Transcript: Michael Rockefeller – The Big Picture

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00:00:00 [Speaker Changed] This is Masters in business with Barry Ritholtz on Bloomberg Radio.
00:00:07 [Barry Ritholtz] This week on the podcast I have an extra special guest. Mike Rockefeller of Woodline Partners launched what was one of the hottest new hedge funds in a long time. 2019, he came out of the gate having previously worked at Citadel, raising about $2 billion in the new fund. Since then, it’s grown to about $7 billion. And they are not the typical hedge fund. They, they run a very specific sector focused type of fund. There are about 13 different portfolio managers each focused on a different sub-sector. It’s beta neutral, market neutral. They run long short across each of these, and they’ve put up some pretty impressive numbers over the past couple of years. It’s always interesting to speak to a fund manager in the midst of one of the craziest macro periods of the markets that we’ve seen and God knows how long, who doesn’t factor in macro events or the overall market because they’re market neutral and hedged. And when they look at a sector, they want to be long, the very best stocks at the best valuations they can, and short the worst stocks at the worst valuations. It’s a fascinating strategy and it’s one that’s been very successful. With no further ado my conversation with Woodline partners, Mike Rockefeller.
00:01:37 [Mike Rockefeller] Thanks for having me, Barry. Looking forward to the conversation.
00:01:40 [Speaker Changed] Same here. In fact, we had a conversation at an emerging manager’s panel back on at Bloomberg Invest earlier this year, and I thought you would be great for, for a master’s in business. So, so let’s dive into your background. How did you get here? Tell us a little bit about the early days of your career.
00:01:59 [Speaker Changed] Sure. So I was a neuroscience major in undergrad, so I, I had no intention of of being an investor
00:02:06 [Speaker Changed] Pre-med. What does neuroscience do?
00:02:07 [Speaker Changed] Yeah, it’s, you know, study of the brain and, and spinal cord pretty specific. And you know, I just, I love biology, you know, the human body is so complex and will never quite understand it. But I had this really unique experience in between my junior and senior year of college. I got an internship at a investment fund in Baltimore, and this was 2002 at the time. So they were not offering paid in internships ’cause the market was still recovering from the tech bubble crash. But the chief inve investment officer offered me a, an unpaid internship and he said, and this is what was interesting, that I could live with him and his family for the summer so
00:02:51 [Speaker Changed] Better like him. ’cause there’s
00:02:52 [Speaker Changed] No, no escape than that guy. I know it’s a big risk, but I, I did, I, I went down there and I spent the summer and, you know, I, I love sports Barry, and, you know, I think they teach you so much about life. I was not good enough to be a pro athlete, but I was amazed how many similarities there were to investing and being an athlete. You know, the competition, the practice, the hard work, the score and, and
00:03:17 [Speaker Changed] The occasional randomness.

00:03:18 [Speaker Changed] Yes. Yeah. And, you know, except in, in investing, the market is your competitor and your ability to understand businesses and what’s priced into a stock better than your peers is how you win. So what was really amazing about that internship was, was actually how Eric, the, the chief investment officer practiced. So what I mean by that is that on, in, in the morning, he would wake up early and I, and I saw how he prepared for the day on weekends. I saw how he would prepare for the next week. I remember walking into his living room on Saturday mornings and there’d be newspapers and research reports and articles all over his living room. And he said, this is where it happens, you know, the, the learning, huh. So I was hooked. I I said this, this is, this is what I want my, my career to be. And I was fortunate because I was 21 years old at the time. And from that moment, every step that I took was to get to where I am right now. Sitting, you know, sitting with you Barry, and, and you know, investing and being a part of a great investment firm.
00:04:29 [Speaker Changed] So you start at the healthcare group as an analyst in Citi in the early two thousands, obviously the background in neuro had to help.
00:04:37 [Speaker Changed] Yeah. So after my experience in Baltimore, I, I wanted to pivot to finance and came back to school and applied to every major investment bank that did not go so well. No one called me back. It, it was late in the process. Most, most of the kids that were going into banking at that time already had their jobs. And I didn’t have a background that banks wanted. I had never taken an accounting or a finance class. But finally Citi did call me back and invited me to interview. And I had four different interviews there and didn’t get any of the jobs. And so I went throughout my senior year and didn’t know exactly what I was gonna do. And fortunately at the end of the year, a couple spots opened up, one in the healthcare division of the investment bank, and they invited me in I interview, and I, I, I got the job.
00:05:31 [Speaker Changed] What, what was that job like?
00:05:33 [Speaker Changed] Well, a couple weeks before I joined banking, someone gave me a book called Monkey Business. Have you read that?
00:05:39 [Speaker Changed] I have not.
00:05:40 [Speaker Changed] So that, that book is about bankers at DLJ in the nineties, you know, premier Investment Bank. And it talks about how they worked 18 hour days, slept under their desk, endless pitch books every weekend. And I thought to myself, there’s no way it could be like this anymore. That was back then. And I have to tell you, Barry, it was exactly like that. It, it was, it was brutal. But I was so grateful because I knew my life could have been different. And so I was so happy to be there. I learned a lot of skills and probably the most important skill that I learned was the basic principle of double and triple checking your work. And if you ever make a mistake, don’t ever make it again. Huh.
00:06:28 [Speaker Changed] Really, really interesting. So you go from Citi eventually to Millennium and Morgan Stanley. Tell us about what you did at those shops.
00:06:36 [Speaker Changed] So in, in 2004, I joined Morgan Stanley equity research. That was great. They had a star studded cast of research analysts, Byron Ween, who sadly passed away recently. He, he had retired, retired, but he was still active. Henry McVey, who’s now at KKR, he was the US strategist, Katie Huberty, who’s still there now, was a young up and coming tech analyst. And I worked for Jamie

Rubin, who was a Top Pharma analyst. And it was great preparation for the buy side, you know, writing research reports, doing the same kind of work that you would do as an investor, except you’re making recommendations instead of on the buy side, you’re actually putting those dollars to work and structuring
00:07:18 [Speaker Changed] Portfolios. So, so now let’s talk a little bit about the buy side. Your next stop is Millennium. What was it like there?
00:07:24 [Speaker Changed] So in early 2008, millennium was looking for an analyst at one of their funds out in San Francisco, and I jumped at the opportunity. I’d never been to San Francisco. You
00:07:37 [Speaker Changed] Were working in New York at
00:07:38 [Speaker Changed] The time? I was working in New York and I jumped on a plane and moved to San Francisco. That, that was my shot. You know, so I, I was, I was, I was in
00:07:48 [Speaker Changed] 2008, the start of the great financial crisis. What was it like being at Millennium as everything kind of melted down?
00:07:57 [Speaker Changed] So Millennium employs a market neutral equity strategy 00:08:01 [Speaker Changed] Long, short, in other words.
00:08:02 [Speaker Changed] Exactly. And when I joined, I frankly didn’t appreciate the power of that type of investing. And then the fall of 2008 came and I learned the power of that type of investing. And to the credit of the portfolio manager that I was working with Josh Fisher, we were actually up that year.
00:08:21 [Speaker Changed] Wow. That that’s pretty, that’s pretty impressive. So your next stop is Citadel in 2011, and you spend six years there, Citadel also, like Millennium has a fantastic reputation. What was your Citadel experience like?
00:08:35 [Speaker Changed] So, during my time at Millennium, as my appreciation for proper portfolio construction started to grow, I had heard that Citadel was a pioneer in, in this type of investing. So in 2010, when they were looking for someone to start their healthcare team in San Francisco, I, I jumped at the opportunity, right? Citadel didn’t jump as quickly as I did. That was an 11 month interview process. Wow. Yeah. Including an all day, what you would consider FBI like interview where they, where they dig through every piece of your, of your background. It was very intense. But fortunately Ken Griffin took a shot on me in what turned out to be a life changing opportunity to build a business. And by the way, everything that I had heard on the outside about the quality of people at Citadel and the investment process that they employ, it was all true. Wow.
00:09:28 [Speaker Changed] So that had to be a fun experience, had to be a tough decision to make, to leave a shop like Citadel.
00:09:36 [Speaker Changed] It was my, my partners and I were incredibly fortunate to grow up at Citadel. It was there that we learned a unique and differentiated approach to portfolio construction and invest in where the output was an on uncorrelated alpha return stream.
00:09:54 [Speaker Changed] What made you decide to say, Hey, we really need to do this as a standalone outside of a big complex fund like Citadel?

00:10:03 [Speaker Changed] Yeah, so Wood Woodline was founded by myself, Carl Craker, our co-Chief Investment Officer, Matt Hooker, our Chief Operating Officer, and then a group of us who worked together for, for many years. And we, we studied the industry leaders of the past 20 years and we believed that we could iterate and improve on those learnings and create a durable investment firm that would thrive in the future. And, and our vision was to create an investment partnership like you’d find with a Wellington or a capital group with the risk management expertise of Citadel wrapped in a specialist structure at Woodline.
00:10:42 [Speaker Changed] So what was it like when you had to tell Ken, Hey, this has been great, but I I want to, I wanna hang my own shingle out. How supportive was he?
00:10:54 [Speaker Changed] The whole process was exciting, difficult, scary, wonderful, all all of those things. And leaving a successful career and starting your own business makes no sense on paper. The chance of failure is so high and it was a bad decision financially initially. So we had to make a choice between comfort and and creation. And I I remember reading Jeff Bezos’s bio at the time, and it talks about how Jeff was working at De Shaw Yep. In the mid nineties. And he had a great job and he had an idea to start an internet company. So he goes to David Shaw and he tells him about his idea and David Shaw says, Jeff, this is a great idea for someone who doesn’t already have a great job. You know, why don’t you take the weekend to think about it? So Jeff went home and he applied what he coined as the regret minimization theory. Yep. Basically, when he’s 80 years old, what’s he, what decision is he gonna regret less? And he chose a Amazon, which worked out very well for him. Lit,
00:12:05 [Speaker Changed] Literally threw all his stuff in a car and drove across country that next Monday. Yeah.
00:12:10 [Speaker Changed] And, and, and it was so inspiring. And obviously Amazon is a different scale, but I will say, I, I asked myself a similar question, which is, do I want to go on this journey even if I never get to where I’m going?
00:12:24 [Speaker Changed] Huh. Really, really quite fascinating. What was the most surprising thing you learned when you were launching your own firm? What, what kind of struck you as, huh? I didn’t really expect that to happen.
00:12:37 [Speaker Changed] I think how difficult it was to raise money, you know, it was, it was a rough first few months. Did, didn’t
00:12:44 [Speaker Changed] You guys launch with a big chunk of cash though? Like $2 billion? We
00:12:49 [Speaker Changed] Did, but we had trouble finding investors in the beginning and we had a lot of people on board who left great jobs who were relying on us to get funding. And so a little bit of
00:13:01 [Speaker Changed] Pressure there.
00:13:02 [Speaker Changed] A little bit of pressure. Yeah. And you know, it’s, it’s, it’s a different kind of pressure when you, when you’re now responsible for so many people. And so we eventually made the decision to fly to the Middle East to meet with a, a large investor hoping they would partner with us. And on the flight over, I remember waking up in the middle of the night, I looked up, the whole plane was dark except for one light on in the back of coach, and that was our COO Matt Hooker cranking away. And to say we were prepared for that meeting, you know, is an understatement. So we get all the way

over there, they brought, they brought us into this huge auditorium to present to their team and, you know, we were like, okay, this is it. This is our chance. One gentleman comes in, he sits down, we waited a few minutes, we then asked where everyone else was and he said he was the only one coming. Everyone else was busy, so, oh my God. So we ended up presenting to just him. And suffice to say, we walked away empty handed, but fortunately a couple weeks later, two partners came to the table and anchored our launch. And like that we were, we were in business.
00:14:13 [Speaker Changed] Wow. Really, really interesting. So let’s talk a little bit about your launch in 2019. You come out of the gate pretty fast, not a lot of emerging managers start with over a billion dollars. You guys were close to 2 billion. You know, you have since really ran that up in the, in the ensuing four years to over $7 billion. Tell us a little bit about how you built the firm and, and how it’s structured.
00:14:42 [Speaker Changed] So we structured Woodline to enable our world class decision makers to operate at their very best. And, and there’s a few key elements to that. One is we have a deep specialist approach. So where our teams are ex experts in the stocks that they cover, we also have a sole coverage model. So that means one person or one team is responsible for their group of names. No, no overlap. Our teams are also small and autonomous such that they can make decisions because we believe that people closest to the ground can make the best portfolio management decisions. And since I mentioned Bezos earlier, he has a great quote. He says, great teams should be small enough such that you can feed all of them with two pizzas. That that’s a good concept. We believe our senior team should have many years of experience perfecting their craft. There’s a gentleman named Anders Erickson, he’s done great work on mastery and he says that expert performance requires intense and deliberate practice for at least 10 years. RPMs have 18 years of experience. Huh.
00:15:53 [Speaker Changed] So you started with about 25 employees, you have since ramped that up to over 75 people. What’s it like managing all those people and, and that degree of growth?
00:16:05 [Speaker Changed] We set up a co CIO model to deal with that very issue so that we could attract the best talent, leverage the skills and capabilities of Carl and myself, allowing us to have more time both to invest. And we also set up a management structure of Matt, Carl, and myself, where every decision is made with a two-thirds vote. And that allows us to really delineate our duties to where we see fit and has provided us the ability to manage a very complex infrastructure.
00:16:43 [Speaker Changed] So, so no ties, it takes two of you to really move a decision forward. Carla Ko, CIO, Matt, running operations. So how much does that free you and Carl up to focus on the investing?
00:16:59 [Speaker Changed] We get that question a lot and we tell investors that both Carl and I spend more time now as co CIOs of Woodline actually investing in our portfolios than we did at Citadel, which is an amazing stat.
00:17:16 [Speaker Changed] And is that because of the, the structure where you began with someone running operations? It wasn’t an afterthought a few years down the road
00:17:24 [Speaker Changed] E exactly. Yeah. That, that structure was thought out so that we could focus on investing rather than having to spend all of our days managing people.

00:17:33 [Speaker Changed] So let’s talk about some of those people. You have 13 portfolio managers plus including you and Carl. You, you’ve talked about a player coach model. Explain what that is.
00:17:45 [Speaker Changed] So That’s correct. So 13 PMs, including Carl and myself, we also have very se seasoned analysts running portfolios, some not. These are people truly the best at what they do. And what we mean by player coach is that Carl and I didn’t want to just take the traditional chief investment officer role of management. We wanted to invest. And so Carl and I actually run individual portfolios within Woodline. So Carl runs a semi-conductor portfolio, myself and my team led by Anish Kapur and Brian Schmidt run a bio-pharma portfolio and we spend most of our days on those portfolios.
00:18:22 [Speaker Changed] And then how much time do you devote to managing the other 11 or so PMs?
00:18:30 [Speaker Changed] I would say we spend about 75% of our time on our existing portfolios that we’re running and the remainder of our time ma managing others and thinking about the business strategically. So,
00:18:43 [Speaker Changed] So let’s talk about your investment process. You come from a biotech background, Carl has a semiconductor background. Tell us a little bit about a, a process that has a dozen or so different PMs each with a different focus.
00:19:03 [Speaker Changed] We each have a different focus, but we all have the same bottoms up fundamental research process. The teams spend the majority of their time on research and learning about the companies that they cover. Each team covers a small group on average of about 50 to 70 names so they can understand them better. And they come up with unique insights on those stocks in their universe that may not be appreciated by the market. And then structure portfolios around those ideas.
00:19:30 [Speaker Changed] So when we think of the typical bottoms up stock picker, it it, it seems like there’s a whole lot of variation, but, but lots of funds tend to look like other funds. You guys seem to look very different than the typical either sector focused or bottoms up stock picking focused fund. What, what makes woodline a little different, a little more unique?
00:19:58 [Speaker Changed] It really comes down to our portfolio construction. We hedge out not just market beta, but any factors that we can’t predict. We focus solely on what is predictable and we construct portfolios around that so that we don’t succumb to factors that are moving the market on a day in and day out basis. That’s the key differentiation.
00:20:23 [Speaker Changed] Give, give us some examples of those factors that you’re looking to hedge out.
00:20:27 [Speaker Changed] Yeah, so in addition to beta, you know, there, there’s many factors that are moving stocks outside of what is I idiosyncratic to a particular company. In fact, you can, you can model these factors and, and their influence on stocks. So momentum, value, growth, short interest, and, and like other macro cross currents, we don’t have a unique advantage in predicting these factors. So we hedge them out. Huh.

00:20:51 [Speaker Changed] So, so you describe your key overriding strategy as market neutral equity focused on, on the global healthcare sector. Let, let’s break that down. Market neutral means most of the time you’re running long short. Is it long short against the market or long short, within the sector
00:21:11 [Speaker Changed] We run neutral to the market and to the sub-sector that we’re in both,
00:21:17 [Speaker Changed] Yes. So that’s gotta be a challenging strategy to, to create for hedging both at the same time
00:21:24 [Speaker Changed] That, and that’s why we have a specialist structure. So we, instead of having a healthcare PM or a tech pm, we have a semiconductors pm we have a medical device pm just focusing on, on those 50 to 70 names within those sub-sectors and then structuring portfolios within those sub- sectors. So you have to be a specialist to, to take this approach.
00:21:47 [Speaker Changed] And a lot of funds that have found success seem to have run some pretty concentrated portfolios. They hit a couple of big winners and, and it’s worked out. You don’t take that approach. Woodline has about 1200 positions that seems almost like a closet index, but your performance doesn’t track an index. You guys are absolutely not closet indexers. Why so many positions?
00:22:14 [Speaker Changed] The reason why it exists is because of our 20 individually constructed sub- sector portfolios that feed up into a master fund. And the end result of that is over a thousand unique positions.
00:22:29 [Speaker Changed] So less concentrated exposure. What does that big of a set of holdings do to the funds volatility and, and return patterns?
00:22:40 [Speaker Changed] So we offer investors an uncorrelated, diversified return stream. Investors can expect us to be up or down 1% a month. And our, our vol is around, you know, 5% annually.
00:22:56 [Speaker Changed] Huh? Not, not, not too bad. What do you do in terms of risk management? How do you stay on top of, obviously it’s, you don’t have a whole lot of concentration risk, but just generally speaking, what’s the risk management process like?
00:23:10 [Speaker Changed] So each of the portfolios are running a high idiosyncratic ball portfolio on their own, and it all feeds up into the master fund, which creates a great product. But we also monitor that from a top level. Both Carl and, and Matt and myself, you know, we’ll meet weekly and look daily at our exposures and make any adjustments so that we continue to make sure that we are completely neutral to any macro factors. Huh.
00:23:43 [Speaker Changed] Quite, quite intriguing. So let’s talk about some of those sectors you focus on, tech, healthcare, industrials, energy and consumer. Why these sectors? They, they almost seem unrelated. Well,
00:23:57 [Speaker Changed] The primary driver in deciding where to invest is great talent. That’s what we look at first. The secondary component is that we look for sub-sectors that have the most disruption, innovation and stock specific idiosyncratic volatility.

00:24:16 [Speaker Changed] Those sectors that you’re focusing on, there’s the greatest mispricing versus what the market believes. How, how, how do you, how do you look at these sub-sectors versus the general consensus? Usually
00:24:29 [Speaker Changed] They have the greatest complexity and the, the greatest disruption and therefore there’s a, there’s a larger spread between winners and losers and that’s what’s required to have a portfolio where the performance is really driven by our relative stock picking. Huh,
00:24:48 [Speaker Changed] That’s interesting. In the past you’ve mentioned that Woodline established a network of corporate execs and industry relationships. Tell us how you’re using this network to generate alpha.
00:25:00 [Speaker Changed] So we’re very fortunate to spend our days building relationships with some of the world’s leading executives. And these executives have a full plate of managing complex businesses. And so we’re appreciative of the time that they spend with us and the members of the Woodline team. We have a responsibility to create a mutually beneficial engagement. And so we need to be well prepared, ask thoughtful questions, and hopefully find ways to add value in terms of what we’re seeing across the industry. And then in return we get to have a front row seat of what these companies are doing and where they’re going.
00:25:38 [Speaker Changed] Huh, interesting. So in, in the way you structured the firm, you woodline does not have a full pass through. Tell us a little bit about firms that do have a pass through and and why you elected not to go that way.
00:25:54 [Speaker Changed] That was one of the most important questions to answer when, when setting up the firm, we believed that establishing a partnership model more akin to what you would find with a private equity shop as the best approach. And we’re called Woodline partners for a reason. The partnership structure coupled with our sole coverage model, has allowed us to compete effectively for talent.
00:26:18 [Speaker Changed] So, so let’s talk a little bit about that on a pass through model. If you are a fund manager that’s doing well and the firm is doing poorly, you still get full bonuses and everything else, everybody else takes a hit. This is more of a all for one and one for all sort of a three Musketeers approach. Everybody is a partner in the firm, not just running their own independent fiefdom.
00:26:46 [Speaker Changed] That’s correct. And, and it really aligns incentives with our employees and our LPs so that we’re all driving for the same goal.
00:26:55 [Speaker Changed] What does the lack of a pass through do when you are competing for talent?
00:27:04 [Speaker Changed] So far it has not impacted us because the partnership model has been an attractive component to candidates. Looking at Woodline and also the sole coverage is an important component. When you are looking at a platform and you join, you know, another multi-manager, you’re one of 2, 3, 4, 6, 8, 20 teams covering the same stocks. Right. And it’s more of a mercenary type of approach. At Woodline, we only have one software PM that’s Elliot Wilson, you know, we only have one medical device PM That’s Chris Hawkins. They are the key people.

00:27:45 [Speaker Changed] So, so given that, let, let’s talk about some of those sub-sectors. When you say you cover tech, how many different sub-sectors are under technology?
00:27:56 [Speaker Changed] There are four sub-sectors currently under technology. There are four sub- sectors currently under healthcare. And we break ’em up biotech services, pharma semiconductors, we have a Japanese tech pm we have a Japanese consumer pm we have a consumer health and wellness pm These are all very specialized sub-sectors.
00:28:22 [Speaker Changed] When you say Japanese tech, we’re talking about companies in Japan that you’re buying here? That
00:28:28 [Speaker Changed] That’s right. Huh.
00:28:30 [Speaker Changed] Real, really interesting. So each PM works for a specific fund, it’s not part of a whole pooled fund. How, how, how does that break down?
00:28:39 [Speaker Changed] It’s a good question. It’s all one fund that provides diversified access to all of our sub-sector portfolios. Part of the challenge for sector specific funds over the past decade is the higher volatility and lower sharp associated with that approach.
00:28:57 [Speaker Changed] So, so one of the sectors you cover is energy. It’s been a kind of odd space the past couple of years. The Russian invasion of Ukraine oil spikes, and by the end of the year, it’s below where it was when the invasion starts. Now we have the war in the Middle East, oil falls below $80. How do you contextualize oil and what other energy sub-sectors do you, do you look at, do you look at non-carbon energy? What, what else is in that area?
00:29:31 [Speaker Changed] So energy was one of those sectors that we didn’t initially launch with. And the reason why was because there was a lot of correlation among the companies within energy. And with all that’s gone on in the world, including clean energy, there’s been a lot more dispersion among energy companies and has, and have allowed us to first of all find a great analyst covering those names, but also to run a high idiosyncratic portfolio. So that’s why we entered the, the sector.
00:30:03 [Speaker Changed] Hey, it’s a really exciting time in healthcare. The mRNA drugs have been applied to all sorts of different things beyond COVID. The obesity drugs like Ozempic and Wegovy are, are finding amazing traction and having great results. This is your space, the the healthcare sector. What’s it like in this area these days?
00:30:28 [Speaker Changed] It’s an incredibly exciting time to be a healthcare investor. Science has gotten to the point where we are understanding biology and how to target areas that we hadn’t known for decades. And we’re seeing some incredible results. You know, we’ve made some breakthroughs in Alzheimer’s disease. We’ve made some breakthroughs in obesity and in diabetes, in cancer. And so to be a healthcare investor right now is probably the best time that I’ve seen in the last 20 years. Huh,
00:31:02 [Speaker Changed] Really interesting. We, so you mentioned cancer cell therapeutics looks like it’s a fascinating area. What, what’s happening in that medical space?
00:31:11 [Speaker Changed] Cell therapy is very exciting. You basically take a patient’s cells out, you infuse them and put them back in the patient’s body to fight the cancer. And we’ve had remarkable results, particularly in types of blood cancer. But now we are starting to see the promise to work on

solid tumors using this approach. And it comes down to the industrial complex around these, because you have to manufacture these cells for each individual patient, it
00:31:44 [Speaker Changed] Has to match their own genetics.
00:31:45 [Speaker Changed] You have to take the cells out of a person’s body and align it just for that individual person and then input them back in. And so this is not something that you can do like a pill where you’re, where you’re manufacturing millions of these, this is a one by one approach and so we have to figure out a way to make it more efficient, less costly, but I’m confident we’ll do that.
00:32:09 [Speaker Changed] So let’s talk a little bit about what’s going on in terms of the hedge fund industry, 11,000 hedge funds today. Go back 25 years, there were, I don’t know, a couple of hundred. Are there too many hedge funds? Has it gotten too crowded? Te tell us about what the space is like.
00:32:29 [Speaker Changed] The growth in the number of hedge funds has slowed recently, and we think that’ll likely continue as the consolidation of talent into the large platform models appear structural. And like any fast growing business, there’ll be winners and losers, but the platforms offer a material value proposition to their portfolio managers and limited partners alike and will likely survive various market regimes.
00:32:58 [Speaker Changed] So define what you mean by platform business models. I think a lot of people may not be familiar with that term.
00:33:04 [Speaker Changed] So when I talk about the platforms, some, some people refer to them as the multi managers, you know, the big market leaders are Citadel and Millennium, right? And
00:33:11 [Speaker Changed] Coincidentally, two places you happen to have worked.
00:33:14 [Speaker Changed] That’s right, that’s right. And you know what the platforms offer is two things. One, from a PM and analyst standpoint, they allow PMs and analysts to invest in their portfolios and not worry about the operational complexities of running a business. Right. That’s huge. And from an LP standpoint, there are lots of decision makers. So there are lots of ideas and it results in a uncorrelated, diversified, alpha return stream and one that an LP can do in a single investment versus the complexity of multiple investments in many funds.
00:33:56 [Speaker Changed] So when you were at both Citadel and Millennium, you didn’t have to deal with any of the operational challenges. What has it been like pivoting to running a business, hiring people, dealing with regulations, managing people, dealing with clients and LPs? How different is this experience from, from what you had previously?
00:34:18 [Speaker Changed] It’s complex and it’s critically important to have a fully built out infrastructure to support your investment team and manage the operations of your business. And we’re fortunate to have Matt Hooker and his team doing that for us very effectively and allows our investment team to invest even more than we were at Citadel, which is incredible.
00:34:41 [Speaker Changed] So, so we’ve talked about a lot of different funds. We mentioned D Shaw, we mentioned Millennium, we lunch in Citadel. Each of those have a very specific corporate culture driven by the founder. How do you create a corporate culture at your own fund?

00:34:58 [Speaker Changed] I just watched an interview where Ray Dalio was speaking to Bill Belichick, the head coach of the Patriots Bill had just earned his 300th career win. And Ray is all about principles. And so he, he asked Bill what his principles as a head coach are, and Bill said, put your team first, do your job, and continually focus on improvement. And these are the key principles to any successful organization. And they’re certainly part of the, the DNA of Woodline, but a football team has a lot in common with a successful investment firm. You know, on a football team, you have a little over 50 people who dress for the game, plus an entire organization around that. And everyone dreams of being the quarterback or the star running back. But the success of a team is driven by all those people who are doing jobs that may not have that, that same kind of glorified role. And at Woodline, Carl likes to say that people join because they choose to be on a great team rather than being an all-star on an okay team. And I think that’s true, and I, I like to think of Woodline as an organization of linemen, defensive ends and kickers where every role is celebrated and every person critical to achieving its goals.
00:36:20 [Speaker Changed] Let’s talk a little bit about return quality. You, you’ve discussed this previously. How do you define return quality and, and what do you have to do to deliver it?
00:36:30 [Speaker Changed] So ultimately the goal for all investors across strategies, public, private, is to generate uncorrelated alpha. And it starts with good risk management and optimal portfolio construction. If you look at the average investment fund, it has a risk profile of around 30% idiosyncratic risk. So let’s flip that around. That means the average investment firm has 70% of their performance that will be influenced by macro and market factors. That’s not high quality. And we think the industry can do better than that.
00:37:07 [Speaker Changed] And you cover North America, Europe, and Asia. Are you seeing more opportunities in one geography versus another? The, the world really is pretty uncorrelated these days.
00:37:21 [Speaker Changed] We see opportunities for our strategy in the us Japan and Europe.
00:37:27 [Speaker Changed] Japan especially has been a house of fire lately. The, the Nikkei is up substantially. I don’t think we’re all that far from the prior peaks before their big collapse in 89. What is it that’s driving Japan despite all of their demographic problems and everything else? What’s happening over there?
00:37:50 [Speaker Changed] Well, what makes a good market for us is breadth of companies liquidity and having a rules-based system. And in any of these markets, the market being up or down really doesn’t matter to us. If tomorrow you told me the market was gonna be up 5% or down 5%, it would likely have very little impact on the performance of Woodline. Huh? And so we really look at talent and then the types of companies that are within a market that we can structure a diversified portfolio with.
00:38:26 [Speaker Changed] So if I say to you, US has been really strong economically and Japan has been doing well, but Europe has been limping along. They’ve been rolling recessions from the UK to Germany to France, they can’t get outta their own way. You don’t care about that macro stuff. You wanna find the right company at the right price,
00:38:45 [Speaker Changed] And we wanna pick the winners and the losers, and we want to structure portfolios around those winners and losers. And the market just does not matter.

00:38:55 [Speaker Changed] Huh. That’s really, that’s really quite fascinating. All right. We only have you for a limited amount of time, so I’m gonna jump to my favorite questions. I ask all of my guests starting with what have you been streaming these days? Tell us what you’re either watching or listening to, either, you know, video or podcasts or whatever’s keeping you entertained.
00:39:17 [Speaker Changed] Most recently I’ve been listening to founders where David Sra summarizes the biographies of past leaders and entrepreneurs.
00:39:27 [Speaker Changed] Interesting. Let’s talk about your mentors who helped shape your career.
00:39:33 [Speaker Changed] Well, Ken Griffin is a larger than life figure and, and teacher that leaves at imprint about how you think about things your entire life. I’d also say that Brandon Haley, who started Holocene, he was the first of our group at Citadel to launch his own fund. And he blazed a path for Woodline and, and others and was critical in, in helping all of us get started. Woodline wouldn’t be here without him. And then on a personal level level, my father for teaching me the value of loyalty and hard work and and consistency. I’ve been really fortunate, Barry. So I I could go on for a while.
00:40:13 [Speaker Changed] Let’s talk a little about books, some of your favorites and what you’re reading right now. You mentioned Monkey Business. What, what other books are you enjoying?
00:40:21 [Speaker Changed] One of my all time favorites is Shoe Dog by Phil Knight. Have you read that? 00:40:25 [Speaker Changed] Yes. Really interesting.
00:40:26 [Speaker Changed] Yeah, it’s so great. What I love about that is after a long and sometimes grueling road for him building Nike, he said he could, he wished he could go back and do it all over again.
00:40:38 [Speaker Changed] I recall that. I thought that was the most bonkers thing in the whole book. Yeah. But after literally selling shoes out of the trunk of his car and not knowing if they’re gonna have enough money to pay vendors and constantly getting by on the skin of their teeth, the the first third of that book is like, I, I know the outcome and I still feels like they’re not gonna make it. They’re just skating by.
00:41:02 [Speaker Changed] Yeah, I know. It’s, it’s amazing and it’s inspiring for any entrepreneur.
00:41:06 [Speaker Changed] Any other books you wanna mention or,
00:41:08 [Speaker Changed] I’m reading Musk right now. And that’s
00:41:12 [Speaker Changed] Walter Isaacson. Yes. That looks, that’s that. That looks like it’s too big to read. It’s a giant tone,
00:41:18 [Speaker Changed] Isn’t it? I’m a third of the way through. Yeah. What I didn’t know, I, maybe I should’ve known this, was that Elon actually started SpaceX before he took over Tesla. Right.
00:41:30 [Speaker Changed] He didn’t start Tesla, he joined it joined. He didn’t start PayPal, he joined it. But SpaceX was his
00:41:35 [Speaker Changed] Baby. Yep, exactly. And he was thinking about space travel, you know, from a very early age.

00:41:41 [Speaker Changed] Huh. Quite interesting. And our final two questions. What sort of advice would you give to a college grad interested in a career in investing or, or hedge funds,
00:41:52 [Speaker Changed] Place learning and experience over salary and title.
00:41:57 [Speaker Changed] No matter what,
00:41:58 [Speaker Changed] No matter what
00:41:59 [Speaker Changed] You got, you gotta get those fundamentals down. The money will take care of itself later.
00:42:03 [Speaker Changed] Exactly.
00:42:04 [Speaker Changed] And our final question, what do you know about the world of investing today that you wish you knew when you were first starting out 15, 20 years ago?
00:42:17 [Speaker Changed] So I, I was fortunate enough to spend time with Will. I am from the black- Eyed Peas a couple years ago ago. And I was asking him, will, what? What was it that really made you so successful? And he said that at a very early age when he was in high school, he started looking forward 10 years, 20 years, 30 years. And then he would envision himself then and then work backward. Backward. So I would say, you know, let’s all be like, will I am and look 30 years ahead and envision what the future will look like so we don’t miss out. Huh.
00:42:58 [Speaker Changed] Really interesting. Mike, thanks for being so generous with your time. We have been speaking with Mike Rockefeller, co-Chief Investment Officer and Co-founder of Woodline Partners. If you enjoy this conversation, well be sure and check out any of the previous 500 discussions we’ve had over the past nine years. You can find those at Apple Podcasts, Spotify, YouTube, wherever you find your favorite podcasts. Sign up for my daily reading list@ritholtz.com. Follow me on Twitter at ritholtz. Follow all of the Bloomberg family of podcasts on Twitter at podcast. I would be remiss if I did not thank the crack team that helps with these conversations together each week. Sarah Livesey is my audio engineer. Atika is my project manager. Sean Russo is my researcher. Anna Luke is my producer. I am Barry Riol. You are listening to Masters in Business on Bloomberg Radio.

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