in evolving and growing, you know, that’s something that’s that’s quite critical tasks as well.


Jeff Malec  1:03:24

And you think this like, so if one guy’s in Asia, I don’t know where they all are? One guy’s in Europe, one guy’s in Asia, you got to someone there in the US, could that have existed 510 years ago? Or do you think that like the push to technology, and even then the last year, the push to cloud based and zooms, and everything is made that so much easier?


Markian Zyga  1:03:44

So technology has definitely helped? I would say we did launch Northrop back in 2013. And many of the things that I have described are similarities. So in a way, you know, call it five, seven years ago, we had been doing something similar, but everything that we’re talking about as it relates to mission crest, is growth from the experience of building abroad Lighthouse platform. And so I think to that extent, we couldn’t have gotten to this place without all the investment in data operations, resources, technology, all of those different types of things to be able to ultimately do this successfully, to manage risk to provide the resources the the individual, pm teams need. And I think as a part of that, it was also a natural recognition that this path that I’m describing is potentially ideal, not only for us in terms of the objectives that we’re trying to achieve for our clients, but also for the underlying talent. And what I mean by that is an individual that may have had a lot of success as a trader at a hedge fund that wants to go on his own. In most of those situations, there’s going to be a period of time where that individual needs to be active marketing, spending time on administrative functions, working on building a business. All those things are not related to trading. And basically work providing that path to build the track record to have all the support to continue focusing on why they’re in that position in the first place, and then being in position to succeed on their


Jeff Malec  1:05:31

new and I’ve seen that 1000 times in meetings, right, have a great trader, terrible business person. Exactly. Terrible marketer. And flipping that on its head a little bit the clients, right, you deal with some huge client type people, right pensions, endowments, the biggest institutional investors? Are they in the 10 years ago versus now? Would they have been? Would they not a past operational due diligence of having these teams around the globe and this distributed kind of model?


Markian Zyga  1:06:00

So I think it goes back to I think about mission crest, in a way, I actually, actually not in a way, I would argue that it’s, it’s a much better structure and operation than investing externally in other funds within the CTA in the macro space. And so I’m sure you’ve seen this job. There were times in my prior life as an allocator, where I would be pitched about a revolutionary technology platform or very sophisticated systematic approach. And then you start digging under the hood demo the systems and they don’t even know what their intraday canal is, or what their current exposures are. Or it’s just a model being run out of Excel, or a few simple Python libraries. And my point is, the fact that we can put in those controls. That’s kind of what I was hinting at previously. In terms of what happens when data outages occur, what are all of our backups? How do we maximize our efficiency and execution? You know, fees are one thing in terms of what you’re paying to a portfolio manager, but there’s so many implicit fees that you’re paying, paying at the trading level. So what is slippage? What is our cost of impact? What are we paying? And how do we control that wallet across the street? You know, all those things are part of those other edges referring to that we just think is necessary in why we went down this approach. So I don’t think it’s any one given thing. But the point is, we went down this path, because we thought it was a it was a better way or a more optimal way to run a to run a portfolio of trading strategies.


Jeff Malec  1:07:51

Yeah. And do the clients get it? Are they excited about it? Like, are they that thorough, that they actually understand that this is a better model?


Markian Zyga  1:07:56

Yeah, we’ve been fortunate. So we were fortunate from the standpoint that we interact with a lot of very sophisticated institutions. And I think, as a part of that, understanding that it’s ultimately the net return that we’re trying to get to, and there are certain costs that are associated with accessing talent, accessing the technology, the infrastructure that you need to get to that point, but that ultimately, those investments are worthwhile and that we need to continue to invest in this instance.


Jeff Malec  1:08:39

And then I was thinking, I’m circling back, we talked before about the pairwise correlation. Everything in there is very lowly correlated when I’m looking at your correlation matrix, which is by design, obviously, but would you if there’s another guy or girl that comes on and they are going to do something that’s highly correlated, but you really like their talent, you think they have skill? Would you split that bucket, so to speak? Or you just want to say, No, I’ve got, I’ve got a talent in this area, I’m going to keep that one talent.


Markian Zyga  1:09:11

It’s a combination of both I would say today, it’s really been more, we’re hyper focused on having industry leaders that are trading distinct opportunity sets for one another. And that was important to us, because when we thought about building a macro hedge fund, when you thought about disappointments with macro, prior to doing so, it was really that a lot of a lot of traders would get congregated in the same views, and you really wouldn’t be holding a diversified set of exposures. And we really wanted that to be part of the objective function, ie that we had idiosyncratic drivers within the portfolio. on an ongoing basis, and so, ultimately, that also caps the capacity of what we’re going to do. But we think that’s in terms of achieving those objectives, being absolute return oriented, trying to be all other, all these different types of things, toward trying to accomplish those goals, we think that it’s necessary that you need to have a number of uncorrelated return drivers. And then so going to your second point, you know, would we consider having two or three teams trade a similar opportunity set? Yes, we would, I think they need to fit all those other boxes that we talked about as it relates to hiring decisions. But we also need to be very mindful of how they work together, when we when we do that positions in aggregate, because we don’t want to get into some of those mistakes that we believe would have occurred in the past across the macro community, which is just, you know, holding one singular position. And, you know, if the yield curve steepens, or flattens, or breaks into a certain direction, like that just determines whether you make money or not, and that should be one of our trades, but it shouldn’t direct all of our performance.


Jeff Malec  1:11:17

The and speak a little bit about the history of global macro, right? Like, we can think back to like a Soros breaking the bank of London, or like things like that, um, Bank of England. So in the it seems, in the old days, they were single, huge, larger than life, macro traders. But then it’s kind of morphed into there were these teams of traders under one macro umbrella. Do you have any thoughts on the history of how that has gone down?


Markian Zyga  1:11:47

Yeah, I think it’s a little bit of Back to the Future. Honestly, I think there was a push towards the multi peon model, as opposed to the single risk taker, just because of, or at least my perception of what end investors ultimately were seeking from their Macro Allocation, ie really dramatic drawdowns or swings in performance weren’t as interesting or attractive. Having said that, there’s a certain clientele that I think desires, that type of exposure and very punchy performance. And so there will always be a place for single risk taker type funds. I think part of that push, though, towards multi APM, was also a function of the market environment. And I think more recently, you know, it’s been a much more constructive environment for a single risk taker, in addition to the multi pm macro side. And so I think there’s a place for both, I think it really boils down to what ultimately are your objectives? And what’s most important to you, as an investor, ie return to volatility and drawdown and those types of things?


Jeff Malec  1:12:55

Yeah, I think some of the single names like basically just systematize their models, right, and became more of a systematic macro in a lot of cases.


Markian Zyga  1:13:03

Yeah, that’s, yeah, that’s another side of it. And I think actually, probably the biggest change, I’m glad you brought that up is the introduction of systematic trading, and how that forced certain individuals to have to evolve their trading, or the trading strategy is no longer work, because they were essentially trading a slower version of the systematic process that that took its place. But the same thing, I think it goes back to what you’re speaking about, where if a lot of different market participants are trading in a similar fashion, hypothetically, does that also create new opportunities? And I think to sort of set it as ie, the flows of systematic capital into the broader financial market space.


Jeff Malec  1:13:56

Last bit here, we were on a panel once and you said some really smart stuff about how to assess AI machine learning models. I’m not sure if you remember any of it. You mentioned there’s some machine learning components inside of here. So just how do you how do you do due diligence? How do you interview a pm that’s gonna do machine learning? What are your thoughts? Yeah, um, so it’s gonna be a whole podcast in and of itself. Sorry, but yeah, yeah, no, it could.




Markian Zyga  1:14:27

Um, so I’ll try to organize my thoughts for answer as simplistic as I can. So to the extent that we can receive as much data as possible, that’s important to us, in terms of doing the back test or modeling that would have been done. I don’t really know that the performance side is as important as what it appears that the model has efficacy in forecasting and what types of trades it appears to be pursuing. So, when we observe a model that is pursuing an approach that appears idiosyncratic and unique, well, we’ll begin to get more interested. Personally, I do think that to have success within this space, an individual needs to have extensive academic experience or industry experience. And then also financial market experience. Because applying these approaches than financial markets, it’s a quite a bit more challenging. The signal to noise ratios are quite different. There’s a reason why we trade over short trading horizons. Once you start to move longer term, it tends to look more like filtered momentum as it relates to what a machine learning model would pick up on. And that has less value to us. And so it, I think the best way to describe a Jeff would be as a constant feedback loop. So there’s all this diligence that we’re doing, we need to see the program evolve, because that’s inherent to the process. And, and ultimately, on an ongoing basis, the trading activity will inform our level of conviction. Having said all this model degradation is the most challenging part of allocating to these types of approaches. And that’s where the risk constraints, the drawdown losses that we talked about previously, those guardrails are absolutely critical, because if it starts moving in the wrong direction, you need to have the ability to make sure that it’s the same little line item that doesn’t hurt the overall portfolio or aggregate objective too much. But, you know, at a high level, these approaches are cutting edge utilizing technology that continues to evolve, have shown predictive success and other parts of industry, whether it’s healthcare, or accounting or law. And I guess my point would be, why wouldn’t we want to? Why wouldn’t we be attracted to these things that also should dynamically evolve over time? But but there are plenty of risks with that as well. You know, the last point I’ll make is, I do remember that panel that we were on, I think that was back in 2017. And I think, if you would have asked me back then where we were, in late 2021, I probably would have thought that these arches would have proliferated a lot more across the quantitative trading space, and, and then they’ve definitely been incorporated, and everyone’s researching these types of approaches. But I think what I’m trying to get at is the ability to succeed with these types of approaches is quite challenging. And it’s why I think there’s still a limited amount of groups that are really trading AI or ml approaches, in insignificant fashion and in successful fashion.


Jeff Malec  1:18:09

Yeah, I totally agree with you think, right, there was a lot of we’re doing AI on Twitter feeds and yada yada hedge funds that never went anywhere you think by now we would have had a Bridgewater type size, pure AI, machine learning hedge fund that’s printing incredible numbers day in day out, but maybe they’re out there, and they don’t advertise it, but it’s more likely the case. Yeah. And what would you ever take the or do you use the machine learning to analyze the the PMs and kind of glean new insights into, you know, what their exposures are and whatnot?


Markian Zyga  1:18:46

So we do, I would say, I would hesitate to say that it’s an important part, or a driving part of our process. It’s one of many things that we have in the toolkit, that Todd, excuse me, at times, it may, it may flag something that would not necessarily be initially apparent from a risk perspective. But I think we’ve spent a decent amount of time on it. It’s it’s hard without a qualitative process to fully to fully trust it from it from a portfolio construction perspective, ie we’re not, we’re not going to upward or downward risk to a particular trader, because of the machine learning output. But having said that, I think it is implicit to all the systematic approaches that we have, that there is at least some type of Bayesian component. So in a way, the building block level, we do have some of that.


Jeff Malec  1:19:43

And the database doesn’t exist for you to do machine learning on every trader at every huge hedge fund and bang in like pick out the ones you want to make an offer to right.


Markian Zyga  1:19:53

Yeah, exactly. I mean, we’re fortunate from the standpoint that we’ve been doing this for a long time. So we have a lot of internal data And then we can review. In the context of actually running a machine learning model. It’s still quite small.


Jeff Malec  1:20:07

And then last bit, I want to ask you, you know, in your seat over the years 300 meetings a year, only one or two or three get hired, like, as a manager? What would you recommend? Or what hacks do you have? I won’t call them hacks. What good advice do you have for kind of making it to the next level of those meetings? Or are there any tricks or it’s just the talent shines through? It doesn’t matter what you say in the meeting? There’s kind of


Markian Zyga  1:20:35

I think the town typically shines through. Inevitably, there’s going to be some part of depending on how eloquent of a speaker one is, I think that probably helps. But in my personal writing process, I try to associate zero value to that, because that’s not why we’re hiring someone to trade for us. So I think, you know, really just being conservative in terms of describing as far as what I was going back to previously, why we think there’s edge in the process, why at a forward looking basis, we should have conviction in the opportunist, that that’s being targeted. And then their ability is risk managers. And I think, when individuals don’t progress, it’s because we can’t enter either of those questions.


Jeff Malec  1:21:30

Some quickfire favorites here, which we end all the pods with. So you’ve got a young one at home, right? I do. He’ll be three in December. Nice. favorite thing to do in Chicago with the kid.


Markian Zyga  1:21:44

So playgrounds along Lake Michigan, seeing the water watching him climb. It’s pretty fun.


Jeff Malec  1:21:52

No broken bones yet?


Markian Zyga  1:21:53

Not yet. He’s a wild man.



Jeff Malec  1:21:56

Yeah the playgrounds are so much better than when we were kids. These things are unbelievable that right now, it’s impressive.


Markian Zyga  1:22:00

I don’t Yeah, I don’t know how he climbs have to stop because


Jeff Malec  1:22:05

you got to get him. There’s this new one over here at Bradley place near me and Roscoe builds are building one of those indoor climbing, climbing areas. Favorite children’s book that doesn’t drive you crazy?


Markian Zyga  1:22:19

Dragons love tacos. Oh, yeah. Remember, that’s one of his favorites. And there’s a sequel to so I guess, I guess there’s two.


Jeff Malec  1:22:27

I remember that. Favorite allocators slash manager event. You were on the circuit for a while there. Champion favorite place you’d look forward to going to? Or was it always a pain? Because you had to throw the meetings?


Markian Zyga  1:22:42

Yeah, I mean, I guess on the positive side, a number of events. So I think about the end of January, Florida events that always seem to change a name. He’s always very efficient. I think he needed some Advil and a cocktail at the end of the day because of the amount of meetings that you get. But But it’s good to see everyone. But honestly, outside of that, I don’t know if it’ll continue post pandemic somebody FCMs they would put together research conferences where it’d be 10 or 20, PMS that aren’t directly pitching their product, but talking about avenues that they’re exploring or thinking about and so I think the times those actually provided a dismount of value or got you thinking about a different place so maybe those would be at the top of the list.


Jeff Malec  1:23:27

And when a when a bank Pm is talking about a new factor that’s like exit off your list favorite manager wanting an allocation follow up. I don’t even know if you get any anyone send you swag or take you golfing or try and schmooze you over the line.


Markian Zyga  1:23:48

I wish I was a better golfer. So it’s not it’s definitely not golf. But now yeah, don’t really accept anything and yet


Jeff Malec  1:24:01

I doesn’t really have a part of the part of the answer that yeah, I’m trying to get you in trouble with compliance. Exactly. Um, we want sent a guide Blackhawks Jersey, and he was the St. Louis Blues fan. I think that


Markian Zyga  1:24:13

I can imagine


Jeff Malec  1:24:14

we’re like you said your hockey fans like yeah, blues hockey fan. I don’t want a Blackhawks jersey. Like Alright, sorry, a favorite Chicago pizza.


Markian Zyga  1:24:24

Think how goes peaqods? I like pepperoni pizza in any format comes but I think


Jeff Malec  1:24:30

I would go with peaqods is the answer for sure. Although it’s so hard to get into these days, right? There’s always a huge line. Yeah. I’ve been there in probably three years. I’m going to go back. And then last week lastly I scholar guess favorite Star Wars character with Yoda, Yoda. Nice. Just the wise the wise one.


Markian Zyga  1:24:51

Yeah, pretty, pretty agile and nimble. That’s right. Yeah.


Jeff Malec  1:24:55

can do some spins. I love it. As you have you had your son watched any time I was asked to do Yong


Markian Zyga  1:25:01

Yong. We’re into we’re into Truck Videos. He’s reciting his ABCs.


Jeff Malec  1:25:07



Markian Zyga  1:25:08

we’re working on the building blocks.


Jeff Malec  1:25:11

Alright mark, and it’s been fun. We’ll talk to you soon and see you around Chicago.


Markian Zyga  1:25:17

Yeah, thanks a lot.

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