Intangibles of Building a Great Hedge Fund: Ken Griffin, Alex Klabin, Jason Karp (Milken Institute Panel) ~ market folly

Monday, May 4, 2015

Intangibles of Building a Great Hedge Fund: Ken Griffin, Alex Klabin, Jason Karp (Milken Institute Panel)

At the Milken Institute conference recently, numerous prominent hedge fund managers gathered on a panel entitled: The Intangibles of Building a Great Hedge Fund: People as an Asset Class.

Ken Griffin of Citadel, Alex Klabin of Senator Investment Group, Jason Karp of Tourbillon Capital, and Gideon Berger of Blackstone all took part in the discussion on investing and the hedge fund industry.

Milken Institute Panel: Intangibles of Building a Great Hedge Fund

Here are some select quotes from the panel and the full video is below:

Alex Klabin on what makes a great investor:  "Great investors, in my view, are able to distill complicated ideas / complicated situations down to the one or two things that really matter. And then make an analogy in their head to distill what the core of the investment is."

Ken Griffin on science versus art in investing:  "In every one of our businesses, there's a science and there's an art.  The science is usually caps in the process and hard work that goes behind driving an investment decision.  We'll do thousands of meetings a year, it's as unglamorous as it can be.  But you use it to assimilate information about how a company's progressing, how a business is unfolding or developing.  And if you're really good, you have an idea of what guidance is going to look like, what the quarter's going to look like.  The art comes down to not how well you can do all that work, but how well you can differentiate your idea from what other people perceive reality to be.  And you're successful in this business when you have a differentiated point of view and the market agrees with you when the information that you have becomes known by all ... You need to have the ability to understand: how will other investors respond to this information when it becomes known.  That's the art in the business, and it's a tough art."

Jason Karp on people as an asset class:  "In our industry, people spend more time on stocks than they do on people.  In my 17 years, what I've discovered is that people, if you train them properly, if you invest in them properly, have more duration, yield, and optionality than any stock I've ever purchased."

Jason Karp on what he looks for in hiring:  "One of the things that we screen for is a variable called openness to change.  And it's the single most important variable that we screen for.  It's basically how well you're able to quickly change your mind when you're presented with conflicting information."

Gideon Berger on what he looks for when investing in managers: "Some people are trying to become lifestyle hedge fund managers, and some people are just trying to get rich, and some people love investing.  What are you actually trying to do?  The two things that we focus on the most: 1. the commitment to building the organization and 2. character that suggests we think they can withstand adversity."

Gideon Berger on what they do before investing:  "What we try very hard to do is be very explicit and write down our investment thesis going in.  Why are we making this investment?  Where do we think the edge or opportunity is coming from? If the thesis is playing out, but the investment isn't playing out, that's an opportunity to add to the position.  But if the thesis isn't playing out but you're making money, that's good luck.  Separating why you're making an investment versus results is very important."

Embedded below is the video of the panel from the Milken Institute:


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