thehedgefundjournal.com http://www.thehedgefundjournal.com/node/9026

Elaine Crocker, Moore Capital President

Moore Capital President Elaine Crocker has been with the $14 billion hedge fund since January 1995, and in theindustry since 1970. She displays an empathetic nature, and a humble respect for how the ever-changing natureof markets makes it so difficult for traders to consistently outperform – and for allocators to predict which traderswill sustain strong returns. She thinks many traders have difficulty adapting through market cycles with only thevery best able to continually adapt. The scarcity of truly gifted discretionary traders is such that Moore is constantlylooking for new talent – in London, New York and Hong Kong. When we met at Moore’s London offices, Crockerwas animated in discussing her own career history, and her vision for Moore’s continued growth.

Commodities CorporationCrocker’s first taste of time-sensitive financial risk came unexpectedly, as her first job was not in finance. Afterthree months compiling bibliographies for university libraries she was instructed to urgently cash her pay cheque,and later that same day found out why: the firm, located opposite Princeton University, had gone bankrupt. Inneed of a job in 1970 Crocker became the fifth employee of local Commodities Corporation (CC), which wasstarted in 1969 by three portfolio managers with PhDs who wanted to bring econometric analysis into the studyand therefore the trading of commodity futures. The founders had worked at Nabisco prior to founding CC andwere determined to start a company that would be free of politics, in a suburb, Princeton, rather than Wall Street.Her remit – to do everything the principals did not want to do – set the pattern for her remarkably wide purviewtoday overseeing Moore. CC duties in practice ranged from “watering the sponge in the cigar humidor” toadministrative and office management tasks to accounting work. She also had the opportunity to provide analysisof commodity markets, feeding into the early econometric techniques used by CC founder, F. Helmut Weymar,whose MIT PhD dissertation researched the dynamics of the world cocoa market. “CC was entrepreneurial,dynamic and ahead of its time,” said Crocker. For example, CC would send cocoa pod counting teams to Africa topredict crop size.

Throughout the 1970s CC grew and so did Crocker’s role in nurturing the portfolio managers. So scarce was seedfunding in those days that there was fierce competition for the allocations Crocker was awarding from an initialsmall pool by today’s standards. By the early ‘80s, she was already earning renown for spotting promising traders,with as many as four in 10 entering CC’s Trader Evaluation Programme (TEP), and performing well enough tosecure additional capital, and sometimes also employment for those who wanted it.

Working with a legendCrocker’s first encounter with Louis M. Bacon at CC in 1981 did not result in her hiring him; she quips “he had thelast laugh by hiring me.” Crocker recalls how in the early ‘80s Bacon, who was, as always, leading a hectic lifetrading commodities on the floor whilst studying for his Columbia MBA, rushed in carrying a motorbike helmetunderarm. She immediately “knew he was special but was not completely sure he would make it in theCommodities Corporation role available.” Crocker’s initial impression was that Bacon’s individualistictemperament made him “more of an entrepreneur than an employee” since she was ideally seeking researchassistants and trading assistants to work under major PMs such as Bruce Kovner and Michael Marcus. Yet Baconnever revealed his disappointment, he and Crocker kept up the rapport over the years and later she became thefirst person to fund him, producing profitable returns. Crocker was bewildered when he returned the first tranche ofcapital. Crocker only realised how high the über-ambitious Bacon had raised his own bar when his second tradingepisode generated stellar results far superior to the first.

On top of his trading record Crocker started to identify plenty of other reasons to foresee that Bacon wouldbecome the icon that he is today. “Louis is incredibly focused and has a tremendous work ethic,” she says. Healso exhibits the adaptability and stamina that she views as critical, saying, “It’s unusual for people to be able tocontinually reinvent themselves, keep up the energy level required to be flexible, and adapt to different marketenvironments.” Crocker admits that these phases of trying to adapt to new market climates can be painful – butsays Bacon has done this again and again.

Bacon’s focus on investments is greatly appreciated not only by chief administrator Crocker, who likes his single-minded attention to the investment process, but also by the other portfolio managers. Bacon is so attentive to hisown trading that he allows other managers a lot of autonomy – naturally within guidelines – and does notmicromanage. Moore Capital Management’s flagship fund, Moore Global Investments, has an 18.27% annualisedrate of return, net of fees, since inception through 31 October 2013. Recruiting portfolio managers for the firm ishelpful, Crocker believes, when they know that someone like Bacon is at the helm. “Louis gets real energy fromseeing the success of others,” says Crocker, and she, too, finds it tremendously rewarding to continue findingportfolio managers for Moore – and to source investment opportunities via those portfolio managers. “The tradingplatform Louis built is valuable to others, and their input is helpful for its ongoing development,” she says.

The combination of a successful risk-taker such as Bacon and a senior trading administrator like Crocker hasproved an effective combination. Crocker recalls years ago Bacon mentioning that he believed there were realopportunities in the credit market and asking her to find someone in the credit arena to profit by opportunitieswhich may be available. That led to her recruitment of Tim Leslie, someone with investment acumen to help leadthe way in this area.

“Louis truly understands both how to make money in the markets and risk management,” says Crocker. Althoughshe has never traded, Crocker has been in the trading business all of her career, and finds it ideal to work forsomeone like Bacon who is a very successful portfolio manager, has a tremendous work ethic and who serves asan inspiration to both portfolio managers as well as administrative personnel.

A panoramic remitCrocker thinks that she may be “one of the last generalist managers” with a panoramic purview encompassingfinance, compliance, regulatory reporting, operations, technology, investor relations, talent scouting, humanresources and much more. Yet in each of these areas Moore has “some truly extraordinary and very seniormanagers” who have line responsibility. So Crocker’s role is more as an orchestrator, fostering communicationacross the firm. This is where listening skills become essential, as she has found “when people are very focusedthey may not always communicate information, which can impact other areas at the firm.”

To take regulation as one example, this impacts Moore across three continents and throughout its functionsrequiring careful coordination. “The main impact has been felt in the front office and in finance and operations,”says Crocker, explaining that “they are getting the full force of the reporting obligations as Form PF aggregatesinformation on assets, liabilities, risk data, counterparty exposure, aggregate positions by asset class andleverage,” adding to quarterly reporting routines. Meanwhile the CFTC requires two other forms that cover muchof the same information but in a different format. Similarly, Crocker views the twice yearly reporting to the UK FCA,and the annual reporting to Hong Kong’s HKMA, as “essentially the same information formatted in a different waywith questions asked in a different way.” The reports, which are monthly, quarterly, semi-annually or annually,depending on regulator, take the CFO’s operations team thousands of man hours to produce.

Crocker is prepared for further increases in reporting, with Dodd Frank only 40% implemented and the Europeanreporting requirements a year or two behind the US. Crocker views the Open Protocol initiative as “a big job withthe jury still out,” and thinks it is motivated by consultants as part of their fee, as an attempt to provide investorswith more comfort with added transparency. Regulation is also impinging on operations and execution – areaswhere technology makes a big impact.

“Technology has always been essential,” says Crocker, and she reels off examples of how it is vital for multiplefunctions. Electronic execution already makes up a significant part of Moore’s total and is growing as Dodd-Frankmakes voice products like swaps electronic, and plays a key role in sourcing liquidity across asset classes.Computers also naturally assist with risk management, pricing, and assessing PMs. In compliance, technologyhelps to monitor real-time limits, “see that traders are living within those limits” and their individual guidelines, andscreens for patterns in trades. Encryption and firewalls are also essential for confidentiality and security, Crockerexplains. On the back-office side straight-through processing also helps to eliminate trade errors.

Trials and tribulations of nurturing tradersMost of this meticulous work takes place behind the scenes, so Crocker is most famous for appraising traders –something she has done for decades. Over the years CC experimented with various tools and techniques for

identifying good traders. They would seek out successful chess and poker players, retained psychologists to workwith traders, even utilising handwriting analysis to identify which traders were likely to become successful. Theseefforts sometimes wrote off those who later became the most successful traders. Crocker’s lessons from this wereto not strive for perfection, to learn from errors, and to never forget common sense. “I learned that with a few goodbehaviour and risk management rules and decent selection techniques and common sense, an environment couldbe born which both nurtured but pressed all employees, not only investment professionals, to achieve success.”She prides herself in being a straight, direct, no-nonsense talker to “build up a trust factor with traders”.

This frank dialogue has contributed to many of Crocker’s most memorable moments. In the early days CC had theflexibility to do two things that Moore does not do: hire inexperienced professionals to put in a trading trainingprogramme, and allocate to systematic strategies, based on testable simulations. Crocker remembers an airportmeeting with fresh-faced CTA pioneer Salem Abraham, who turned out to be “the toughest negotiator I have everdealt with in my entire career”. This was no mean feat when Crocker describes herself as “not such an easynegotiator either”.

Open discussions were not just a bilateral matter between Crocker and individual traders. The entire team at CCwas encouraged to share ideas, and special lunches and dinners were dedicated to this. Paul Samuelson was afounding shareholder of CC, Weymar’s mentor at MIT, and a Nobel Laureate who enjoyed taking meetings andchatting with the portfolio managers. Crocker remembers taking him to lunches at various traders’ offices. Whenshe brought him to Bacon’s offices – well before she had joined him – all of Bacon’s attendees brought theSamuelson economics textbook for Paul to sign.

Dinner-table discussions among Bruce Kovner, Richard Axilrod, Louis M. Bacon, Paul Tudor Jones, Wim Kooyker,Paul Samuelson, and others revealed one major lesson: beware of consensus trades, as whenever the dinersagreed on a trade it invariably failed. The dinners also provoked traders to get outside their comfort zone. PaulTudor Jones was bemused to be told by Weymar that recovering losses, and dealing with adversity, were themarks of a good trader. Having arrived already exhausted and hoarse-voiced after an arduous trading floorsession, Tudor Jones was even more surprised to find himself paying for the entire group dinner. To this day TudorJones will not forget this episode and chides Crocker saying “after encouraging me to lose money you asked meto pick up the tab.” Tudor Jones’s profitability had already made the evaluation programme a huge success.

Discussions within the trading group may have also helped Crocker to identify superstar traders. Although mostPMs at CC initially were hired for specific sectors such as metals or energy, the selection process found thatMichael Marcus was versatile enough to become CC’s first generalist trader, and he made $60 million in the late1970s – a gargantuan sum at that time. Marcus’s prescience went beyond predicting markets: after Marcusinterviewed and hired Bruce Kovner, he told Weymar that he just hired his successor.

Notwithstanding these spectacularly successful traders identified at CC (and many others including FrankVannerson, Wim Kookyer and Monroe Trout), Crocker no longer contemplates hiring neophyte traders becausetraining them is too difficult and success rates are higher with experienced ones.

What Moore looks forMoore expects traders to be “fully formed” by the time they apply for a job. Moore asks potential portfoliomanagers to write up a trading philosophy setting out a range of issues. This lays the ground for a discussionabout the PM’s style and process, and in which markets and time periods they are most and least successful, aswell as risk controls. “A PM must be able to articulate his style, so that allocators can ascertain if the trader will beable to adhere to their guidelines, and understand the environment and support he will need to succeed,” shepoints out. Common pitfalls can include traders struggling to adapt to a structure that is too tight, or conversely areturn target that is too high, as “every portfolio manager has a gut level of drawdown that they cannot tolerate,”she observes. Moore puts aspirant PMs through interviews with four or five staff including at least one specialisingin the PM’s particular asset class. Moore is alert to inconsistencies amongst answers to these multiple interviews.Crocker also watches out for interviewees who try to spontaneously tailor responses to tell the allocator what theywant to hear.

Crocker notes that portfolio managers can be confused by an allocator’s goals. Investors want returns, a solidinfrastructure and integrity, but conversations around high Sharpe ratios, being in the top tier of a similar asset

class and not losing money, coupled with ongoing requests for transparency, allow little room for success. Moorecan offer portfolio managers steady capital, and potentially a relatively long time-frame for traders to provethemselves: whereas “two to three years is an eternity for a pure commodity fund, we can be more patient inallowing talent to flourish,” she says. The human side is also relevant: trading is what Crocker views as “a ratherlonely business”, so “a robust platform provides some camaraderie”. Yet she is under no illusions that 95% ofreturns are down to the individual trader, with perhaps 5% arising from a supportive environment.

“We provide doors, and they walk through the doors,” she says, and this applies beyond trading. In areas likelegal, risk, operations, technology and execution, there are “a lot of creative jobs where learning and growing eachyear makes you happy.” Moore’s average job tenure is seven years, with managers generally having been withthe firm between five and 20 years, and an average age of 40. Crocker herself has been at Moore for 18 years,having spent even longer at CC.

Crocker was not the only woman in trading in the 1970s. She recalls how one of CC’s first hires was a female PhDmathematician. More recently, Crocker congratulates the work done by women recognised by 100 Women inHedge Funds, which has “played a huge role in advancing women by providing a tremendous network ofresources globally run by über-bright ladies.” These networks encourage connectivity so that “it is great to talkbroadly about issues and get other people’s points of view, making people available and visible even if only byemail.” Moore Capital has many women across the organisation in management roles. Bacon, Crocker notes, hasoften said he has many women to whom he reports – his president, his vice president of corporate accounting, hischaritable foundation head. Two key strategists of his are also women. “Investing in itself is a truly equalopportunity profession, so few can do it successfully,” says Crocker. It does “not matter if you are male, female –what matters is what you can produce.” Moore is happy to count several women as portfolio managers. “While aminority are women, significant opportunities exist for those who choose investing as a career.”

The inevitability of failuresThe saddest thing is when “some very bright people come in and are very knowledgeable about markets”, but donot succeed as traders; Moore tries to integrate these people into other areas of the company so they can remainas part of the team. The culture is one where “portfolio managers remember who gave them a chance and whowas supportive during bad times.” Crocker feels that empathetic counseling, spending time with those who arestruggling, is an important part of the role.

Even with her remarkable track record of spotting and developing some of the hedge fund industry’s leadingmanagers, and even after filtering out inexperienced traders, the search for trader talent still entails trial and error.“The universe of opportunities is limited so we appreciate good traders – there are not thousands of people whocan make money trading,” asserts Crocker. In part this is because the opportunity set for different asset classes orstrategies can be ephemeral: “Many portfolio managers can be successful during certain market cycles and incertain asset classes, but it is unusual to be able to transfer those skills and adapt to all market cycles and manyasset classes. Crocker says those portfolio managers are rare—and it is quite difficult to ascertain early in theircareers. Crocker cites commodities as recently offering a dearth of profit opportunities. Moore can afford to bideits time awaiting a better climate for these traders – but “we cannot turn commodity traders into credit traders ifcredit is where the opportunity is.” And not every manager has the stamina and the flexibility to adapt to achanging market environment. Risk management is, in fact, the one skill that Crocker does think is trainable – “it’sthe rest that is not so trainable,” she cautions.

From spin-outs to in-house wrappingHistorically Moore is known to have spun some managers out, having seeded Jens-Peter Stein’s macro and TimLeslie’s credit funds. Crocker recognises that some people “want to create their own culture, be captain of theirown ship and have their name on the door.” Going forward, however, Moore may cease seeding and insteadcreate Moore-branded funds, perhaps pursuing equity or credit strategies to complement the macro focus of MGIand Remington. Former PM Henry Bedford has been lured back out of retirement to co-manage the Moore MacroManagers Fund with Bacon and also helps with identifying talent in London. Other specialists recruit in New Yorkand Hong Kong. Even with Moore’s macro funds well established in the market, the firm is still hungry to grow intodifferent directions. Moore has 80 risk-takers, although the number of independent decision-makers is smaller assome teams contain seven people or may be analysts assisting PMs. “We are more likely now to wrap funds

around portfolio managers rather than spin managers out to seed them to begin their own funds,” says Crocker.

Crocker reflects that the most successful traders are, like Louis M. Bacon, the least challenging to deal with, asthey are fully engaged with the markets. So, the word is out that the hunt for talent is ongoing as ever at Moore. Inanother 18 years’ time our guess is that Moore will have built a suite of funds spanning multiple strategies.