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MiB: Ilana Weinstein of The IDW Group

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This week, we speak Ilana Weinstein, founder and CEO of The IDW Group, a leading consulting & hiring boutique for hedge funds, private equity and family offices in search of top investment talent. Her career took her from University of Pennsylvania to Goldman Sachs to Harvard Business School to the Boston Consulting Group.

She works with firms such as Citadel, Millenium, Point 72, and other highly-rated, sophisticated shops.

We discuss how difficult the present environment is for the hedge fund world. When she launched IDW in 2003, there were 3,000 hedge funds managing $500 billion; today, there are 11,000 hedge funds managing $3.5 trillion.  She explains why “Scale” is so important in the hedge fund world — data science and quant are a path to alpha, and very few firms can afford that sort of access to talent.

We discuss why it is a myth that the quickest way to achieve wealth is to launch a hedge fund. Most of the 11,000 hedge funds are single manager funds — neither Multi-Strat nor Multi manager — she notes two thirds of funds have an average AUM of $250 million. She suggests that the shakeout in hedge funds is continuing: “Its like a cottage industry of two bit players;” most of these guys will either muddle along or not exist in a few years.

She notes that there is a “war for talent” and that those people who can consistently generate alpha are sought after.

Her favorite books can be seen here; A transcript of our conversation will be available here.

You can stream/download the full conversation, including the podcast extras on Apple iTunes, Overcast, Spotify, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Matt Benkendorf, of Vontobel‘s Quality Growth Boutique, a publicly traded $110 billion Swiss investment bank. Benkendorf is the CIO of the wealth asset management division. His division was just awarded the Active International Equity Strategy of the year and Active Global Equity Strategy of the year.

 

 

 

Ilana Weinstein’s favorite books

1. I Am Charlotte Simmons

2. The Big Short: Inside the Doomsday Machine

3. Hacking Darwin: Genetic Engineering and the Future of Humanity

 

Books Barry mentioned

1. The Spider Network: How a Math Genius and a Gang of Scheming Bankers Pulled Off One of the Greatest Scams in History

2. The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution

3. The Bonfire of the Vanities

The post MiB: Ilana Weinstein of The IDW Group appeared first on The Big Picture.



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Economy

Book of the Week 7: To Engineer Is Human by Henry Petroski

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Henry Petroski is a fascinatingly eclectic writer – a nerd with the soul of a poet. I relied upon his book The Pencil: A History in writing the opening chapter of the forthcoming The Next Fifty Things That Made The Modern Economy (coming in May), and turned to Success Through Failure while writing Adapt.

I was delighted to receive To Engineer Is Human as a Christmas present – one of those rare surprise presents that actually works out… It’s a wide-ranging collection of essays and musings. Topics range from the experience of being a toddler in a world of adults, through the distinctive pattern of fatigue in a “Speak & Spell”, to the catastrophic collapse of walkways in the lobby of a Kansas City hotel in 1981.

One provocative idea in Petroski’s work is the idea that engineers learn through trial and error more than one might expect. Yes, there are the laws of physics and in principle one can calculate the load-bearing strength of any structure – but in practice, when we try to do something new we will sometimes run into the unexpected.

Not every essay hits the mark – I didn’t feel moved or improved by the analysis of the Oliver Wendell Holmes poem “The Deacon’s Masterpiece” – but like a collection of poems or short stories, if you don’t enjoy one you can skip to the next. Overall I felt I was learning things from Petroski that I wouldn’t learn from anybody else.

Some overlap with the more recent book Success Through Failure, but lots to intrigue.

US: Powell’s / Amazon   UK: Blackwells / Amazon

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Playing Scrooge in “The Best Economy Ever”

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@TBPInvictus here:

On Presidents Day, it is noteworthy that the current President feels compelled to cap the salaries of those employees who work for the government, who perform duties in the national interest, and  operate essential services for the benefit of the nation.

Salary increases limited to 1% annually. That ought to teach the Deep State!

Read Trump’s February 11 tweet below and try to reconcile it with the Feb 10 excerpt from a White House transmittal to Congress the day before.

Trump tells us — constantly and incessantly — that he has created the “best economy in history.” Let’s ignore the fact that he inherited  a robust GFC recovery from Obama, and then temporarily goosed it with an unfunded trillion dollar tax cut that never got us over 3% GDP on a sustainable basis, and which has since worn off, leaving us at a 2% or so GDP.

While we’re all enjoying the greatest economy ever, could he possibly – unilaterally, no less – cut the proposed pay increases (to 1.0%) for the nation’s Federal employees?

I don’t profess to have any other answer than that the man is a stone-cold hypocrite and liar. I’m open to other possibilities.

The previous day, February 10, 2020 (emphasis mine):

I am transmitting an alternative plan for pay adjustments for civilian Federal employees covered by the General Schedule and certain other pay systems in January 2021.

Title 5, United States Code, authorizes me to implement alternative plans for pay adjustments for civilian Federal employees covered by the General Schedule and certain other pay systems if, because of “national emergency or serious economic conditions affecting the general welfare,” I view the increases that would otherwise take effect as inappropriate.

[…]

We must maintain efforts to put our Nation on a fiscally sustainable course; Federal agency budgets cannot sustain such increases. Accordingly, I have determined that it is appropriate to exercise my authority to set alternative pay adjustments for 2021 pursuant to 5 U.S.C. 5303(b) and 5 U.S.C. 5304a.

Specifically, I have determined that for 2021 the across-the-board base pay increase will be limited to 1.0 percent and locality pay percentages will remain at their 2020 levels. This alternative pay plan decision will not materially affect our ability to attract and retain a well‑qualified Federal workforce.

This is rank hypocrisy. I don’t know who else is flagging this, but:

 

Greatest. Economy. Ever.

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Arguments for Compulsory Vaccination

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The Connecticut legislature wants to abolish the last non-medical exception for the compulsory vaccination of children, following in the steps of five other state governments (“Connecticut Lawmakers Brace for Public Hearings on Vaccination Bills,” Wall Street Journal, February 15, 2010). Two serious economic arguments can be made in favor of this measure. (It wouldn’t protect against the coronavirus, for which there is yet no vaccine, but this epidemic is certainly a motivation or an excuse for strengthening compulsory vaccination.)

The first argument is a public good argument, which can be summarized as follows. Everybody potentially benefits from other individuals being vaccinated, the main beneficiary being those whose age or state of health precludes vaccination. Immunization through vaccination is thus a public good, to the production of which everybody must contribute. A large part of this contribution consists in having oneself vaccinated. In order to prevent potential free riders from skirting vaccination while benefiting from that of others—benefiting from the so-called “herd immunity”—compulsory vaccination is justified. Richard Epstein’s article “Let the Shoemaker Stick to His Last” (Perspectives in Biology and Medicine 46:3, 2003) can be interpreted this way.

The second argument for “compulsory” vaccination relates to the fact that, nowadays, it is, thus far, advocated only for children as a condition for admission in public schools (or perhaps private schools too). A child, the argument goes, is, by definition, too young to know where his own interest lies, especially in probabilistic choices such as between the risk and consequences of catching the disease on one side, and the inconvenience and risk of vaccination on the other side. The child’s parents must make the choice. However, as was famously said in a slightly different context:

A priori, parents would ideally always be willing and able to protect children from tobacco themselves. If this happened, there would be little need for governments to duplicate such efforts. Perfect parents, however, are rare.

This statement is due to Prabhat Jha et al., “The Economic Rationale for Intervention in the Tobacco Market,” in Prabhat Jha and Frank J. Chaloupka, Eds., Tobacco Control in Developing Countries (World Bank and Oxford University Press, 2000), p. 164. Note that the title of the book is a misnomer, for it is concerned as much with rich countries as developing ones.

The validity the two arguments for compulsory vaccination, even for children, is not obvious.

The first argument is analogous to the one that Thomas Hobbes, in his 1651 book Leviathan, made for the state in general. Since the security provided by the state is in everybody’s interest—since it is, in today’s terms, a public good—it is also in everybody’s interest not only that everybody contribute to financing the state, but also that the state be the only judge of everybody’s contribution. Otherwise, free riders will ride. Or so claimed Hobbes.

One problem with the Hobbesian argument, as well as with the public-health argument for compulsory vaccination, is that it justifies absolute power. Although Hobbes took the argument very seriously, some would dismiss the fear of tyranny as a slippery-slope argument. As if slippery slopes did not exist. Consider how, in the early 20th century, compulsory vaccination was used to legalize forced sterilization. The famous 1927 Supreme Court decision in Buck v. Bell (274 U.S. 200) said it clearly:

The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes.

It was not an abstract matter. The decision legalized previous and future forced sterilizations against individuals deemed to be “imbecile,” “feebleminded,” “defective,” or “socially inadequate.” It is estimated that more than 65,000 Americans were forcibly sterilized up to the 1980s. The last sterilization statute, in Mississippi, was only repealed in 2008. (On this topic, see Paul A. Lombardo, Three Generations, No Imbeciles: Eugenics, the Supreme Court, and Buck v. Bell [John Hopkins University Press,2008].)

Another problem with the public-good argument is that, technically, it only applies to goods or services unanimously desired. If basic security against aggression can be assumed to be a public good, the assumption becomes less valid as it is extended to other goods or services. Indeed, from what we can observe in the anti-vaxxer movements, many people do not want vaccination because they think that its cost is higher than its benefits for them or their children. From the point of view of a philosopher-king, this may be true or not, but it is not correct to think that there is no “objective” risk. For example, philosopher Mark Navin (who believes that compulsory vaccination is morally justified) cites the Centers for Disease Control and Prevention according to whom the DTaP vaccine (against diphtheria, tetanus, and whooping cough) causes long-term seizures or brain damage in “only” one out 1,000,000 children (Values and Vaccine Refusal: Hard Questions in Ethics [Routledge, 2016]).

Furthermore, there is a good economic argument against government pretending to determine the “optimal” vaccination coverage. University of Chicago economist Tomas Philipson brilliantly argued that the fewer the number of people who get vaccinated, the higher the risk factor for the unvaccinated, and the higher the latter’s incentives to get vaccinated (or to use other prevention measures). (See notably his “Economic Epidemiology and Infectious Diseases,” in A.J. Culyer and J.P. Newhouse, Eds., Handbook of Health Economics, Vol. 1 [Elsevier Science B.V., 2000].)

As for the argument that imperfect parents cannot be trusted to make decisions in the best interest of their children, the basic counterargument is quite simple: have you seen many perfect politicians and perfect bureaucrats? Despite a few extreme and troubling cases, parents have been genetically hard-wired to look out for their children’s interests. There is no such hard-wiring for the state.

To be clear—and to this extent that this may seem relevant—I am not arguing that the anti-vaxxers are right. In fact, I don’t agree with their evaluation of costs, but I don’t claim that their children belong to me either.

In this short post, I have only scratched the surface of the issue. It may get especially pressing if an epidemic scare grips the public. It will be interesting to see if populists affirm the primacy of individual choices or, at least, the presumption of individual liberty or, instead, just follow a frightened and irrational mob.

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