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Season 3, Episode 15: Colin Lancaster is Fed Up!

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The macro trader discusses his book and what to make of central bank policies.

Colin Lancaster, global head of macro/fixed income at Schonfeld Strategic Partner Fund, joins the podcast to discuss his book Fed Up! Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader.

The book spans the period from October 2019 to June 2020 and includes the height of the coronavirus crisis. This features heavily into the conversation. We also discuss the Federal Reserve and his view of current markets.

Content Highlights:
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Not intended as investment advice.

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Transcript

Nathaniel E. Baker 0:36
I am here with Colin Lancaster, author of the book ‘fed up: success, excess and crisis through the eyes of a hedge fund macro trader.’ this book was just published last month. And I started reading it in anticipation of this call. And it is quite an entertaining read. It tracks the period of October 2019 through June 2020. So a period marked by a turning in fed fortunes, and the Coronavirus crisis, of course, and then also the the tail end of that. And so I’m really excited to have column on here because he’s not just an author, but he happens to also be the Global Head of macro and fixed income at scone Feld strategic partners Fund and the time period when he wrote the book, if I’m not mistaken, he was the citadels head of macro strategies, correct me if I’m wrong. And the book, right, like I said, is quite entertaining. So there’s a lot I want to get into here. And I also want to get your views on on current markets. And we were recording this on effect on a day that the Federal Reserve is set to announce this latest interest rate decision. Not much mystery there. But there’s going to be a lot of commentary around it. But Alright, long story short, call it I guess my first question is, was did sit it out, were they on board with you reading this book Do they know about it?

Colin Lancaster 2:06
it was actually during a sit out period

Nathaniel E. Baker 2:10
Oh

Colin Lancaster 2:10
During a garden leave period subsequently after that. So it was this amazing time, because, you know, you have a period of natural reflection. And all of a sudden, this is corresponding with this amazing, hopefully once in a lifetime event with with the spread of the pandemic. And you know, I’ve always been this incredibly avid reader, I just love to read. And and I also really admire authors like Michael Lewis. And what would I was doing in that period, just to stay fresh with the markets is doing daily journaling, you know, collecting my thoughts on the markets in what was happening. And as we got through, you know, march of you know, as the pandemic is really, you know, just exponentially increasing in data every day, is I looked at myself, and I said, Collin, you have this amazing content, you’ve been journaling this like, like, if you’ve ever wanted to, to write a book, now is your chance. And you know, the market is giving you this, the, just what we’re living through is giving you so much content. And my oldest daughter, who’s the real writer in the family said, you know, dad, like like, this is, this is your shot, like you got to do this. So it was it was a really fun project for me, and it captured this really extraordinary period of time.

Nathaniel E. Baker 3:40
Yeah, there’s a lot here that jumped out at me in the book. And it’s a really good inside look at macro trading and the type of thing that isn’t really available widely. I mean, we had, you know, liars poker, obviously, is a great book. But you know, Michael Lewis is what a junior sales trader. And another one that I would have my reporters read was actually, when genius failed Roger Lowenstein, also great book, but he’s also a journalist, as a journalist, I’m not going to talk too much crap about my fellow journalist, except that we’re not inside these these these trading firms, these hedge funds. We covered them like I do. But it really, and it’s a look inside macro trading. And the thing that jumped out at me here, right in the beginning, and I’m looking, I’m trying, I’m trying to find the passage, but from a contrarian perspective, and this idea that you have to stay on top of everything, and you have to keep an eye out for things moving and take the other side of that. So where’s macro trading right now? Where is it going? How is it evolved?

Colin Lancaster 4:47
First, on your and your comment on the book. I What, what I really enjoyed about writing this is I’m not a journalist. I’m not a writer.

Nathaniel E. Baker 4:58
not a bad thing, but go on

Colin Lancaster 4:59
I’ve always written things like monthly market commentaries and investor letters, things like that. But but to be able to, to put this into words, in kind of First Person, you know, through the eyes of someone in the business, I thought I thought was differentiated that that was a unique about this, it was also an incredible challenge for me because, you know, I also didn’t want it to be too technical, you know, I didn’t want to write the history of quantitative easing, did that only nerds like me would would would read it. And so did to make some of these topics more readily accessible from people that aren’t in the business, you know, what was a real challenge, but it was really fun and it Look at you mentioned kind of macro investing, and one of the things that that is always pulled me towards macro is that you know, that the investors that invest in this strategy expect us to be a diversifier against their broader portfolio of investments, you know, largely equity based investment. So, you know, macro is, you know, your typical portfolio is largely comprised of, you know, trades in, in the global interest rate markets in, in foreign exchange in other asset classes. And, you know, I think one of the challenges and one of the great ambitions of macro is that these investors that come to us, they, they look at us as a diversifier they want us to perform when the equity markets are, are in the midst of episode. And so, to me, that that’s kind of this incredible challenge to have this profile as a positive carry put, you know, is, as they say, but but to provide to provide protection, when the markets are the scariest, and, you know, March of that period, during the pandemic was was exactly that case, you know, if you think about this, you know, nearly 35% Peak to trough drawdown, and we saw your the most volatile period really on record in terms of how the markets were gapping, you know, in one direction or another during that period, it was a really, really amazing time. And, you know, from from a markets perspective,

Nathaniel E. Baker 7:21
is it feasible to be able to make returns when things are really kind of hitting the fan, because, you know, having lived through the 2008 crisis, and again, last March, we saw correlations kind of all go to one right? Or maybe it’s go to zero, I don’t know what the exact, but you know, I remember and I remember in 08, like gold sold off, oil sold off, the Swiss franc sold off. And we saw this similar thing in February, March last year. So all these you know, what were considered safe haven assets went to hell with everything else. So what does one do there? I mean, I guess there are certain things like treasuries were the one safety right. But yeah,

Colin Lancaster 7:59
no, I think that is an ongoing challenge. And, you know, not only for macro, but for the broader markets overall, which is, what is a real flight to quality asset in any given market, because the worst thing in the world that can happen in a period like this, is you’re in something that you expect to perform well to be, quote, safe. And it’s not saying no sudden that’s getting pounded as well, due to unwind activity or just de leveraging across the board or, or, or whatever that is, and obviously, you know, as you know, you know, we’ve seen sort of a shifting correlation regime where, where bonds treasuries don’t give as much protection as they used to just because where we are from an interest rate perspective from zero lower bound range. So where will you need to be in the next crisis? For real safety? Is that in cash? Is that in treasuries? Is that in, you know, in dollar yen is that, you know, Swiss franc is that crypto is that, you know, that there’s a number of things that you need to think about. But, you know, what’s interesting is, you know, from a mandate perspective, you know, on the macro side, you’ll knowing that investors expect us to perform in in environments like that, is I always say that, you know, what we’re paid to worry, you know, we worry a lot about everything. And instead of finding sort of that new, exciting growth story, what we’re always looking to uncover that, that imbalance that’s going to create problems in the world from some type of structural perspective. But it’s also what makes it fun when does when you really accept that mandate is what you want to deliver on.

Nathaniel E. Baker 9:52
Totally. And I found the quote here that I was referring to you say here, the holy grail of macro is finding an imbalance You touched on this just now, maybe it’s related to growth or interest rates, or a central bank’s reaction function, and then profiting from the moves in that country’s interest rates, or foreign exchange or equity, or credit markets, which is a wide swath of asset classes, by the way. But this begs the question, and you said, you know, trying to look around the corner and see what pockets of risk might exist, what has What are you concerned about right now?

Colin Lancaster 10:26
I am, I, again, I’m paid to worry. So I worry about a lot of things. I, I think that now, you know, a couple of things really come to mind. Number one is I see pockets of speculative excess appearing in a lot of areas of the market, whether that’s the meme stocks, whether that’s how people traded crypto in, and, you know, the other new emerging types of crypto, that the coin based products, etc. It’s the bubble that we see brewing in the housing market. But, you know, this all comes down to a point which is related back to this fed meeting that we’ll have later today. And the results of that meeting, which is, you know, the, the Fed is going to intentionally run things hot. So in a lot of ways, they’re kind of giving up their own optionality because they’re saying, Hey, we know things are gonna run hot, we’re going to allow that to happen, we are going to be slower than we, you know, in historically would have responded to this change in the economic data. And that, to me, creates a, you know, just paths of uncertainty, because, you know, if you are really worried about the specter of inflation, and you know, I’m an old guy. Now, you know, I grew up in the 70s, when inflation was really viewed as a bad thing that, you know, it stole from savers and stole from the middle class, because wages never keep up with the rises and of inflation, and all of a sudden, you have, you have a Fed now, that, that seems to want to really stimulate inflation. And that’s a big shift from a policy perspective. And on top of that, we have, you know, incredibly loose monetary policy conditions combined with, you know, these ongoing bouts of fiscal spending. And so, to me, we’ve taken the the overall experiment to a brand new level here, where we’re not sure how this is how this is going to end.

Nathaniel E. Baker 12:35
And you touched on this in the in the book as well, how it’s not your father’s, you know, fad, and it’s in the trading environment. So what does an investor do? I mean, like you said, the Fed has, is insisting that this inflation is transitory. But yeah, what does one do to protect against that,

Colin Lancaster 12:51
I think, over the summer months, you know, at least in to the Jackson Hole period, we’re going to be in a bit of, you know, the same state of affairs that we’ve been in, which is the Fed is going to encourage the building of a bigger bubble. And, you know, look your products like, like equities, our inflation hedge and, and so I think I think markets continue to move higher, that the problem with all of these things is, you can be on this course, until there is that event that that that changes everything, and it’s scary, because people always kind of feel that there’s going to be time to prepare, there’s going to be some type of writing on the wall to allow them to reposition their portfolios. And in my experience, that never happens, you know, when you have, you know, a 35% move in three weeks time, or even the global financial crisis, where you’re the writing been on the wall for a couple of years, and then all of a sudden, you reach a tipping point. These tipping points in a lot of cases, end up really becoming more more violent events, when some some, you know, some underbelly of leverage is is is is kind of pricked, and all of a sudden, you’ll see for selling in an asset class that spreads to others. And in the moral of the story is when those events occur, it’s usually too late to do anything you know, you’re along for the ride. So it is a matter of in the better periods like this, to really think about what those events could look like and and how you can hedge your portfolio for to protect yourself.

Nathaniel E. Baker 14:34
As far as these canaries in the coal mine are any specific events that you are maybe not events, but any any markets, or anything like that. Is there anything that you watch as far as keeping an eye on what could be ahead in terms of these events, anything that might trip you up?

Colin Lancaster 14:52
While we look at so much in it’s one of the benefits that I’ve historically had, which is The businesses that I’ve managed over the course of my career have been fairly significant in terms of just human capital, you know, 50 investment professionals or more as part of my team. And the great thing about that is you have people that are touching every bit of the market. And you can really understand and see these early warning signs, maybe that’s like in 2007, when a little financial institution like Northern Rock goes belly up, and and is a sign of much bigger, deeper problems to come. Look in this type of environment, you know, the take up that we’ve seen in things like the Fed’s reverse repo facility, you know, it’s quite scary to me, because it shows that there is too much liquidity in the system and the fact that the Fed is going to do, you know, another you’ll run and we’ll continue with its balance, bond buying, even after it announces some type of tapering activity later this year, it just shows you that there’s already too much and we’re, there’s too much cash sloshing around. If the Fed didn’t have that facility, you, you would see rates in a very negative type of type of position. And, and so that that is probably the most fundamental imbalance that you can see in the markets, you know, we, we could see 8% GDP growth, you know, it did a bit later this year. But from an interest rate perspective, if the Fed was not maintaining this facility, you know, rates would be negative. And that’s kind of a crazy disconnect. When when you really think about that. So we’ve really kind of discarded normal monetary and fiscal policy responsiveness to where we are in a cycle, because typically, you’re all of the central banks, like many of the big developed central banks have already done to Bank of Canada, Bank of England, even ECB or head of the Fed in this cycle, in terms of beginning to withdraw liquidity from the system. But, you know, the Fed is saying, look, we’re not, we’re not going to follow this historical playbook. We were we’re trying something new here. And that’s always a dangerous thing to me, because particularly when it comes to inflation, I feel that the Fed has very little credibility on that on that topic. You know, they have chronically Miss model that they don’t understand it, they’ve never been able to hit their inflation targets for so for them to say, Hey, don’t worry. Well, you know, you don’t have a great track record of success in this.

Nathaniel E. Baker 17:37
Yeah. And when they do they reverse it very quickly. I mean, witness, you know, what happened in? And you write about it in the book in 2019?

Colin Lancaster 17:46
I think that’s exactly right. And I think you know, that this new approach, while I understand it, I understand that they’re there, they’re at a new level of being all in on this experiment, I think increases the likelihood that we will see a policy mistake in the future, which will have a bigger impact on markets. In at the end of the day, you know, we’ve sort of solved a one size fits all, all solution to every problem, whether that’s the global financial crisis, or COVID. You know, what we’re going to see is a massive expansion of the Fed’s balance sheet engaged in the buying of more product, an increase in our overall, you know, IOU from the federal government, which, you know, stands in, you know, something just under 30 trillion now, but it’s really difficult to think that these amounts can ever really, truly be unpaid. Unless we’re able to inflate our way out of it, you know, that the playbook back to even 2008 to 2010 was, yep, we’ll grow our way out of it, we’ll be able to exit in a normal way will normalize interest rates, and that just never happened, and I don’t think it ever will really be able to happen.

Nathaniel E. Baker 19:00
What’s an investor to do to protect against inflation?

Colin Lancaster 19:05
you’re seeing it if you see the way housing is ripping, if you see a lot of commodities are ripping, you know, people are putting that trade in and you know, obviously Paul Tudor Jones gave a speech or you know, press interview yesterday where he was talking about going all in on the inflation trade, which you know, a lot of those types of expressions but you know, it’s really amazing but you know, you’re seeing those trades performed.

Nathaniel E. Baker 19:32
You think of so upside left there?

Colin Lancaster 19:34
Yeah, absolutely. I think I’m depending on what the Fed does at its upcoming meetings, could really drive those trades to new heights.

Nathaniel E. Baker 19:45
Alright, so all in on inflation. Cool. Con Lancaster. I want to take a quick break and to give our sponsors a chance to be heard. And come back and ask you some more questions. If you’re a premium subscriber. Do not hit the dial because you will not get Break. Anybody who wants to become a premium subscriber should head to the website contrarian.supercast.tech and sign up.

Welcome back everybody here with Collin Lancaster author of this fascinating book fed up, that’s fed up followed by an exclamation point. And come on. This is the segment of the show where I like to ask guests a little bit more about themselves, and about their background and kind of get into their whole like origin story to put things into Marvel terms about how they came to investing in the first place. I know a little bit about you for having read it that you hail from Detroit. Now is that South Detroit, were you born and raised in South Detroit?

Colin Lancaster 20:40
Born and raised in South Detroit, I am a big fan of that song, that’s for sure.

Nathaniel E. Baker 20:44
Nice. And I know you’re you’re a hockey player, just recently had a guy on here, Brody, Howett who is a pretty big time hockey player a couple months ago anyway, take it away, tell me about what you’re

Colin Lancaster 20:58
I feel that I have a very non traditional background, I am a lawyer by original training, I really willed myself into the financial markets, I was obsessed by I saw what some of my friends from college had gone into and felt that I had kind of missed the boat by going to law school, I really wanted to be in that same business. So you’re back to my love of reading, I began to absorb everything about the markets. And and and just worked hard to ultimately get a seat. And I feel just so fortunate because I bet a 25 year career now, I’ve really been able to see the entire evolution of the hedge fund business from the very early days to the very institutionalized firms that you see today from the growth of that the types of strategies that that are included. And for me, it’s just such a fascinating business, because I’ve been able to learn from some of the icons of the business. But I also really admire I you know, the real hedge funds, those that really hedge those that, you know, seek to deliver absolute returns in all market conditions. I think that that is just such an incredible thing to do. And, and and I really admire that, and I love my job. I’m just so lucky to have found this and to still be in the business.

Nathaniel E. Baker 22:29
What led you to write the book, you touched on it at the outset.

Colin Lancaster 22:31
yeah, it was kind of on my to do with something I always had aspirations to get done. Because, you know, many of the people that you mentioned, you know, Michael Lewis, Roger Lowenstein, you know, great authors, you know, I love their books. And I wanted to kind of pay tribute to that and do it through the eyes of a macro trader, which is obviously what I know best. And I thought we’d make it most interesting. Because, look, at the end of the day, I don’t think Michael Lewis needs to worry that I’m going to steal market share from him, you know, this is not what I do for a living. But I did hope that people would, would take away my passion for the markets, the frenetic type of life that that people lead the 24 seven nature of, of macro investing. And importantly, you know, by writing this, I hope that my you know, my parents can kind of understand what I do now.

Nathaniel E. Baker 23:28
Nice. So what is the other than what you just mentioned? Is there any big takeaway about this, you talked about the fed a lot in the book, I mean, the title fed up, you know, these ones think that you’re a bit of a, I don’t want to, say, a gold bug, or someone that’s into the gold standard, but just somebody who’s just not all That into this whole, you know, central bank running everything.

Colin Lancaster 23:47
Yeah, look, I feel that quantitative easing is reached its limits as a realtor that, you know, we’re at the we’re at the point now, where we suffer from significant diminishing returns on every additional bond purchase that that goes on. And unfortunately, you know, I think that issues like wealth inequality, which which, you know, you see a lot about that now, you know, those types of issues are often framed as a political issues of political outcome. And I don’t think that that, that they are, I think it’s much more a monetary policy phenomena and, and it’s an unintended consequence. I think that, you know, the Fed always had good intentions and the global central banks had good intentions. But the unintended consequence is that, you know, by virtue of what they’re allowed to do, which is, is lower interest rates, or buy buy products in the markets, which drives up the value of stocks and bonds which just unduly endures to the benefit of people that don’t always did it. The top one 1% benefit, and other people don’t. And I think that that, by itself has given rise to the more divisive politics, we’ve seen the rise of populism, you know, across the globe, not just in the United States in and I think people need to understand, you know, quantitative easing, QE is role in some of those things. So I am not, you know, no longer a fan of this. And I understand why the Fed has had to do this, you know, when, when it appears that the economy is on the brink of a collapse, and there’s potentially, you know, systematic failure of financial institutions like in the global financial crisis, they need to do something. But the tools end up having this really kind of absurd outcome, and that, you know, fewer and fewer get richer and richer.

Nathaniel E. Baker 25:48
What can be done about that, if anything?

Colin Lancaster 25:51
Well, look, I think the one thing is, is that there needs to be this more counter cyclical type of policy, where you stimulate the economy, when it’s at its low point when, when it needs it most. And then you withdraw that type of stimulus over time, you know, right now, policies like QE, we don’t want to reserve for the bad times, you know, it’s an everyday occurrence. And that, that, just that that is not healthy, we need to fix that. And in Secondly, I think that the role of the fiscal side of spending, you know, it really became diminished over time. But now we’re at a point now, where we’re, you know, we’re running these things contemporaneously with, which is also very dangerous, you know, in, in, in a good period, you know, at the tail end of a 10 year bull market, we’re still running, you know, a couple of trillion a year deficit, you know, that that’s insane. And there’s no, you know, financial prudence to these things that we’re doing. And to me, it feels like, you know, the Fed is more closely aligned with the Treasury Department than ever before, you know, not only because of the fact that Janet Yellen is the former chairperson of the Fed, and is now running Treasury. But but the fact that the Treasury knows that the Fed will always be there to buy the bonds that they need to issue to finance deficit spending. And that linkage, I think, is, is also a bit troubling from a long term perspective. And, you know, none of these things will cause a collapse tomorrow. And, you know, a lot of people like to talk about, you know, the US dollar losing its, its status as the, you know, reserve currency for the world. And, you know, look, these types of things tend to take a long, long time to play out. But it seems to me that, you know, every day that we go further down this path, it makes it, you know, virtually impossible to self correct, at some point.

Nathaniel E. Baker 27:50
Is there maybe does the Fed have too much autonomy, maybe is there? Remember, this is a quasi government body? I mean, it’s not, but it’s financed by the banks, but it came into existence, What 1914? I think they were constitutionally originally like, you know, protections against central banks and such, but is there maybe some way that you can put some kind of oversight on it maybe require some kind of sign off from some Congress or whatever to have the Fed? Or would that be too much insanity?

Colin Lancaster 28:19
Look, I think it would be fascinating to explore the mandate that we’ve given them and decide if that’s the right one, you know, at the end of the day, you know, their their key mandates have been full employment and price stability, meaning, you know, not allowing inflation to create problems. The problem that the way that the mandate has evolved, though, is on the employment side, that can be met by creating, you know, a billion minimum wage jobs, you know, that there’s no understanding of what, what people need to live in on the price stability side, you know, obviously, we’re entering into a new regime where they are going to tolerate a higher level of inflation or so that they see. Now, there’s a third part of this that is also crept in, which is maintaining liquidity. You know, if you think about, you know, the bond market in you know, the, the peak of the pandemic in March, when we saw this chaos in markets, the bond market essentially broke down, and it was up to the Fed to to, to to help provide liquidity to make it function normally again. So, you know, now the feds mandate is, is really expanded to being this this provider of liquidity on a more regular basis, in that there was this really interesting period where Christine Lagarde who was new with ECB at the time, made a comment to the market in that period saying, yo, we are not here to close spreads meaning to maintain some nor no semblance of normality. How the markets trade. And when she said that the markets freaked out, and she had to withdraw that comment about 48 hours later. So all of a sudden, you know, because of some of the restrictions placed on bank and the liquidity structures of the market, you’re the Fed has this much broader mandate now, which is that they got to make sure that there’s enough grease in the system to allow it to operate normally in periods of stress. And, you know, that’s a brand new part of their mandate, which never existed. And, and to do all of those things, they essentially have a very limited set of tools, they can, you know, raise or lower interest rates, they can, you know, expand their balance sheet and buy products. But in a lot of ways, I feel that they, they don’t have the tools to really help ordinary people.

Nathaniel E. Baker 30:46
Yeah, but I mean, is that is that their job? I mean, should they? I mean, price stability, ultimately should help normal.

Colin Lancaster 30:53
Look, it should. But if you You are a believer that QE has been a cause of the rise in wealth inequality, you know, that’s certainly not part of their mandate.

Nathaniel E. Baker 31:06
Yeah, interesting point. All right. Cool. The, you know, one thing I wanted to ask you going back to markets here a little bit, you mentioned, the major central banks, how much of and the Fed is, obviously, on this inflation creation, kind of path, and the ECB and the other major central banks have kind of curtailed that a little bit. Are there any central banks out there that are actually moving towards tightening and whose currencies are maybe appreciating where you could take that part of the trade? If you’d like to look at that at all?

Colin Lancaster 31:37
yeah, look, as I mentioned, I think a number of the developed markets, central banks have acted before the Fed, the Fed is going to play even more of a waiting game than they ever have historically. So you have seen that, in your specific question, I would expect to see more currency volatility as a result of this, as you see central banks, departing from more synchronized activity, and focused on slightly different policy mechanisms that they’ll pursue going forward. Now, whether or not that’ll last, we don’t know. But if it does, that, that should, should, you know, amount to a lot of really interesting opportunities across the foreign exchange markets,

Nathaniel E. Baker 32:25
which is a very difficult market to trade as you know, more than better than anybody. So your book here fed up, it takes us into back in, you know, into the insides of a trade of a hedge fund, macro trading desk, and quite a bunch of characters here, many of whom have pseudonyms in the book. And I’m wondering here, if those were their actual nicknames? If these characters are real, or maybe not invented the kind of an agglomeration of other characters? And what that’s like?

Colin Lancaster 33:05
Well, it’s such a great question, because the book is a novel, it, you know, everything about markets is real, the thought process is real. But but but on the character development side, I took certain leeway with timelines and personalities, etc. But I would say that the two of the main characters in the book, the character who is called the rabbi, and the character that is called the life coach, are two of my closest personal friends in the world. And these are both people that I’ve worked with over the years, I have a tremendous amount of respect for them. You know, the things that we talk about in the book are the exact same things that we talk about in real life. And it’s great, because life coach is a phenomenal beer pong player in real life and dresses, the way I described her. And some of that was was really fun for me, because, you know, one of the things as I was getting through the book, I also realized, and, you know, you mentioned great journey song earlier in this, but there was something that that I’m a huge fan of Tom Petty in in one of his later interviews given in his life, he said, you know, what, one of the great thing about creating music or any type of art is once you’ve done that, it’s there forever, it is there. And, and for me to to be able to capture this moment of time, but also, to really give a compliment to some of these people who I’ve really respected have influenced me over my life was important, because, you know, hopefully, we all live long lives and to look back in 3040 years and say, yeah, it was a pretty amazing time. And I’m glad we we won that beer pong game.

Nathaniel E. Baker 34:58
Yeah, yeah, it’s good. To see that these personalities still persist, because you do talk a lot about the institutionalization of the space and about how everything’s become a lot more corporate and stuff. And, you know, that’s been my experience too, just just in the in the work world. I mean, even newsrooms now have, you know, just because of risk, and all these other things, you just really need to keep a lid on, on stuff. How do you see that developing? And is, is the future? Does it belong to the institutional hedge funds? Or is it really? Is it more of the maverick guys, the two guys with a Bloomberg or whatever?

Colin Lancaster 35:27
Oh, look, I think I think it’s so important, you know, size and scale become very important because you know, you need, you need access to the best technology now, you need to be to be able to look at the best forms of alternative data to include within your process, I think it’s, I think it’s almost impossible for a small group to be able to outperform the market over time. So in a lot of ways, I think that what we’ve seen across the hedge fund space is, is somewhat similar to what we saw across the big asset management firms in the 70s and 80s, where there was, you know, very significant consolidation among firms and, and big got bigger, and they needed to, because you need that scale to really compete in the markets

Nathaniel E. Baker 36:14
although interestingly enough the mutual fund performance hasn’t been all that great.

Colin Lancaster 36:18
no no look, the the active managed, active management generally, is been under pressure for some time, the rise of ETFs and other types of low cost products, which, which is a great thing for retail at the end of the day. But, you know, these are pretty seismic shifts in market structure, and, you know, the types of products that you need to really, to really outperform,

Nathaniel E. Baker 36:42
you mentioned alternative data. I’m curious, they’re not to give away all of your your trade secrets, of course, but maybe just some ideas have some sources of things that you that you look at that maybe that you think people should look at.

Colin Lancaster 36:54
Yeah, look, I think, you know, people are always looking for great new sources of data, you know, one that is a very known quantity now, but you know, a lot of firms use this as looking at, you know, credit card data and how people are spending money and what that may mean for things like retail sales, or shifts in consumption trends, you know, that things like that which weren’t certainly weren’t available 10 years ago, become a bit of a game changer in terms of looking at individual corporate earnings, as well as the bigger macro economic trends. So and we’re still in, obviously, very early stages, you know, the importance of data. And just the way we’re tracked on our phones today. And then the way that data is repackaged and sold, will become you know, increasingly investable over over the next decade.

Nathaniel E. Baker 37:44
Yeah, no question. Yeah, I had a guy on who’s talking about a company that does sell cell tracks, cell phone data in malls, foot traffic in malls, which is really fascinating. What I learned from that is to turn off my Wi Fi. When I’m not on my cell phone, at least unless I’m at home, because that’s how it gets you know,

Colin Lancaster 38:05
We’re tracked in so many ways now. It’s really hard to defend against.

Nathaniel E. Baker 38:10
Yeah. Wow, really interesting. All right Colin Lancaster, thank you so much for coming on the Contrarian Investor Podcast today.

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