Multi-Strategy Hedge Fund and Opportunistic Credit Investing

EMS: Tracy, I'd like you to start off and tell us a little about your firm and how you got to where you are today.
TMS: Sure. So Corbin's vision, way back when, was rooted in my prior experience working in various aspects of the traditional asset management business. When I started with Corbin, hedge fund managers were pretty fringy in the institutional market. They weren't yet mainstream, and it wasn't a space I had worked in previously. But what I found was hedge funds were revered. They were treated with kid gloves and everyone was worried about accessing their scarce capacity. So I was pretty shocked by what I saw as the disconnect between an adoration for hedge fund managers yet relative disregard for client needs. What I thought was hedge funds were simply asset managers in a different package. And in traditional asset management, it was crystal clear that clients were at the center of the galaxy and treated accordingly.

Most hedge funds didn't seem to get that. Client alignment wasn't the point. And this was reflected in the lack of transparency and service provided to clients. So our vision was to create a better hedge fund option that was truly client-centric. The goal was and still is to impact clients meaningfully by achieving unrivaled results. We agreed that if we couldn't deliver consistently stronger returns than most competitors, then we shouldn't be in business. We still believe that. So we structured the firm around that guiding principle.
EMS: Tracy, Corbin has been a pioneer in investing in hedge funds. And as we all know, the industry has seen transformations in the last decade or so. I welcome the opportunity to hear your outlook for the sector. Where do you see the greatest opportunities? And also, on the other hand, what about the biggest challenges?
TMS:Well, for opportunities, active management is definitely back, especially fundamental stock selection has returned, and it's particularly important now in this low rate environment. This is partly due to the incredible time we're in, massive disruption across and within industries has been turbocharged during COVID, and the macro backdrop continues to be dominated by the Fed and global central bank action. That's now coupled with enormous fiscal stimulus. So this all creates potential landmines, but definitely opportunities and dispersion in asset prices. A different trend is ESG, which we'll get into in a minute, but that represents an exciting opportunity for active managers to add value and to more effectively manage their risk. Now, on the flip side, the challenges. Active management is a tough pursuit, and will continue to take prisoners. If you don't figure out how to add value for clients, you probably won't last. And another challenge that just remains is we continue to think that fees across hedge funds are too high, a tough hurdle to overcome, and particularly in this low rate environment.
EMS: Tracy, in addition, I noticed that Corbin forayed into opportunistic credit. I would welcome your thoughts on the outlook for this strategy, and also where do you see the great opportunities in this space, and on the other hand, challenges as well?
TMS: Yeah, well, it's a tough space in this rates environment, but as with equities, we're seeing forces driven by the pandemic produce real winners and losers. And this continues to create dispersion and credit markets as equity markets, and it establishes a pretty supportive environment now for risk-taking both on the long and short side. So with rates low, yields are scarce, upside potential versus downside risk of investment grade bonds is very poor. We believe that idiosyncratic investments and opportunistic credit are more important now than ever, offering a compelling alternative to fixed income assets that yield below inflation expectations.

We continue to find and track the pockets of high yield and stress trades. They can be pretty niche-y, but, especially in the hardest-hit COVID sectors that will benefit from a reopening. Opportunities also exist in select areas of structured credit, where the asset complexity limits the buyer base to real experts. And then another area that's just on fire is private credit. There's both opportunities and challenges there. The challenge is there's a wall of money that has been and continues to move into it. But we believe that investors looking to deploy capital in the space, if they access less competitive areas of the market, they can earn appropriate risk premiums. We tend to target shorter-duration deals, and we're more willing to take on reinvestment risks than economic risk, so we don't go way out on the duration curve. And that works for us.
EMS: Tracy, ESG has been a top priority for the alternative investment industry on many levels. And I'd welcome the opportunity to hear how Corbin has been incorporating it.
TMS:Yes. And thanks for asking that question. ESG is a top priority for us. We're thoroughly convinced that taking a thoughtful approach to the space will produce better results, and that companies and managers that don't focus on these factors will truly be left behind. We've made changes at our organizational level to prioritize ESG, and will become a UNPRI signatory pretty soon. Our goal within the investment program is to material and relevant factors across the platform. We're engaging with our and supporting our managers to do the same. But it's new to us, so we've worked with several sustainability consultants to create frameworks, which we adapt to the range of managers and strategy types in our portfolios.
So for example, ESG issues in a structured credit portfolio will be quite different from those in a biotech long-short fund, so the frameworks we create need to be adaptable, and it's complicated and it's time consuming. But we focused on helping the managers identify the most relevant issues for their particular investment approaches, and we encourage them to dig deeper into these issues over time. Our immediate goal is to meet managers where they are and to encourage progress. Some are well along the path and others haven't started. But the good news is that nearly all want to act on this. It's early days, but so far we're encouraged by our partners' enthusiasm on the topic.
EMS: Tracy, that leads smoothly into the next question I want to ask you about being a woman-led firm. You always incorporated D&I into the firm's culture, but now it seems like it's never been more urgent. So first I'd welcome the opportunity to hear what Corbin is doing to champion more D&I. And second, I'd love for you to share your experience being a woman in the industry.
TMS: Sure. Another topic I'm very enthusiastic about. So promoting diversity is extremely important to us and something we've been focused on for years. It's always been clear that D&I isn't just a social issue, it's a critical business issue. But the narrative this year brought it to the forefront for Corbin, and challenged us to do much more than we have in the past. Historically, we've been pretty strong in supporting women and families with work from home schedules, accommodating moves that required remote working for family reasons, and very strongly encouraging women's voices to be heard within Corbin. We're enthusiastic partners of Girls Who Invest, which is a nonprofit dedicated to increasing the number of women in our industry. But while we've pursued several initiatives on the racial D&I front, there's a huge gap between current and desired states. So we have work to do and have various initiatives to address this.

One is an internal racial justice task force we created to drive change across the firm. Here we focus on education, internal D&I issues, and community involvement, but none of us has the expertise required to enable Corbin to leapfrog out of our current state. So we've hired experts to help move us forward. The first project which we're starting now is firm-wide unconscious bias training and conducting a D&I survey by collecting data across our employee base, with the goal of creating more welcoming and inclusive workplace. We're also serving the industry landscape to identify groups that are moving the dial. And the good news is the number of groups supporting diversity initiatives is really expanding and traditional players are now jumping in. So for example, we've identified several recruiters that are really, really on it and using creative techniques to find more diverse candidates. So we continue to look for partners that can really help us take up our game.
EMS: Tracy, that leads nicely to our next question about younger women entering the alternative investment industry. And Tracy, I'd love to hear your advice on women to advance their careers.
TMS: Yeah, I have advice, and it really applies to any younger people, but probably particularly women. And it's really just talk less and listen more. I found that listening is the best attribute in client-facing roles. So listen harder than usual and especially to clients. And also, do the work to know yourself and what makes you tick, not just what rewards your ego or what you think is prestigious or lucrative or whatever. Very few people go through with any form of career counseling until midlife. And you can save a lot of pain and wasted time if you do this early on.
EMS: Tracy, we've covered a lot of ground today. So I wanted to see what your future plans are for Corbin.
TMS:Right. Well, our focus is to continue working obsessively to get clients to love us. Seriously, we need to deliver for them, and that comes in various forms, but primarily in delivering strong results. We're continually searching for great investment ideas and partners. And as I mentioned today, we're extremely focused on ESG and D&I, which will absolutely support that primary goal that I just mentioned.

A little bit more on DEI. There's a concept called a diversity bonus, that diverse groups make better decisions, achieve better outcomes and can even lead to increase firm profitability. All of this has been datafied by hard-nosed capitalist firms focused on the bottom line. So investment banks, The Peterson Institute, McKinsey, Harvard Business School, behavioral economics groups, there are so many that have come to this conclusion. So it really has been quantified, studied, and there's just no question that building more diverse teams will improve outcomes. Now, our industry has definitely been a laggard in this arena and the industry's pretty sad profile on DEI won't improve overnight, but it's a new era and we're encouraged that our partners are absolutely committed to working with us and ready for progress. Our goal is to engage with managers to be a driver of that change.
EMS: Tracy, thanks for sharing your perspective with our listeners.
TMS:Thanks so much for having me, Elana. This was fun much. Much appreciated.
EMS: And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.