Alt (Digital) Trend Following with Sarah Schroeder of Coinbase Asset Mgmt.

How do you get a job at a top quant shop?  With a little love from grandma?! How do you navigate a systematic strategy in the fast-moving world of digital assets? On this episode of The Derivative, Sarah Schroeder of Coinbase Asset Management (formerly One River Digital) covers a range of topics related to crypt/digital assets, including the formation and vision of One River Digital, its purchase by Coinbase, the importance of counterparty risk management, trend-following and directional strategies, allocation to digital assets, central bank digital currencies, and the role of women in the hedge fund space. 

Schroeder shares insights into her experience working at AQR as a portfolio valuer and discusses the unique alpha models for different tokens, investment strategies, and fundamentals in the digital space. The conversation also touches on the potential for significant directional shifts in digital assets, the barrier to entry into the space, the personal and professional use of crypto, and the role of central banks launching their own coins. Shroeder closes the episode with advice for young women getting into the hedge fund space and the importance of having good mentors in one’s career — SEND IT!

______________

______________

 

Check out the complete Transcript from this week’s podcast below:

Alt (Digital) Trend Following with Sarah Schroeder of Coinbase Asset Mgmt.

 

Jeff Malec  00:07

Welcome to the Derivative by RCM Alternatives, where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Hello there. Welcome back. Happy Spring. Hope you had a good spring break. Hope your baseball team is doing well. Or at least as well as the cubs in this new season. And I hope your flowers are beginning to bloom. That’s all I got for spring. On to this episode where we had a fun chat about trend following niche markets about grandma getting you a job about crypto or digital as Sara like to call it. And all its promises and warts and everything in between. And naturally we got into why systematic strategy might not even care whether it ever gains mass adoption or not. They just wanted to move. This was quite enjoyable getting to know Sarah Shredder, a PM at Coinbase Asset Management which was one river digital until just recently. Send it This episode is brought to you by RCM institutional outsource trade desk. Say you’re a big ETF shop wanting to launch new product trading futures you’ve been used to securities don’t know how that all works, who can help you think through order routing, trade sizing risk protocols and more. You got it our sands outsource trade desk visit our st malts.com/ 24 hour slash two for HR for more information Hi everyone, we’re here with Sarah Schroeder. welcome Sarah.

 

Sarah Schroeder  01:39

Thank you for having me. Yeah,

 

Jeff Malec  01:40

and we just talked about you’re there in beautiful Stamford, Connecticut.

 

 

Sarah Schroeder  01:44

I am particularly beautiful now that it’s finally spring for those of us that have been suffering under East Coast winter.

 

Jeff Malec  01:51

But New York seemed like I keep saying all these tweets like it’s a beautiful 70 degree day here in New York that just the past few weeks.

 

Sarah Schroeder  01:58

very recent it’s it’s been a very recent turn from winter heavily into spring.

 

Jeff Malec  02:04

And now are you an East Coast person born and raised where you

 

Sarah Schroeder  02:08

know, I’m originally from Southern California. The very opposite corner of our country. I came out to to the New York area after grad school. I was a California kid for quite a long time. A graduate of UCLA graduate and a UC San Diego graduate prior to that so twice through the University of California and managed to escape California nevertheless. Because you know, the reality is after you’ve come out of grad school and you focused your academic career on math and finance and are looking at a career in quant finance, the greater New York area is definitely the place to be and so I wound my way up out here and I’ve been here since

 

Jeff Malec  03:01

you see San Diego the terreros heroes No, no What are they what are they?

 

Sarah Schroeder  03:09

Well, UCLA Bruins UC San Diego you know to be honest, I don’t actually remember what the mascot is, which is a clear sign of how focused I was on my studies more than on the the mascot so I just

 

Jeff Malec  03:25

pulled it up the Triton I thought it used to be the terreiro the Tritons we’re gonna have to look up who that was. That used to be my party trick. I knew all 200 division one basketball teams mascots, but obviously I’ve slipped No, obviously I’ve slipped. So you gave up beautiful California moved out east. Have some rather big names on the resume there. So where did you end up with once you got to the New York area?

 

Sarah Schroeder  03:52

Yeah, I mean, I came out here to go work for AQR, it was really hard to say no. I worked at AQR right after grad school and right up until the moment that I joined one river digital. Prior to coming out east and kind of in between my two University of California students, I spent some time at an intellectual property consulting firm that used quant models to value IP portfolios. Given the West Coast focus, you can imagine a lot of the clients there. Were valuing or interested in understanding the value of IP portfolios in the semiconductor and biotech type spaces. So that was really my foray, or first kind of introduction into quant modeling and computer science

 

Jeff Malec  04:37

was a goal like to do patent lawsuits and whatnot, or what was the

 

Sarah Schroeder  04:41

Yeah, it was a lot. There was a lot of patent advisory work some in the context of litigation, some in the context of companies looking to license or sell their IP portfolios, but generally trying to monetize their intellectual property. So that was that was a very different setting for a quant modeling and quant finance. Then what I worked on while I was at AQR, but you know, a good entry point, you get to see a lot of different datasets, a lot of different industries and start to really understand how puzzle pieces might fit together in an unstructured data format and then start to wrangle structure there.

 

Jeff Malec  05:22

And what was I’m thinking it just popped in my head. I don’t know if you watch any NBA basketball, but the playoffs that had this commercial with Mark Cuban. Yeah, he’s pitching like a Cuban sandwich. He’s like, they’re called Cubans. And my mark you. So like, what was the craziest IP thing that you looked at which you don’t have to name names, but you’re like, what, I don’t think this is worth anything.

 

Sarah Schroeder  05:43

We worked on quite a few different projects that related to semiconductor technology, some in smartphone settings. There were a couple of cases that touched on name your favorite smartphone manufacturers. And I think perhaps maybe the the one that was most quizzical to me was there were there were some blackberry patents that were at issue at a time where BlackBerry’s usage had already been heavily in decline. So it seems like a bit of a challenge to really heavily monetize what tech the technology that had already been kind of a little bit supplanted there. But yeah, you know, good idea, in theory never totally dies, it just might have to shift a little bit.

 

Jeff Malec  06:32

And isn’t. Qualcomm is out of San Diego rent. You had all that chip. IP running around there anyway.

 

Sarah Schroeder  06:39

Yep. Yeah, that those supply chains are so complex, they might have touch points someplace in California in the United States. But you know, those are those are truly global supply chains.

 

Jeff Malec  06:49

Yeah. And so AQR does like a road trip. They’re like, recruiting you straight out of school there.

 

Sarah Schroeder  06:58

No, I you know, the funny thing about starting work at AQR is many, many of my classmates and in my grad program were were very excited at the prospect of working at AQR and had applied and interviewed, and all had been rejected. And I did not strictly apply for a job at AQR, I had come to the East Coast, and you unlock

 

Jeff Malec  07:23

the secret, the secret to getting in is don’t apply.

 

Sarah Schroeder  07:27

I think the secret to getting in, I think the secret to finding some professional success is to have a reputation that speaks in your absence, frankly. And I was very fortunate to have good mentors and professors that spoke highly of me and folks that would kind of speak favorably of me when I was not in the room. And, and, and you know, you have to have credentials to back all of that up. Right. So as I was finishing my program, and I had comments on flights to New York to interview at a bunch of firms, I had a job offer to go to Goldman Sachs. And I was pretty excited about that, because that seems like a beautiful shiny gold star resume and a wonderful place to learn from really talented, incredible people. And I had not I had the offer letter and I had not accepted it yet. I had a two week turnaround as I remember to think about it. And during that two week period was my graduation ceremony from from UCLA. And one of the partners that AQR Mike Mendelssohn was the commencement speaker at my ceremony, and my grandmother was speaking to him after the ceremony at the sort of schmoozing networking session. And as as every loving grandmother does, she was bragging about her grandchildren. And by being the grandchild in the room was the victim of her praise. And so she had been very busy telling, telling this HR partner, all these wonderful glowing things about me, and I did not know that this conversation was happening, except that I had seen that they were speaking and I sort of let them speak for a time. And then I thought, well, I better go rescue rescue from my grandmother. And so I interjected myself in the conversation. And almost immediately, he looked at me and he said, your grandmother tells me you have a job offer to go to Goldman Sachs. But you haven’t applied to work at AQR. And I said, Well, yes, that’s correct. Yeah. And he immediately told me not to accept the Goldman offer until I had flown out to AQR and I had to come meet the team there before I made a decision. And I said, Well, I have one week to make this decision. So I guess we better do this quickly and short. This was all this all. happens on a Sunday. On Monday that AQR partner called the managing director that I had worked with as a summer associate at Credit Suisse. And that managing director again spoke favorably favorably of me in my absence, he sent my CV over to AQR. And the wheels were turning in motion, kind of without me exerting a lot of pressure or any pressure on them. And by the end of the week, I was doing a full day interview at AQR and they said, We want you to come work here, say no to Goldman, and I said, Yes.

 

Jeff Malec  10:37

It’s great story. Yeah. All thanks to Grandma, what do you get grandma? Did you send her a nice little present or something?

 

Sarah Schroeder  10:45

Are you absolutely. She’s really proud.

 

Jeff Malec  10:55

That’s a great story. And so full day interview, what does that look like? They’re putting you through the wringer through math tests is it you think, as difficult as people would assume from the outside looking in,

 

Sarah Schroeder  11:07

but you know, my memory of it has faded a little bit. We all sort of gloss over those details. As the years go by the morning, I remember being on the more kind of sort of more standard rigorous interview type style brain teasers kind of hypothetical scenario construction, how would you go about estimating or modeling this, this kind of phenomenon, if you don’t know all of these parameterizations, and just getting a feel for kind of how your critical thinking and analytical skills work? A little bit of pseudo coding, how would you construct a kind of a script that does X, Y, and Z, that kind of thing. And then the afternoon, I remember was more of the conversational kind of components, meeting the team meeting some of the other partners, sort of the the personality and culture and fit test. And yeah, it was it was a full day. It was a I remember, it was I think it was 830 to five or something in that neighborhood. And, and my the offer from Goldman is going to expire at the end of that day. So I remember sitting in the last interview with one of the with one of the HR partner is kind of looking at him across the table and saying, Well, I sort of have to know right now. But, you know, the amazing thing about that is in hindsight, I’m a little horrified by my own actions in this narrative, because I was a little bit blase, perhaps because I felt like I didn’t have that much to lose. I didn’t really know exactly what I had to gain one way or the other. But my downside scenario was was really risk managed. I had an outside offer, that was a very good offer at a very good firm that I would have been happy to take. So I think, you know, that gave me a certain amount of competence and comfort that probably helped quite a lot in this interview day, because it takes away some of the edge of the nerves right.

 

Jeff Malec  13:22

And so what were you working on at AQR, then we’ll get then we’ll leave the past behind.

 

Sarah Schroeder  13:28

So I started on the commodities research team at AQR, which is a bit of a kind of, sort of personal interest area, I suppose. I think commodities are particularly interesting. They’re just, they’re very unlike other macro markets in a lot of ways. They have their own very specific supply and demand dynamics. And, you know, they have their own cycles. And that was a really, really interesting kind of entry point for me into kind of classic quant finance. Just a tremendous amount to learn about these, this very unique asset class. And that was sort of the beginning. Then my, my focus expanded to be a little more multi asset class when I started working on this systematic trend strategies at AQR that covered not just commodities, but you know, equities and fixed income and currency markets as well. And then eventually that led to a little bit of of entry into some of the systematic macro strategies at AQR. But really, the the markets kind of was that my personal narrative at AQR, I, over the course of my years there started to really develop a personal and a professional area of expertise in some of the more esoteric markets, esoteric derivatives in particular, and there’s a heavy commodities focus there as well. Right? So the the AQR alt markets portfolio, that really was my portfolio and kind of became my my main area of focus for the last several years that I was at AQR, the technical trading strategy that’s really focused on on some of these more niche The derivative markets of the world,

 

Jeff Malec  15:01

like when we talk about like carbon credits or even more niche than that,

 

Sarah Schroeder  15:06

yeah, Malaysian palm oil, the South African maize complex, you know, European power markets before they were in vogue, and on the cover of The Wall Street Journal on the regular, the, you know, just think about sort of the smaller, less liquid lower capacity, especially commodity markets, but even outside of commodity markets, kind of some of the smaller emerging market currencies, for example, volatility futures.

 

Jeff Malec  15:34

How do you think about I was just having this discussion with a friend the other day of like, okay, you want access to those, but if you just access those and leave the interest rate markets and main currencies and whatnot out of your, let’s just say, a trend portfolio, you’re gonna have like, all these spaces, right? And you’re not going to capture the like trend, beta, so to speak. So and then if you put them into the portfolio, you probably can’t wait them enough. They really have that much of a impact overall. So they’re kind of just like, they’re, they’re interesting. They can drive alpha, but like, what do you do with them? How much can you actually do to make an impact?

 

Sarah Schroeder  16:08

Yeah, so this is why, in the HR context, they merited their own portfolio, right? Yeah, because it, AQR certainly has a Managed futures offering. And that is kind of focusing on trends in the core macro markets. And you know, I’ve heard others call this something that can to the trend kind of beta type idea. trend in the core markets really are like macro trend in a way. And then the the more idiosyncratic markets, you’re right, if you’re trying to, if you’re trying to kind of commingle all of these assets in one portfolio, and you’re thinking about running your aggregate, CTA book or managed futures strategy of size, the less liquid markets are really not going to have a lot of representation in that context. The other thing is that the kind of due diligence and the counterparty relationships that you might need to have in place for some of these smaller markets is definitely one step further afield than what you’re doing if you’re just participating in some in some of the core macro markets. So there are a category of investors that are really excited about the idiosyncratic opportunities that those assets present and want that exposure and are very comfortable with the additional relationships and kind of operating requirements that are that are necessary there. And then there’s another category of investors that frankly, just don’t want it, not because they kind of don’t believe in it, but they’re looking for the sort of trend beta, as you called it, right? And they’re really looking for how do I get the most cost effective exposure to trends in major markets, and I just don’t want to pay a lot of fees for that. So um, you know, focus my efforts on a low cost managed futures buck. Whereas some of the more idiosyncratic markets have higher operating expenses higher kind of counterparty risk requirements, and monitoring, and all of those good features that you know, do merit the higher fees that those costs of those portfolios tend to carry. So having them in separate portfolios means you’re really giving allocators the opportunity to choose their own adventure and express their preferences. It’s also nice to not have to be tied to getting those two different types of allocation from the Scene Manager, right? Get your allocation to the idiosyncratic markets from a manager that has really developed expertise in that that has a team or a portfolio manager or two that is really dedicated their focus to that. Whereas you can get your kind of macro your core trend or managed futures exposure from someone that’s been doing that for a long time that maybe doesn’t have an art markets book, right.

 

Jeff Malec  18:40

So that kind of begs the question of like, okay, well, how much should I put in the markets? Like, well, and we can get into this more once we get into the, the digital side. So I’m assuming now the story goes, you started to look at digital assets. Crypto, as you’re exploring these esoteric markets,

 

Sarah Schroeder  18:59

right? Yeah, that’s exactly what happened. I mean, my the whole mandate of this AQR portfolio was to trade, the emerging idiosyncratic niche markets of the world. And here come digital. Yeah, and if bitcoin and Aetherium don’t look like idiosyncratic niche markets, especially in kind of the 2016, through 2018, period, as we’re doing a ton of research around what markets belong in this portfolio, I mean, you know, if those aren’t if those markets don’t belong, what does right? So of course, I was pushing on that and really interested in getting those markets and in the AQR portfolio. And then when the CME futures launched, it was just such a no brainer, because here you have an instrument that you can access through your existing relationships and exchanges and structures. And so it’s really kind of the lowest hurdle way for a Trad pie player to kind of start to participate in such Oh, and so ultimately, that’s exactly what happened. So we did add those assets to the AQR portfolio. But, you know, is a bit of a Pandora’s box that once I had opened it, I couldn’t close. Because once you start, once you start kind of looking at digital, I mean, I had personally started paying attention to digital markets in in sort of the 2016 2017 period. And it was too early for the AQR portfolio at that time for a variety of reasons. But, you know, one is just the liquidity, especially in the CME futures really wasn’t there, early in early days, it took some time for the liquidity profile to really start to establish itself. And, you know, volume hadn’t been present early on, but open interest wasn’t. And if you’re a sort of medium horizon trend follower, you really want to see some open interest be present. So that,

 

Jeff Malec  20:51

to me, wasn’t even first, right, CBOE came out first. Right. So, so there was a lot of competition there in the beginning of who’s gonna get the liquidity. Mm hmm.

 

Sarah Schroeder  20:59

Yeah. So it took some time for that to really start to kind of stabilize and for that to look really viable as an instrument. But, you know, even once that happened, the reality is this the future, the CME and the CBOE derivatives don’t trade around the clock and the spot markets do. And it’s only a small fraction of the average the aggregate liquidity that you see in digital spot markets. So clearly, you know, there are some limitations here in terms of the timing and the size of the liquidity and the set of assets that’s available, right? You could get bitcoin and eath. But anything outside of that, forget it, right. So, you know, while it was very early days, and still is early days, for tokens outside of those two, I had an eye on the future and started to think, Okay, where do we go from here? What’s next? And clearly, you know, thinking about what was next what came next for me and that AQR portfolio meant that I really wanted to start exploring what other serious hedge fund types were thinking and doing in the digital context? And was anyone trading spot markets had anyone thought about building infrastructure to support this, had anyone put the counterparty relationships in place? And, you know, it also felt very much like, what was possible from an alpha modeling point of view from a quant modeling point of view, would be much wider than what I could do if these were two out of many 100 markets in a kind of more macro oriented portfolio. If I had a dedicated digital focus, you know, were there more interesting things that I can be doing from an alpha signal perspective? And, you know, I felt very clearly that the answer was yes, but I wasn’t going to be able to allocate the time or attention to that, that I had wanted. Simply example,

 

Jeff Malec  22:55

that would be if the model goes short at four in the morning, I could be short on that side in the futures camp.

 

Sarah Schroeder  23:03

You know, if you have a banking crisis happen over the fence. But that’s exactly it. So, you know, I, I just, I was delighted to add the CME instruments. So the AQR portfolio and I, I stand by that as being absolutely the right call for that portfolio in particular, but my curiosity started to run away with me a bit as is inclined to do from time to time. And the those, those kind of that line of inquiry, I guess, led me to, ultimately led me to Eric Peters and the team at one river digital at the time now coin base asset management. And it was just such a serendipitous meeting of minds. It was a group of people that clearly had the same questions I did. And they were very focused on providing answers. And so those those Congress, early conversations were very easy because we were so well aligned. And the end of that conversation was basically a question to me, which was, well, you know, you have all these great questions. We’re interested in the answers as well, do you want to come here and we’ll figure them out together. And so that’s exactly what happened.

 

Jeff Malec  24:22

And so you mentioned it there briefly. So one river digital has now since we’ve scheduled this and started recording, become Coinbase. So dig into that a little bit of how that went down, whatever you’re allowed to say. Yeah.

 

Sarah Schroeder  24:36

So you know, the, I think it’s probably important to contextualize this just a little bit with sort of the history of one river Asset Management. One river Asset Management is a 10 year old hedge fund that started you know, 10, truly 10 years ago, but really focused on providing investors with diversifying solutions especially He focused on kind of how do you give investors protection against tail risk. So the kinds of hedge fund offerings that one river offers are, you know, some trend following strategies, some volatility strategies and inflation portfolio, that that kind of thing. And Eric Peters, and the team at one river have a very macro kind of lens through which they see the world, they’re really focused on what are the big structural risks and trends that we’re seeing. And what what happened is one of the clients, one of the investors that one river asset management had invested in their portfolios, and still has today was an entity out of the United Kingdom that in 2020, was very concerned about the direction of monetary policy and the amount of quantitative easing that had been happening and what the implications of that might be. And they thought one interesting way to, to kind of put on a trade that would address some of those possible concerns was to make a sizable allocations in digital assets. So they were looking for asset management partners, that could be good partners for them, and help them navigate. How do they get? How do they put on exposure to Bitcoin and Aetherium? When you know, they don’t have asset management partners that offer this through traditional funds structures? How do they put it in our asset allocation? And the practical kind of how do we do this question was hard to answer for them at that time? Yeah. So they came to Eric Peters, because they have this really nice relationship with one river asset management, they knew that Eric and the team at one river really was were the types of people that think about the world critically in this way. And even if he and the firm didn’t have an immediate off the shelf solution ready, they knew that this that’s the type of people that when presented with a problem, even if they don’t have the immediate solution, they will look at the problem and say, we’re going to find the solution. And so

 

Jeff Malec  27:07

we know a young lady who we can hire to figure out this solution.

 

Sarah Schroeder  27:12

Well, this, this predates my time with it, but I wish I could claim credit for this. But ultimately, Eric, and the team said, we’ll figure out how to get this done. And so sure enough, in November of 2020, they helped this client put on $600 million of exposure to Bitcoin and Aetherium at the time, the largest institutional allocation that we know of, and that trade played out really favorably, as you can imagine, through late 2020, in early 2021. And so the decision was made between the firm and the investor in the back part of 2021, to close out the trade. And so ultimately, what had been a $600 million allocation, none of them about 1.2 billion in games, a tremendous trade, great timing. But really, you know, that trade, I think was was a catalyst to action. The clearly the interactions between the US investor and one river Asset Management highlighted that there was this gap in the market, there really wasn’t an asset management firm that can serve as a fiduciary that was offering institutional quality investment products in the digital space. And, you know, we there are a few firms now that are kind of trying to do these types of things. But clearly, there just was a lack of service providers and kind of credible people that understand institutional investments, with with kind of that trial and fi background and mindset. And so that led one of our asset management and Eric Peters to start one river digital as a separate business entity that was focused specifically on building institutional quality investment solutions, and really facilitating these kinds of interactions for clients.

 

Jeff Malec  29:09

The funny part is, it’s almost like the other people in that space. Like, no, we don’t want any traditional finance background like that’s antithesis to what we’re trying to do here. So it’s unique of like, No, we’re here. We’re trying to put we know that some things that have worked and protected investors over here, let’s bring those into this arena.

 

Sarah Schroeder  29:27

And we know some things that have gone poorly or kind of one left unintended can go poorly, and can we make sure that we’re preserving those lived lessons and not doing ourselves to repeat them? Right? So

 

Jeff Malec  29:41

I’m sure you’ve seen those memes right up like crypto on Twitter of like, hey, it’s fun watching them in real time, figure out the lessons of modern finance over the last 200 years, but they’ve like condensed it into a six year period of trying to learn these lessons.

 

Sarah Schroeder  29:54

It’s not always fun. Sometimes it’s painful. Okay, yeah. But But you’re right. I mean, we, this is sort of the nature of humans, we’re all kind of doomed to repeat our mistakes, more or less, we try to reduce the frequency with which we do that. But But you’re exactly right that the vision here was really let’s not doom ourselves to repeat mistakes, let’s try to kind of take the most credible and a reasonably conservative path so that we can survive whatever crises and Counterparty missteps might happen in the in the industry around us, can we build a firm and build investment solutions that are going to be resilient to the turbulence that that exists in the digital landscape? And so that’s really the that was the mandate for one river digital. It’s certainly the mandate for Coinbase asset management. So you asked a little bit about kind of how did this how did this acquisition happen, I sort of gave you the background of how one river digital came to be as a business entity. And this team is, you know, I’m so grateful to my colleagues, it’s a really incredible group of people from Blue Chip, traditional asset management firms, folks with backgrounds from Black Rock, and CPPIB and brevan, Howard millennium, I mean, it’s a pretty serious group of individuals here. And you’re right, that these are folks that have really internalized lived experience in Portfolio Management from traditional finance. And now we’re really focusing those efforts on digital. So as we started building this, this business entity, you know, invariably, one of the features is you need some operating capital. And so there was a Series A equity raise in 2021, to support one river digital. And that series, a equity raise had a number of names that were participants, but kind of two lead names in that group were Coinbase, and Goldman Sachs, so you know, a serious crypto player, a serious tried five player, hard to ask for better anchor anchor equity investors than that. So the relationship between one river digital and Coinbase really predates the acquisition, the firm’s had been partners through that equity race process. And of course, you know, as I mentioned, if you’re running an asset management business in digital, and you’re not looking at Coinbase, as one of your possible counterparties, you’re, you’re probably not looking at the full set of counterparties available to you. So we had been working with Coinbase from a custody capacity, or a custody perspective, and, you know, just in the kind of normal course of business prior to the deal.

 

Jeff Malec  32:33

So they take you guys over, but is the eye towards, hey, we want to build out this institutional trading, or we want to build out an asset management firm and offer these products to their existing client base.

 

Sarah Schroeder  32:45

So we were and are focused entirely on asset management or institutional investors that our mission has not changed as part of the acquisition, you know, Coinbase

 

Jeff Malec  32:57

institutional investors?

 

Sarah Schroeder  32:58

Sure, yes, exactly. Yeah. Coinbase has, as you said, has retail product offerings and did prior to the acquisition and still does, but they didn’t have an asset management arm. And so this is a new business entity for them, a new line of business for them,

 

 

Jeff Malec  33:17

well into your other story of like, hey, we can spend a gazillion dollars advertising and doing all this and get a billion dollars worth of customer deposits. Or we could have this institutional arm get one client that wants to invest a billion dollars. So just two ways to go around the same thing.

 

Sarah Schroeder  33:33

I don’t know that those are mutually exclusive. I don’t think either or right. I mean, these are sort of an and and like, if you, you know, to draw on parallels from traditional finance, if you look at Goldman Sachs, they are a business that they’re a very diversified financial services company, right? They have investment banking operations, they facilitate access to financial markets, they have asset management solutions. And you know, one of the one of the benefits of being a really diversified business is that the cadence of your revenues and the profitability of any one business line is invariably going to cycle through different periods. And if you have that diversified mix of business, you know, we’ve certainly in the case of Goldman, we’ve seen that create a really resilient firm that has just been a leader in the financial industry for years and years and years. So I think there are some nice lessons to borrow from that business model that you know, are are worth taking very seriously.

 

Jeff Malec  34:30

Definitely. And I meant to say yeah, and right so hey, we’ve got this piece going over here now we can add wood now we can get access to the other piece. Cool what else? So what you personally you had to move offices, you didn’t have to move towns homes, like for you is rather seamless?

 

Sarah Schroeder  34:48

Yes. So I’ve been living in New York City and working in Connecticut ever since my first day at AQR, so none of that has changed my personal commute. I’ve been doing the reverse commute with a A brief pilot pandemic hiatus. But otherwise, for the entirety of my time on the east coast. But our offices are have have really not changed for we’re still located in our Stamford, Connecticut office, the team has really not changed. I mean, this was a change in in kind of corporate ownership at the parent company level. But as I said, the team and the mission and the business focus and the investment strategies are entirely intact.

 

Jeff Malec  35:35

Now, I want to dig into the strategy. But before I do that, I was thinking back, we can’t talk about crypto without FTX. Right? I think it’s a rule. It’s in the bylaws. But um, so it was part of that, hey, we need to put this traditional finance and we need to do our due diligence for lack of a better term like, so Did that help steer you guys away from FTX? At the time,

 

Sarah Schroeder  35:56

we spoke on this pretty publicly, we hosted a webinar ourselves kind of late last year on the back of the FTX crisis? Look, I think one of the lessons that certainly ports over very clearly from traditional finance to digital is the importance of Counterparty due diligence and counterparty risk management. And that is not a secret, right? That is just part of being a fiduciary. And part of being a thoughtful investment manager is making sure that you know, who you’re doing business with, and not just what are the risks that are kind of very obvious on the table. But what are the implicit risks that you’re taking by working with different entities. And so when you’re when you’re looking at, you know, trading on any exchange, or working with prime Service Desk, or some other service provider, knowing especially when money is changing hands, and you’re gonna park assets at that entity? You want to know how that how are those assets held? Are they in a commingled structure? Are they held for your benefit? Or in a clearly delineated account? Have they cost? Do they have sock audits, you know, what is the degree of security and assurances that you can secure from that Counterparty? And then what does that tell you about the risks that you are not taking? And, and like I said, those broad questions and that general framework for thinking about counterparty risk management is much broader than the digital industry. But I do think that there was, especially kind of prior to 2022, there was quite a lacks attitude to counterparty risk management. And I, I have to imagine that some of that was this tremendous kind of sense of urgency to participate in digital markets. And you can either do things quickly, or you can do them carefully. But it’s very hard to do something quickly and carefully. And so many folks had to choose which end of that spectrum they wanted to sit on. And I think there were a reasonably large number of folks that chose to be quick, as opposed to careful. And as a as a business here, we chose to be careful as opposed to quick. So we did not have assets at FTX, or by Nance. And some of that is because, you know, at the time, when we first started as a business, we were a US investment manager. We’re located here in Connecticut. We wanted to and have since established a Cayman based IAM. And so we are, we are now very actively kind of shifting our focus to what can we do now that we have offshore funds and an offshore investment manager and kind of what does that open up in terms of possibilities, but that doesn’t lessen the amount of scrutiny that we applied those relationships. And I think that that’s, that’s really that level of kind of care is really what has safeguarded us a number of times, you know, just I think folks generally need to be really diligent about pressing on risks, and what is the downside scenario and you do have to be a little bit of a, a little bit of a pessimist even if it’s not your natural disposition. When you’re thinking about onboarding a new counterparty relationship, you really have to go through the worst case scenarios and and ask yourself what those are and then ask the counterparty what they are. And certainly one thing that we’ve benefited from is our counterparty due diligence process is very slow. We take a number of months to engage with any any prospective Counterparty and we ask, we tend to ask them the same questions over and over again. Part of that is because we’re looking to see if we get consistent answers over time, or the answer is changing and kind of subject to shifts in the direction of travel and wind and that that is a signal in and of itself, right. So we’ve been able to avoid all of the blower comes from last year, we didn’t have exposure to Celsius or Voyager or block phi or, you know, any of the any of the FTX kind of debacle. And, you know, we didn’t have exposure to the Terra Luna implosion either, even though we have published indices that include a number of crypto assets. But, you know, the those assets failed out of our index screening criteria. And, and, you know, there were definitely moments through 2022, where we would get questions or comments from folks who felt like we were taking quite a conservative stance to concern. Sure, yeah. Because especially in the in the kind of crypto crypto landscape. Yeah. When you have when you have a lot of folks that are doing a lot of things that we’re saying no to, eventually, you do look a bit conservative, but I think, you know, no, we’ve we’ve certainly seen things play out that validate those choices heavily. And we feel really comfortable that being conservative is an important part of survivorship, right? And I would much rather survive and be conservative to get there than the alternative.

 

 

Jeff Malec  41:10

I would have been like, well, we don’t call conservative, we just think you should wire the money to the custodians name instead of the trading firms. Now, there was some low hanging fruit of not necessarily conservative, but yeah, so good to know. So it sounds like you’re saying I’m gonna put like, hey, there were obvious red flags, if you’re doing careful. Due diligence, and it wasn’t too hard to avoid that. I think part of my understand, too, is a lot of people in their haste to get in, they’re missing the fact of like, no, it’s blockchain. It’s all on the chain. I’m protected, right? It’s in my name, like, so there’s this little misconception that like, No, I’m not just wiring money to some random place. It’s going on the chain, and I have. So I don’t know how much you think that was part of the issue. I think people that know, know, are like, no, it’s we

 

Sarah Schroeder  42:00

we also know, that assets on chain, you know, is not a sample of against all ills, either, right? We’ve certainly seen enough bridge hacks and rug polls to know that even if your assets are on chain, if they’re moving between chains through a bridge that has been, you know, historically, an area of weakness and vulnerability, and that none of these things are perfect, right? There’s no, there’s no, there’s no cure against any risk. It’s every decision in investment management, but also just in life, as a individual, every decision as a risk management decision, you’re choosing whether you want to take the risk that’s presented before you and do you think you’re gonna be adequately compensated for it. And I think the problem that many folks have is they’re they’re very focused on what the possible upside is, and not adequately focused on what the risk is. And then thinking about that, that expected compensation in light of the risks that they’re facing.

 

Jeff Malec  43:02

And I know at least some of the groups I talked with, like, oh, it’s hard to tell which exchanges are good and bad. So we’re just going to don’t put more than 10% at any one exchange, or something like that of these like standard kind of table stakes risk management approaches, but that you can lose 30%, when three of those go down. So you can

 

Sarah Schroeder  43:23

but you know, look, there’s something very practical about diversifying your uncertainty away a bit, right, you’re saying I don’t have great conviction in any of these places. So I don’t want too much exposure to any one of them. Could a handful of them still go down? Yes, of course. But do you think that that is statistically a slightly less likely outcome than one of them going down? And you have half of your assets there? Because you’re only up to? Yeah, maybe I mean, it’s not like I said, it’s not a perfect solution. But at least there is something in that where there’s that risk, reward trade off evaluation happening, right, you’re in the I’m going to spread my assets across 1010 exchanges, or 10 venues kind of construct, you’re saying, Well, I think all 10 of these have some amount of risk. But I think they’re probably less than one correlated to each other. So I think that I’m a little bit better off perhaps statistically, by spreading that risk around and my expected reward from trading over 10 of them versus just on one is maybe equivalent, but the risk profiles a little bit better. It’s not a it’s not a perfect solution, but there there is something kind of reasonable about it.

 

 

Jeff Malec  44:26

And what would you say I’d like to borrow this Bill Maher line, I don’t know if you ever watch him, but he’s like, it’s about Catholicism. So we’re going deep here, but he’s like, people, you want to swim in this pool. You admit, oh, there’s a few turds over there in the corner of the pool. But we’ll just ignore those and swim over here. And he’s like, there’s turds in the pool again. So in the crypto space, if we admit like, oh, there’s a few bad actors. There’s some weird stuff going on. Like how do you separate those two of like, I’m still fine swimming in the pool. Even though I know there’s some some bad stuff. But around the corner.

 

Sarah Schroeder  45:01

Yeah, I guess I don’t really think about it in that particular swimming pool and frame of mind. But I certainly do think about it as these are choppy seas. And so if you know the waters are incredibly turbulent, you can either just jump in and try to swim. Or you can put on a few flotation devices, maybe have a boat that is prepared to face high seas, you can choose, you can choose your, your vessel, so to speak, right, and you can either have no basketball at all and just kind of hope for the best or you can try to bury yourself. I think that that’s sort of the analogy I would take, right? So I guess in the in the Bill Maher swimming pool analogy, if you feel like you want to be in the pool, and you’re concerned about the water quality, maybe you build yourself a little boat,

 

Jeff Malec  45:55

or I’ve said it before, like if there’s a bar of gold on the bottom, well maybe build yourself a suit and go down and grab the bar and come back here so speaking of our metaphorical boat, so let’s get into the strategy that you’re running there. How it works, what what the base is, I’m assuming it’s trend following since you have said trend following writing. So we love trend following in this pod so so go for it.

 

Sarah Schroeder  46:23

It is admittedly where I have oriented my career so far. So that that’s exactly right. When I when I came to then one river does well and now Coinbase outside management, my my colleague and CO pa Paul Ebner, he came from CPP IB, he ran internal quant strategies there. He and I are so complementary to one another, I really think about things from a kind of bottom up quant construction point of view. And he more naturally tends to think about things a little bit from like a top down sort of portfolio integration point of view. And so we naturally kind of are very, very well suited to working to one with one another. So he and I started talking about just systematic strategies in general and what makes sense here, and if we’re going to build a quant stock and all of the infrastructure to support it, you know, what are the strategies that we think makes sense today? What can we focus on building first? And then what can we kind of table as something to build and curate later on? So, you know, to be honest, we started by looking at some other market neutral kind of futures arbitrage cross exchange our type strategies, because those have have been a little bit in vogue in digital for a couple of years. You know, bait some, there’s some basis trades that look attractive on their face. And as we started to kick the tires on some of those, this counterparty risk and exchange risk question kept coming up over and over again, you know, to really participate in those kinds of strategies, you do need to be participating on many venues. And very commonly, you’re trading instruments that are venue specific, right? So if you’re, if you’re trading offshore, and you’re trading perpetual futures on a particular exchange, that asset is not fungible across venues. So you’re, you’re living with the instrument on that particular venue. So you’re taking a lot of Counterparty and exchange risk. And as we started looking at those strategies, you know, we didn’t love the the risk profile that they carried for all of those reasons. But you know, the other thing is, those strategies, we’ve seen a little bit of Alpha compression in them over the last couple of years, they still look reasonable, but you know, if we’re thinking about what is viable 345 10 years from now, if you think that alpha compression might continue in those strategies, perhaps they’re not going to be as evergreen as something that you know, something like trend following that is a directional strategy. And so we started looking at those those strategies, kind of set them aside and said, you know, this, this looks okay, but we think we can do better for something that’s a little more viable today and going to be a little more Evergreen.

 

Jeff Malec  49:12

And classic, just for listeners, they’re like the CMA typically is at a premium because you don’t have the exchange risk, correct?

 

Sarah Schroeder  49:21

Well, you do have exchange risk because you’re on an exchange, but you you might have a lower exchange risk profile than some others.

 

Jeff Malec  49:30

So the classic trade there would be go long the whatever, European ether and short the CME ether

 

Sarah Schroeder  49:38

Oh, if you’re thinking about the trade yeah, that’s, that’s right. Take Take whichever instrument look, look for futures off on different venues, in equivalent assets and matched expiration dates and short whichever one is more expensive and long one that is cheap and capture this Write Effectively is the art trade there? That’s exactly right.

 

Jeff Malec  50:02

Right, and the problem that you’re bringing up if the long side goes away, right, if your profits there are gone, because of exchanges, you don’t have an arbitrator, you just have the one set. Yeah. You know,

 

Sarah Schroeder  50:15

from an operational point of view, kind of managing the cash suites, and the collateral flows across those different venues, adds complexity and adds another layer of risk that you know, is often not talked about, as well. So there’s a lot of moving pieces there. It’s not to say that you can’t do it. But doing it as a little is certainly difficult. There’s a lot of counterparty risk that’s baked in, you can mitigate some of that by having a very short horizon strategy, where you’re really only putting on positions intraday, and then closing them out quickly. So at least you’re not sitting on a position overnight. So the timeline over which you’re maximally exposed to one particular venue, or Counterparty is short. So there are ways to there are ways to manage around this a little bit and make that risk profile more palatable. But like I said, I mean, you know, given the the risk profile, the complexity, and the resiliency of that as a source of alpha, you know, we felt like it was perhaps not the most natural starting point, it, it seems it seemed worth consideration, and so we didn’t look at it, or we can seriously but ultimately set it aside and, you know, directionals, systematic strategies is, is definitely my wheelhouse. And so we looked at that as kind of the next well, you know, I had a very strong prior that it would work reasonably well. And sure enough, you know, looking at the strategy, we liked a lot of it, we loved a lot of the characteristics that I brought to light, you know, I think, for one, if you’re trading, if you’re trading the spot markets in particular, now you have an asset that is not venue specific that is fungible from one venue to another. So if you happen to run into trouble with one of your custodians or one of your exchanges, and you have a position on, you can move that position over to a different venue and still liquidate it, right. So you have an asset that’s fungible, so you have a little bit of like a layer of counterparty risk installation that’s really attractive. So that that gives you a little more resiliency to the strategy. That’s a nice feature. And, you know, if you think about trend following strategies, they’re meant to benefit from big directional shifts in markets. And just think about what we know from crypto the last three, four or five years, we’ve seen gigantic directional shifts in the asset prices. And I think that, you know, for me, I really view digital kind of going back to the AQR context, I view it as that extension of kind of go out the asset spectrum and look at the more idiosyncratic, more niche markets. And those are the ones that have their own specific return drivers that can create these big asset price movements. And trend following strategies are such a nice way to have a systematic strategy that lets you dynamically shift risk and monetize those opportunities when they come to market. And we’ve seen those strike those kinds of asset price realizations in crypto, it just seemed like such a natural fit. And then the ability to transact in in assets that are fungible across venues is really attractive, your transact, you can transact in spot markets, which have the arguably among the deepest liquidity in digital assets today. So all of a sudden, you’re kind of you’re participating in what you think might be a higher conviction, strategy, and in higher conviction, kind of trading and liquidity spaces and the digital ecosystem. So all of that all of those features are really nice.

 

Jeff Malec  53:51

Oh, and how many are we talking about how many digital markets?

 

Sarah Schroeder  53:56

So as you look, as you look at liquidity, you know, there’s quite a lot in the top two names, Bitcoin and Aetherium have lots and lots of liquidity, the top kind of 10 tokens outside of those two have reasonable liquidity, and then it starts to taper off pretty considerably after that, and even kind of within the top 10, outside of Bitcoin and eath, there’s, you know, the the top one and the 10th are quite different one to the other. So it does kind of exponentially decay, so to speak, right, you’re sliding out this liquidity scale. That means that what’s possible, from a trend following point of view in terms of transacting, it’s really not that many assets that are truly credible for from a liquidity perspective today. And actually, I’ll go back to our index construction. This is sort of a good guidepost among our asset inclusion criteria for our indices, our liquidity filters, so we use so the index publisher, I suppose I shouldn’t say uses market And PAP and liquidity filtering criteria to determine which assets are of sufficient liquidity to be to be sort of adequate for institutional investors, and that there has been a diminishing number of those over the last year,

 

Jeff Malec  55:15

I was going to ask us that have those filters come down from where we were five years ago?

 

 

Sarah Schroeder  55:20

No, the filters have changed. But that means the number of assets that pass through the filters has. So you know, after all of the filtering has been applied, including some fundamentals and risk screening criteria. I think at the peak, we had about 13 assets that passed those filtering criteria. Today, there are nine, so a few assets have fallen out, and they fallen out specifically because they failed to meet that liquidity criteria. So we’ve had, you know, think about like roughly 10 tokens are is probably the the rough pool today for what you can transact at sufficient size and sufficient liquidity. But even kind of within that 10, like I said, there’s just a huge amount of variation between the top two and the bottom two, they’re

 

Jeff Malec  56:07

in liquidity. And so my, I’m thinking, okay, the main one of the main benefits of trend following is diversification, right? And I have AD global markets, cotton and cocoa are moving when euro currency is doing nothing, whatever, and I can grab, right, I’m risking that small amount to make big amounts when those outliers move. So how do you think about, are those 10 Highly correlate? Do you lose some of that diversification benefit?

 

Sarah Schroeder  56:33

I mean, of course, you lose diversification. But if it relative to like, if in a 10 asset portfolio relative to 100 asset, there, you’re certainly losing breath, right. But I think about if you think about kind of your your information ratio, or your sort of alpha capture in a portfolio, there’s, there’s, there’s two components, you can think about breadth in the portfolio across the the asset spectrum, which is one way to think about it, you can also think about reference signals, so you can kind of get some within portfolio diversification from having more nuanced views on each asset. But the other thing, too, that I that I think is really worth mentioned here is one of the things we see that is, is a nice feature of trends in digital assets today in particular, is even if you just look at Bitcoin and Aetherium focus on your top two assets, where there is a lot of liquidity, even in this very, very narrow asset universe, just two assets, the the size of the trends that we see in digital assets is has been so pronounced relative to the size of trends that you see in more macro markets, right. And so the the kind of potential for really, really significant directional shifts here is still very large. And I think part of that is just due to how nascent the space is, I know digital assets have been around for 1015 years now. And that feels like a long time. But in the broader adoption lifecycle, we’re still in relatively early days, by a lot of metrics. And so if you think that you’re in this kind of big growth, big, big growth cycle, right, last year aside and kind of take the short downturns out of the context and pick and think about this adoption cycle, when you’re in this, this early adoption cycle, if you see the kinds of significant shifts in the years ahead that we’ve seen in the last 345 years, the ability to monetize those trends, even in a two asset portfolio totally exceeds your ability to monetize trends in pick your favorite to macro assets, right. And part of that is the volatility profile, you’re looking at assets here that are 50 to 100, Vol, annualized relative to come up in commodities, we talk about crude oil as being a quite a volatile macro asset, its volatility profile is pretty commonly around like 35 volley, annualized, that is a lot less than what we’ve seen in digital. So if you have these huge shifts, and you can monetize them, well, the possible the possible Alpha capture there, even in a very narrow asset universe is really attractive. And by the way, because we’re in such a relatively new industry with this kind of long term adoption cycle ahead, possibly, then, as you start to think about what market maturation looks like, all of a sudden, it’s very reasonable to think that the illiquidity conditions that you see in say, names 10 through 100 today, will ease considerably in the years ahead. So I think what you have now is a relatively small number of assets, where you can reasonably express this kind of portfolio, but the kind of opportunity that those assets present is still very attractive even though the pool of assets is quite small. And as you start to see market maturation, I think the attractiveness of trends in those caught top couple of names might start to compress a little bit. But that’ll also hopefully align with the time where the liquidity profile is such that you can add far more markets. So I think in terms of kind of the long term view here is that I don’t think that trends will be as attractive in just two names, 10 years from now as they are today. But I also think that it will be a much easier road to having a 20 3040 asset portfolio at that time than it is today.

 

Jeff Malec  1:00:37

That’s a I love that way of thinking about it. I hadn’t thought about it like that. The other way to say it would be what, yeah, those classic trend followers need 80 markets, because they need all those markets to get that volatility. Here we have the volatility with just these two markets. And so a few things you touched on there, one, it sounded like you might have said or hinted at, there’s a unique model for different tokens or no same model on all of them.

 

Sarah Schroeder  1:01:06

There are a lot of interesting things you can do. And we’ve got a few things in the works now to have some specific Alpha features for different assets, especially as you start to look at the all coins, right? I mean, you know, just think about the staking dynamics for Ethereum versus some of the other alt coins, they there’s a different cadence to how staking happens in these assets. The timelines are specific in some tokens. The kind of yields in some tokens are anchored at your moment of staking, and others, it’s a rolling cadence. And so there there are these kind of assets, specific features that you might want to bake into your alpha models. So there’s a lot of that kind of bubbling along behind the scenes here.

 

Jeff Malec  1:01:52

And you’re not like your mandate isn’t trend following the coins. It’s a Digital Alpha, right? You’re just trying to produce happen, no matter the model.

 

Sarah Schroeder  1:02:00

Yeah, I mean, look like the team’s mandate is investment strategies and digital assets. And, and my particular kind of lens on that is systematic strategy development and building the tech and infrastructure stack that supports those. Now, trend following is a great place to start. And you have to pick a pragmatic starting point for any new business. And so that’s exactly what we did. And that’s what we’ve been been building and have built so far. But we we have a sentiment model that is also directional in nature. That is, that fits nicely in this kind of portfolio context where, you know, it aligns with wanting to take long views and assets, where we see trends moving in a positive direction, and and looking to potentially go short, in markets where trends are starting to fall apart, but how you’re measuring trends and what time horizons and what kinds of trends, there’s a lot of opportunity for nuance and choice there. Right. So those are, those are the areas we started exploring kind of most immediately. But, you know, we’ve also spent as a collective team a lot of time looking at some of the more kind of fundamental metrics behind some of these tokens. Now, I think that that’s further afield, like if you think about fundamentals in equity markets for a stock selection portfolio, in particular, that’s a very well developed area of academic research. There’s a lot of papers on what factors look like in equities, what kinds of fundamentals matter, and you’ve got a whole host of fundamental or quantum mental equity managers that have very, very clear opinions on this. In digital, you know, we we so far don’t really see that asset prices respond exactly to fundamentals. And some of this is just the newness of the space. Some of it is also what market participation looks like digital assets have been up until quite recently, almost entirely driven by retail, right. And if I have to generalize about retail traders, I would guess that most of them are not spending a lot of time digging into the specific fundamentals of any one token. Now that might be over generalizing. But I think that’s probably loosely holds. But certainly, you know, it’s much easier as an individual retail participant to pay attention to what price trends look like how sentiment is evolving. And so from a from a investment strategy design point of view, I want to put things in the model today that reflect what market participants are paying attention to. And if market participants are not really paying attention to fundamentals just yet, then it’s going to be hard for trading behavior to reflect in asset prices, what shifts and fundamentals might be telling us Do I think that time is coming? Yes, absolutely. I mean, I think the entire existence of Coinbase Asset Management is a signal that that is probably not too far afield, because the more serious asset managers institutions come into the space and start looking at fundamental As the more we’re gonna start to see asset prices reflect that. But I think we’re just still sort of early there. So we have a lot of research happening behind the scenes, some of which will matter much more in the future than it does today. But that doesn’t mean that we want to neglect starting that learning process now,

 

Jeff Malec  1:05:17

and dissolve that you mentioned being short. So dissolve that hinge on a returned all time highs on the whole space getting adoption, and right, crypto increasing in value, or do you not care? The models could go long, they can go short? Who cares? Yeah,

 

Sarah Schroeder  1:05:35

the beauty of directional strategies and trends strategies is that you can be a little bit agnostic to market direction, right? I mean, it’s nice to have a strategy that doesn’t let doesn’t force you to anchor to a long term market view, in my opinion. I mean, of course, I’m biased here. And systematic strategies are sort of where I’ve lived for my, the duration of my career. And the long and short side of strategies is where I’ve lived. So of course, I’m speaking with some bias here. But I think in digital, this is definitely one of the things that we found resonates with some investors that haven’t allocated to the space yet, some folks find the some folks find the idea that they have to underrate a long term investment thesis behind digital to be a real barrier to entry in the space, it’s hard to get your investment committee to sign on to the idea that, you know, token X, Y and Z is going to reach some astronomical price, or even just exceed its price today. That’s very, very difficult to do for investment committees that, you know, haven’t done the due diligence on that one particular token or set of tokens. And, you know, I do you think this is why we’ve seen most of the institutional allocation in digital fall through flow through VC channels, because they’re really depending on on other teams to be able to underwrite that investment thesis and the possibility for one protocol to succeed or not. But you know, if you’re not ready or willing to tie yourself to a long only view in this space, you don’t have a lot of other choices today. So having a having a directional strategy that lets you say, I don’t know, I hope, perhaps that things are going up. But I realized that that they might not, and or the timing over which that happens, might not match my expectations, it would be great for folks to have an investment strategy that lets them be a little less tied to one outlook in the space. So if you have a strategy, like trend following that lets you go long when that is the direction of travel in the markets, and then lets you downsize that risk and go neutral or potentially even short, when the market really starts to unwind, and things start to fall apart a bit. That can be kind of intuitively appealing. I think it’s also really appealing from a risk management point of view, because as you talked about, the volatility in the space is huge, right? And living with a 50 to 100 Vol asset can be deeply uncomfortable for a lot of folks. So if you have this, this kind of trend following lens, and you’re tactically taking risks up or down and potentially even shifting the size of it from long to short. That lets you manage the risk around all of that and just kind of taking your exposure, even if you were just taking your exposure down to a flat or only very modestly short in a bear market, you know that that can be a lot less painful than having that beta one profile and fully realizing the downside.

 

Jeff Malec  1:08:39

We would call it delta one. But yeah, point point take the so talk about the short for a minute. So in the spot markets, especially as they’re a huge borrowers are very tough to go short. What does that look like as you get in Bitcoin? Aetherium. And even as you go further down the chain?

 

Sarah Schroeder  1:08:56

Yeah. So there’s a handful of ways that you can get short exposure today. The the one that probably gets the most airtime, generally speaking is perpetual futures. Those are those those are those are markets are offshore. There’s quite a lot of liquidity there. So that is definitely one accessible way for offshore investment managers to put on short exposure, but you’re paying a floating funding rate. So the the magnitude of the rate that you’re paying for that exposure is entirely driven by market supply and demand for leverage for perpetual futures. So you’re subject to a floating rate, all fine, still a reasonable way of putting on short exposure but it the the economics of that short exposure is highly time varying is really what I’m trying to say here. There’s also a handful of of counterparties that are offering OTC derivative type exposure, you know CFD use and all those good kind of standard things. those are those are another viable way to get that short exposure, but you are kind of facing a single counterparty there to do that. The other third way of getting short exposure today is through prime service desks. So this is very much like an equity print service offering where you’re borrowing the underlying you’re you’re borrowing the physical, I say physical, you’re borrowing the digital token to go short. And you’re it’s a loan arrangement. So you’re agreeing to a borrower a borrower rate on that particular token. And then you can transact in the spot instrument, as you would whether you were going long or or in this case, now, you’re going short, because you’ve borrowed the token, the you know, the choice for how you want to put on your short exposure is really going to be driven by strategy design. You know, if we’re going back to talking about some of those market neutral strategies, if you’re talking about futures are, you’re probably going to be transacting in in futures, whether it’s the perpetuals, or CME, kind of pick your favorite venue. But that’s very likely at least one component of your instrumentation. For for a directional trend strategy, you can be a little more agnostic to the instrumentation. But certainly one thing we found is there are some really nice features to the prime service offering where you’re transacting in in the physical token, again, you’re transacting in spot markets. So you have an asset that’s fungible across menu. So you’re preserving that layer of counterparty risk insulation. And we’ve found so far that the borrower rates that we tend to get quoted from from service desks have been have been reasonably steady, they do vary over time. And certainly we saw them become more expensive throughout last year, as availability became thinner, kind of as you went from early 2022, to late 2022. And some of those sources of token borrows,

 

Jeff Malec  1:11:50

as the market fell, there was more demand for more and more short,

 

Sarah Schroeder  1:11:54

not even so much demand, but just less supply. As you had folks downsizing their own crypto exposures, you’ve got less token supply available for lending, right. So that was definitely one feature to prime service offerings last year, that’s been that was really interesting to watch. But you know, even even with that kind of compression, so to speak in availability, kind of going back to what I said earlier, in Bitcoin and Aetherium, there’s really no issues tapping supply there, kind of regardless of what your desired instrumentation is, the liquidity is definitely there. As you go further out into the all coins, it gets a little thinner. But you can find the right counterparties that are willing to lend token to you. And there are perpetual futures markets in a handful of all coins that have adequate size. So kind of choosing the right instrumentation for your strategy, really important liquidity, it doesn’t really matter what the instrumentation is, the liquidity gets pretty thin, pretty quickly, but kind of within the top, within the top two names, you have a lot of liquidity within the top 10, you can get on some sighs but outside of that, it gets pretty thin.

 

Jeff Malec  1:13:04

It’s weird for me to think about borrowing the coin to sell, right? Because if it’s all in your name, it’s all on the chain. So it’s essentially in that prime services name, like how does all that work? Because you are you actually on the chain, it’s in your name, and then you sell it, and then you are you owe the prime Services Desk back and

 

Sarah Schroeder  1:13:23

basically, so you can you can kind of think about it as like a I’ll do a terrible job of describing this. So forgive me, you know, entity, some, some entity over here and unknown entity A has a large pool of token that they want to make available for lending. And I’m asset manager be over here. And I would like to borrow their token. And so there there’s sort of an intermediate intermediation account where I will post collateral to this account, for example. And that collateral get swept away and held in in a kind of separate account where the token gets pushed to that account, and then ultimately pushed to me. So collateral and token kind of pass through something that almost looks like a tri party type account structure. It’s like a pastor account. But you’re right, that kind of from a pragmatic point of view. The token is the token is moving from account to account. So it’s getting transferred from their wallet over here to this wallet to me. And then I sell it and then eventually I buy token back and then I we reverse

 

Jeff Malec  1:14:33

coins. Yeah, just weird to think of it that way, I guess is similar to how it works in the securities world. But

 

 

 

Sarah Schroeder  1:14:41

oh, it’s almost exactly how Yes, yep. But these days, it’s just that you’re right, the technological rails that it kind of sits on top of look a little different but from a kind of, from a market participants point of view it it looks almost exactly like an equity prep services

 

Jeff Malec  1:14:55

offering and to your point way earlier like that had to all be built all those rails right You mentioned a little bit of that one big investor who wanted to be long, like, what are the what are the types of investors you see that are looking at this like, to me when you say, yeah, we can trend falling? My worry would be as an investor, like, oh, it’s up 89%, we only got 500%. So there might be some investors who are. And that’s a bad example, I’d be perfectly happy with the 500. But right, there’s some investors like, Okay, your alpha strategy just gave me alpha and didn’t give me the long only return. So like, how do you separate those things? Like you got to be coming in, you’re looking for absolute return, not necessarily the crypto return?

 

Sarah Schroeder  1:15:40

Yeah, that’s for sure the case. And, you know, to kind of throw it back to the trend following category more generally, if you’re allocating to a trend manager, and the s&p 500 is up 30% for the year and your Trend manager is up three. I certainly there are plenty of trend managers that have had those kinds of conversations where the investors like I’m I see, the equity market was up a lot, why weren’t you up more and, you know, the the trend managers perspective on that is generally well looks like we’re managing a, we’re managing a volatility managed portfolio that trades a huge number of assets, and we’re dynamically sizing our exposure, and all those good things, all of those arguments still apply here. But I think, you know, at the end of the day, the reality is, if you want, if you want the long exposure to digital assets, there’s no better way to get it than to put it on, then you have to live with it. And that part is really hard, because the volatility is, is so astronomical. And so I do think that that’s why that’s one of the reasons why we’ve seen kind of the VC allocations be be favorable here. Because, you know, to a certain degree long only token exposure is like liquid liquid VC, you have an asset that in theory, you could trade every day, but are you investing in that asset? Because you think tomorrow you want to sell it? Or are you investing in that asset, because you think that its, its growth potential for the next five to 10 years is really attractive. So your investment horizon, if you’re going to make a long only allocation has to be calibrated appropriately. And you have to size your capital allocation appropriately in the context of your overall portfolio. So there, you know, for the folks that are inclined to put on the long movie exposure, the question is, what is the timing and what is the size of that allocation that makes it appropriate and the right fit for your portfolio. And those those are very personal decisions that every allocator has to make for themselves. Where we’re seeing the most interest in our trend strategy in particular, is, there’s really two camps, although I think a third is we’re starting to see emerge. But the two camps that have been most interested in so far, first and foremost, they’re the trend alligators, the folks that have managed futures exposure, they know that it provides them this nice kind of tail property that it has some option like characteristic, where in a choppy sideways market, where there’s not a lot of trends, you’re kind of paying a small premium for that exposure. But then you can have these really outsized return realizations in, you know, short ish periods that make the whole thing worthwhile. And, and the folks that understand that cadence to trend following returns and deliverance in their portfolios. Those are often the folks that you know, have already contemplated an allocation to an all markets portfolio, like my old AQR, portfolio, or, like, manage also evolution or those kinds of strategies. For the folks that are that have already contemplated those allocations, you know, they they often see digital as kind of the next evolution in that particular process. Their application horizons or kind of outlook sort of follows my career trajectory in a way, right. So that’s definitely one pool of investors that we’ve had a lot of really good engagement with they they intuitively understand the appeal to a trend following strategy and digital markets, because they think about it as an extension of trend following in other alternative and more esoteric markets, they get it, those those folks are very interested. The next group that are also very interested are the folks that already have a fair amount of long only exposure to digital and most of them have it through their VC book. And quite a number of them have experienced some pain in from the events of last year, right? They have, they went to all of these great lengths to get their investment committees to underwrite the idea that they shouldn’t have an allegations in digital. And after living with the write downs and the FTX collapse and all of the events of last year, you know, a subset of them now are looking at their allocate Should I’m saying, is there something we can add here that will complement our existing digital exposure in this VC book that will act a little bit like a tactical kind of risk, and a risk mitigation around our long only exposure that we have through this VC portfolio? That mindset is almost exactly why allocators have invested into managed futures strategies in the first place. If you’re trying to diversify your equity risk and protect against the big crash scenario and add something that could add a little bit of tail protection. You know, that’s kind of the classical argument for making a Managed futures allocation. We’re seeing some allocators kind of come to that same understanding within their digital allocation specifically through the kind of VC beta.

 

Jeff Malec  1:20:48

So almost like I could sneak it in, like, Hey, this is just an alpha strategy that we’re doing. Yes, it trades digital. But yeah, ignore that part. It’s just Alpha.

 

Sarah Schroeder  1:20:58

Well, I for these guys, it’s like how do we already under row having a digital book? And then how can we diversify within our digital book, The first category, the sort of the trend allocators? Those are the guys that are trying to add alpha to their crisis response, that book, right, they’re trying to add some other diversifying return sources to the risk mitigation book. And that’s, that’s, I don’t want to say it’s in the sneak in category, but it’s like, they already have a place in their portfolio allocation where they can underwrite that this strategy fits nicely because they already have trend allocations there, they’ve seen the benefit of those allocations. This is a different version of those same things that belongs in the same sleeve. And then for the for the folks that have the VC exposure, they generally underwrote the decision to have a digital investment already. So it goes in their digital book, but it would act as a diversifier within that digital book. Groups,

 

Jeff Malec  1:21:54

right? It’s sort of a weird conversation, because it’s like, hey, we have this long only book of digital. And it’s interesting, you use the word digital versus crypto, we’ll get into that in a sec. But like, we have this long only book and they’re kind of viewing that as short vol read it like this has negative skew, we’re gonna have these big draw downs, there’s, we want to add this kind of long ball trend falling classic approach. Yeah. Yeah, wait. So it’s like, I have this thing that shortbow. And I’m going to treat it as lava, even though it’s the same thing. Which is interesting. So what why do you use digital versus crypto? Is that a conscious effort? Are you just always a personal?

 

Sarah Schroeder  1:22:30

I mean, it’s a little bit of a habit, I suppose. Because from the olden days before we were a coin base asset management when we were one river, a digital digital part of the kind of standard nomenclature, and it’s a little bit of force of habit. But I think maybe it is perhaps a little bit of a conscious effort. Crypto, for better or worse, has mixed connotations. And I do think to be totally clear, I think about them as synonymous, I do use them interchangeably. I suppose in my when I put my professional add on, they tend to say digital a little bit more. And when I talk to my retail trading friends, I probably say crypto a little more often. And it’s a little bit you want to speak to people in the language that they use, because you want to be able to meet folks where they’re at. But I think of digital assets is a better term. I think crypto and, and part of this actually is rooted in respect for the original cryptographers. I think it’s a little bit of a shame that we have totally capitalized on terminology that really belongs to the cryptography community. And there’s an incredibly rich tradition there that is totally distinct from and broader than digital assets and the technology that that digital assets represent. And so I sort of want to I think I personally want to avoid using crypto a little bit out of respect for the mathematicians and cryptographers that came well before Bitcoin ever 10

 

Jeff Malec  1:23:57

I love it you ever read Krypton McCrone? No, I haven’t. It’s suppose I should. Yeah, so I’ll send you the link. And so speaking of will go to crypto now like what’s your personal Are you a holder you maximalist Are you a believer or what’s your um,

 

Sarah Schroeder  1:24:15

I’m certainly not a maximalist of any kind of anything. I’m a pragmatist. But, you know, truly because I’m a pragmatist. My, my personal portfolio is is long only, you know, I’m not looking to go short. In my personal portfolio. Frankly, I make very long horizon and very macro oriented investment decisions in my personal portfolios. I save all of the dynamic risk taking for my professional portfolios. That’s my day job. But my look, my personal portfolio, I wouldn’t be in this seat if I didn’t really believe that. The 10 The technology that underpins digital assets, I think, is pretty incredible. Will and has a long runway and a lot of potential. And, you know, I really do think about it in the asset allocation context I, I’ve got a mix of equities, I’ve got some commodity exposure these days, I even have bond exposure, because the yields look pretty good. But I think having a slice of of digital exposure in your personal portfolio look for everyone has to choose how big that slice is. But for me, I just think it’s, it’s such an obvious choice to have as one one element in the overall mix. And I I’m just a slow strategic kind of opportunistic buyer is probably the way I would characterize it. My my general cadence to my personal portfolio is to be to be a buyer in bear markets. So if it’s a painful time to be buying, that’s when I want to buy. So that meant that I kind of slowly and steadily picked up my crypto long exposures in my personal portfolio throughout all of last year.

 

Jeff Malec  1:26:06

You kept feeling pain, and then some more pain and some more pain.

 

Sarah Schroeder  1:26:09

Yeah, but you know, I mean, that meant that I kind of on a personal basis, I was buying up until January of this year, and then I, you know, right, as the market started getting a little bit of lift, I was like, Oh, I’m so glad that I did all of my buying during the bear market of last year. And I’m gonna kind of pause for now. But you know, the next time we have a major downturn in markets, I’ll pick up a little more. And that will be my course of personal action for the foreseeable future. And it’s, it’s been that way for a few years.

 

Jeff Malec  1:26:41

And you need to add a little rebalancing premium in there. But those tops and get out at some of the highs? What if US launches their own coin in China as a coin, all these governments have their own tokens or coins? Do you think that lessens the long term possibilities? Or is in concert with it?

 

Sarah Schroeder  1:27:07

No, look, I mean, well, you’re really asking now about the like Central Bank, digital currencies and stable coins status. Yeah, right. Those are, those are in different kind of category out within the Digital Asset landscape more broadly. So I think, certainly, we’ve seen stable coins pick up in terms of their their velocity and their use, I think, the last quote I heard was that last year, total stable coin, transactions were somewhere in the neighborhood of about 7 trillion. That’s not a small number. That’s a pretty sizable, now it is small in the context of broader global financial markets. Right. But I think it’s a very credible number, a very clear sign that the possibility for stable coins to act as a payment mechanism is quite real. But I think where that really, really truly starts to take off is when you as the end user, almost don’t notice it. Right? When we if I if I Venmo? Someone, I’m not actually thinking about what does where is that money? And is it USD on Venmo ledger? Or is it on a bank’s ledger behind the scenes, I’m generally speaking, not that concerned, because I’m transacting at small amounts, the money is there, and then my friend gets it, and they sweep it into their personal bank account and all as well with the world. I think when you can have that kind of experience with stable coins, where you almost don’t notice that it’s a stable coin that you’re transacting in or passing from one entity to another. That’s where you can start to see this really reach much, much broader adoption. I think this is kind of one of the amazing things to me about digital assets is the technological rails are so incredible, but I think that they reach kind of much greater potential when you don’t see them so much. One of the inhibitors to broader adoption today, arguably, is the wallet, the user wallet experience. It’s a little onerous to have to kind of transmit assets from one wallet to another. And, you know, am I in the right wallet, and oh, I forgot that I wanted this asset. And I have to flip to this other wallet to get it. And, you know, the user experience is not particularly seamless and fluid for the naive user today. And so that that does create some barriers to adoption. But once you don’t see those things as the user anymore, can stable coins become a much, much bigger payment mechanism and monetary transmission mechanism. Yeah, absolutely. I think that’s true. Now, the central bank digital currency arguments really, that one is a bit of An interesting one, because I’ve been talking about stablecoins here, right? And I haven’t been talking about CBDCs. Specifically. And this is where lots of lots of heated opinions come into play about the role of government and the role of decentralization. And I think, you know, this is where I find it really helpful to think about cash, cash, as we have it today, if you’ve got, if you’ve got dollar bills in your wallet, cash is permissionless. And cash is anonymous. And central bank digital currency is if you know, are could be neither of those things. They couldn’t be or they could find ways to be both of those things. But I think I take a personally skeptical view of central bank digital currencies unless we can replicate those same features that we all explicitly benefit from in cache, but we completely take for granted. Most folks don’t think about how, how much financial freedom you get from being able to transact anonymously in cash. I know there are some individuals and businesses that do really appreciate that and are mindful of it. But I think on average, we tend not to think about that as we go about our financial.

 

Jeff Malec  1:31:17

The knee jerk reaction is like, Oh, well, that freedom just leads to illegal stuff, right? Like only the people doing illegal stuff, want that freedom. But yeah, I can see that, like, my nightmare scenario is everything’s central bank coin. There’s speed cameras everywhere, I’m driving to Wisconsin, and they get me for speeding and just immediately take the coin right debited from my account or something like that. So like, that’s where it gets like all big brother and like, okay, they can not only track you, they can withhold money, they can write your taxes just automatically come out without you having any say in the matter. So yeah, there’s all that big brother stuff. That’s a little scary.

 

Sarah Schroeder  1:31:54

Sure. And, you know, I think, I think the opportunity to be anonymous, you know, think about charitable donations, yeah, if you want to make a sizable charitable donation to a cause that is near and dear to your heart. And you don’t necessarily want your neighbors down the street, knowing that you made this particular large donation to a charity that, you know, may not align with their ideals, but they’re your neighbor, and they’re your friends. And you want to preserve those interpersonal relationships, and you want to have some modicum of privacy around how you conduct your financial life. I think that’s a sort of more benign example here for why there are social benefits to having some degree of financial privacy. And it’s not just the sort of absence of Big Brother Enos, although I personally don’t love your don’t love your nightmare scenario, either. It doesn’t make me feel warm and fuzzy. But But I do think about these kinds of more like, this is a arguably a social good type hypothetical, where you are trying to financially support something that you think is is a worthwhile cause. But you realize that may cause social frictions for you, and you are looking to preserve your privacy and your freedom, so that you can maximize social good in both fronts, both your personal life and over the kind of the broader, global or societal front. Right, right.

 

Jeff Malec  1:33:22

And then I have to push back on your Venmo example a little bit, because it already works. Well, it already works. So why do we need something else? Right? It’s like, if this could only be just like, Venmo, where it’s all invisible, and we don’t even know what’s happening, like, Well, we already have,

 

Sarah Schroeder  1:33:36

we do have Venmo. And I’m not saying we need to eradicate Venmo. But look, I think this is kind of this is certainly where the maximalists and I disagree. I think about I think about digital assets and the technology underneath them as, as one of many tools that I want to have in my toolbox. I don’t want it to be I don’t want to open my toolbox and have one multi use tool and have that be the only thing there. Right. And so I think this is where if you if you start to think about if you start to think about currency strategy and central bank reserves, you know, central banks understand this explicitly. Many of them globally have not just one currency in their pile of reserves, but they have many currencies in their pilot reserves. Extend that. Yes, absolutely. So now you have a durable asset as well, and then extend that argument to say Bitcoin or Aetherium. And do you want that to be one of the tools at your disposal? Yes, I do. Absolutely. I do. And that’s why my personal portfolio looks the way it does. I want many tools available to me, not just one.

 

Jeff Malec  1:34:44

Right. That’s the concept of like, especially if you’re Venezuelan or somebody right, and there’s currency issues, right. So

 

Sarah Schroeder  1:34:51

you know, if you’re in the United States, and you’ve had just a tremendous amount of monetary easing for many years,

 

Jeff Malec  1:34:57

sure. I don’t get many women on this podcast. So I need to ask some questions on what’s it like?

 

Sarah Schroeder  1:35:09

Writing? Well, women?

 

Jeff Malec  1:35:11

I try that I just don’t know enough. What’s it been like for you being in the male dominated hedge fund world? Do you see that changing? Do you have any advice for young women trying to get into the space? All the above what some of your greatest hits from that standpoint?

 

Sarah Schroeder  1:35:27

No, it’s funny, I, I really never thought about this early in my career, which is, is a sign that I was relative to either incredibly naive or very sheltered, or very blessed, or some combination of all three of those things. But, you know, for the the practical advice that I think matters that has certainly served me well is I just started by following my interest in my intuition, I wound up studying math and starts through my academic career, because it just, it was an intuitive way for me to understand the world when I when I was incredibly young. And I started to learn to play piano, you know, your teachers teach you piano in kind of key letter notation, C, E, F, so on and so forth. I mentally retranslated all of those letters. And when I would read sheet music, I never thought about the letters I played piano. With through math, I thought about everything as additions, or subtractions, or multiplications, offsets from middle C. So I read sheet music and mathematical notation. And I didn’t do that because I, you know, thought that that was the way we should all learn things, it just was the intuitive way that my brain would interpret sheet music, it just made sense to me. So I followed my interests through academia and eventually just kept taking more and more math classes, and more and more stats classes. And at some point, you look around and you realize there are perhaps not as many women in your classes there were a few years ago, but I had just followed my interests until they kind of led me to a natural career path. And that served me really well because it meant that, you know, when the doubt creeps in, and when folks ask you are you sure you want to be here, there are not so many other people that look like you, you can very confidently say, yes, these are my interests. And this is what I’m good at. And this is the way that I see the world. And this is part of my value proposition. And if you can, if you can stand on that with conviction, that will serve you really well against a lot of the scrutiny that can come. But the other thing that I cannot, cannot overstate the importance of this, it sort of goes back to my heart and islanded AQR story, you have to have good mentors. We all need good counsel in this world. And we all need mentors that can speak for us in our absence, that can provide wise counsel, that can help nudge us in the direction where they think that we might find the most success. And, you know, coming out of undergrad, I was really in a not great place. At the time, I had spent my whole academic career studying math and stats, and I was so excited about beginning a career in finance. But I was applying for jobs in the fall of 2008. There were no jobs. I was I was on the job market and getting calls back from folks that were saying all kinds of things like we loved you, we would be delighted to hire you. But unfortunately, our hiring budget just turned into a firing budget. And the only way I found professional footing and wound up working at that consulting firm is because a faculty member and professor that I deeply admired, and had been a teaching assistant for suggested that I think about careers and consulting. He knew me well as a student, he knew my my aptitude in different subject matters. And he thought that that would be a very nice way for me to address my interest, but pivot a little bit and start my career in a place that you know, you know, had openings, for example. But I’ve really benefited from having wonderful mentors, bosses, professors, teachers along the way. And having those people that can give you a little bit of a nudge of encouragement is just so important. And that, you know, that advice matters for anyone that is entering a field where they may not feel like they are demographically represented in that field, but in that it matters for truly everybody. It doesn’t matter who you are, you need good counsel and mentors are part of how you get it.

 

Jeff Malec  1:39:46

I love it. And if you’ve found over time, like at the higher reaches of right, Ben now to the largest hedge fund firms, like they don’t care if you’re green, female, male, whatever, if you can say some smart stuff I produce a p&l, like you’re in, right? That’s true, it might be too cynical. But

 

Sarah Schroeder  1:40:07

no, there’s some truth to that, although I will say, I will say that you have to, you have to say enough things and do enough things to be taken seriously. And there are so there is this kind of curing period and how long the curing period is, does vary person to person. And, and when I say person to person, I mean, it depends on who’s being evaluated. But it also depends on who’s doing the evaluation, right. And so they’re there, the curing period, for me, has gotten shorter over time, because I have a much larger body of work and more credibility and more experience to stand on now than when I first began. And it’s that way for everyone, right? Eventually, you become a known entity. And that buys you a little bit of immediate credibility that you didn’t have early in your career. So I will say that if you do not look or act, or speak, like the kind of conventional person in your particular field, that curing period is invariably going to be longer. And that can feel very frustrating at times. But if you know that, if you know that the curing period might be long, there’s this kind of delicate balance, you have to strike where you need to say enough thoughtful and intelligent things to win credibility during the curing period. But you also almost don’t want to say anything too important. Because what you’re saying at the very, very beginning may not actually land initially, because the initial evaluation is do I take this person? Seriously? Yes or no? And then the second evaluation after you’ve passed that test is, and what do they have to say that I can learn from? So build your credibility first, and then communicate your message second?

 

Jeff Malec  1:42:07

I love it. I think we should leave it there. We can’t say anything more intelligent than that. Although I wanted to pick your brain on chat GPT and AI and all that, but we’ll save that for another time.

 

Sarah Schroeder  1:42:17

My answer is yes. Everyone should absolutely be experiencing it now. Learn by Doing. It’s, it’s pretty incredible. And it’s going to get more incredible in our lifetimes.

 

Jeff Malec  1:42:30

When it made me think of your AQR interviewing people in the future of like, hold on. Well, can I use my AI bot to answer these questions? Right, like and some of the firms might like yeah, let me see how you use right how you put that technology to use. Absolute Absolutely. All right, tell everyone where they can find you. What’s the website? You’re not on social media, right?

 

Sarah Schroeder  1:42:51

I haven’t LinkedIn. Although I am notoriously atrocious at social media. But we you can find us as Coinbase asset management. We are all over the internet these days as my best asset management previous references to one river digital will direct you there.

 

Jeff Malec  1:43:11

If you can’t, to paraphrase Tommy, boy, if you can’t find Coinbase like you shouldn’t be listening to this podcast, we’re gonna come smack you on the head with a hammer. And now I’m going to spend the rest of the day thinking of why did they invent musical notes and letters, it makes so much more sense. And man, I guess I’m a math person. But like, it makes so much more, right. Like, it’s gonna forever haunt me now. Let’s go research that. Well, thanks so much, Sarah. This has been fun. And hopefully not too long out of your busy day. But a pleasure.

 

Sarah Schroeder  1:43:43

Thank you for having me.

 

Jeff Malec  1:43:45

Okay, that’s it for the pond thanks to Sarah and her team at Coinbase. Thanks to RCM for its support. Thanks to Jeff Burger for producing. We’ll see you next week with a mystery guest.

 

This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.