The following document is an approximate, but not exact, transcript of the Operational Leaders podcast conversation between host Terrance J. O’Malley and guest Katherine Burton.

Please support the production of this podcast by downloading the Katherine Burton episode.

Narrator 0:05
Welcome to the Operational Leaders podcast featuring leaders and innovators in the investment management industry, where we discuss the business of running the business with host and top industry executive Terrance J. O’Malley.

Terrance O’Malley 0:20
My next guest is the groundbreaking reporter for Bloomberg News, where she has been covering hedge funds and the investment management business since 1993. She has an MBA from New York University and is a winner of multiple journalism awards. She’s also author of the book, Hedge Hunters, After the Credit Crisis, How Hedge Fund Masters Survived. Please welcome Katherine Burton.

Kathy Burton 0:43
Thanks for having me.

Terrance O’Malley 0:45
Kathy, it’s great to have you here today. You’re one of the true superstars in the journalism side of this business. Can you talk to us about how you got involved in it?

Kathy Burton 0:53
Yeah, like a lot of things in life. It was a bit by accident. I decided to go to business school because I wasn’t really sure what I wanted to do with my life. And I was working at a small French computer company and I had written the application for my boss to get into the Executive MBA program at NYU. And so I thought, “Well, if I can get him in, then I should try too,” and so I did. But I decided to do a joint MBA and a masters in journalism, although I had never done journalism before. And my first class, I fell in love with it and knew that’s what I wanted to do.

Terrance O’Malley 1:31
So did you go straight into journalism, or did you do some finance first?

Kathy Burton 1:35
No, I went straight into journalism after that. I went overseas because I couldn’t find a job in the US. And so I went overseas to Paris as a freelancer and started working there for the IHT and for some other US publications.

Terrance O’Malley 1:52
So you ended up at Bloomberg, how did that come about?

Kathy Burton 1:56
So when I was living in Paris, someone told me that Bloomberg was hiring. Bloomberg then was just starting out. They had an office in London, and they were going to open an office in Paris. So one of my brother’s friends called me and said, “Hey, these people are hiring, you should go and talk to them.” And I did. And they were so desperate to hire people that the woman who was interviewing me said, “Okay, so yeah, when you start working next month . . .”. And the other guy who was with her said, “Well, don’t you think we should ask her first if she actually wants the job?” But, I mean, it was great. It was great for me being a freelancer then. And it was a very good gig to have.

Terrance O’Malley 2:38
How did you end up covering the hedge fund business? And do you remember your first story?

Kathy Burton 2:43
Yes. Well, I remember my first big story. I had been covering asset management more globally, and had been covering pension funds, which I found pretty boring to cover. I mean, everything moves so slowly. So I had sort of waded a bit into the hedge fund part of the business. And a person who I barely knew called me and said, “I’m an investor in Long Term Capital Management. These guys are blowing up.” And I rushed to his office and he gave me the letter. And I wrote a story. That was one of the first stories that people wrote about the fact that Long Term Capital was losing money. So that’s the story that really sort of launched me into hedge funds. My boss at the time said, “Oh, maybe this is something we should be covering full time.” And so then I started to do it full time.

Terrance O’Malley 3:37
So you’ve been doing this for a number of years. Just as a journalist speaking – and this is something that a lot of people face in their career – how do you stay motivated? What keeps you energized about covering the industry?

Kathy Burton 3:49
Well, I guess it is because the industry is so varied, and I can write profiles of people. I can write about politics. I can write about different trades that people are doing. I can write about things happening in the US or in Asia or emerging markets. So there’s a lot of latitude within this industry that keeps it interesting.

Terrance O’Malley 4:12
So is there a different pace to the job if there’s a hot story that you’re there almost all the time? Or does it slow down, is it a little bit cyclical?

Kathy Burton 4:20
Not really. People always think that it’s going to be slow in the summer, but then we often have a financial crisis in the summer, for example. So it really varies. And people try and sneak in, you know, bad news around holidays. I mean, I remember going to someone’s office on Christmas Eve, trying to write a story about some bad thing that was happening at their fund, because they tried to sneak it out at the end of the year.

Terrance O’Malley 4:46
So we’ve got July 4, coming up. Huh?

Kathy Burton 4:50

Terrance O’Malley 4:51
So you’ve been with Bloomberg since 1993. Is that an extremely long tenure for your profession? Or is it the case that people reach the highest level of their profession, like writing for Bloomberg, and if they get one of those positions, they tend to stay there?

Kathy Burton 5:08
I would say that it is pretty rare. I mean, you can look around at various publications and people who have stayed reporters for their entire career. They’re definitely the people who I started with at Bloomberg, a lot of them have gone up into management. But that was just never the path that I wanted to take. Why I wanted to be a reporter was to be a reporter and a writer and not a manager.

Terrance O’Malley 5:35
Even though you have an MBA?

Kathy Burton 5:37
Even though I have an MBA.

Terrance O’Malley 5:39
So let’s talk about a book that you wrote. It’s called Hedge Hunters, After the Credit Crisis, How Hedge Fund Masters Survived. This came out in 2009. What were some of the lessons you learned from the book and tell us a little bit of background about the book?

Kathy Burton 5:52
Well, the book came about because at the time, Bloomberg had a publishing arm and they were very interested in writing a hedge fund book. And so they asked me for advice about how I might structure a book. And then after that conversation, they said, “Hey, do you actually want to write it?” And so I got permission to do that. It was terrifying because I had never written a book before. But it was a really great experience. And it was very fun to go and talk to these different managers and learn how they went about their business. And I guess the lessons that I learned about money management was that everyone who was successful definitely has a process. And they get into trouble when they vary from that process.

Terrance O’Malley 6:43
So to be clear, the book features just under 20 interviews with some of the more prominent managers from the mid-2000s. And then it goes on to describe how they survived the credit crisis of 2008 and the subsequent financial turmoil that caused.

Kathy Burton 7:00
Yes. And some did not survive, actually.

Terrance O’Malley 7:03
And so some of the lessons are still really valuable. Have you ever picked up the book afterwards and said, “you know, huh, I got that one wrong. Or that’s interesting, they’re doing this now. Or, huh, I’m surprised this many people are still around or this many people aren’t”?

Kathy Burton 7:18
Well, part of the way that I structured the book was that there had been some other books of interviews with people, people who were prominent at the time. And some of them turned out to be, I mean, at some of these other books, some of [the people] turned out to be frauds, or they failed right after they were written about. So I went to the most established managers, and I said, “Look, you pick the people who you think are going to be the next generation or the people that we don’t know as much about.” So therefore, the onus wasn’t on me if I picked the wrong people. And so that actually worked out pretty well. And I did look at the book the other day. And I think a fair number of those people are still in business. Not everyone, but a fair number of them are.

Terrance O’Malley 8:02
It’s a great read. And people can still get a copy of that book, can’t they?

Kathy Burton 8:06
Yes, I believe so.

Terrance O’Malley 8:07
So let’s bring it up to the current state of journalism, talk a little bit about covering the industry. And maybe there’s some helpful hints that people can get out of that in terms of how to deal with the press. So is there a place you tend to get your stories? Or can it be just all kinds of different avenues where they come from?

Kathy Burton 8:24
It really is all kinds of different avenues. And sometimes, because I’ve seen cycles in the industry, then I might see something that I’ve seen happen before, and say, “Oh, I bet the next thing that’s going to happen is x.” And so I’ll go around, I’ll have a theory about something which could be right or could be wrong, but I’ll just go around and ask people about that. Otherwise, it’s just really talking to people and really talking to everyone. You shouldn’t ever have a preconceived notion that person x won’t know about something. Because sometimes I’ll be working on a story, and I’ve learned that the best thing to do is – as much as possible without giving away some big secret – is to talk to people about the stories you’re working on, because you never know who’s going to know something. You know, I was talking to someone the other day and they said, “What are you working on?” And it turned out that their best friend went to high school with the person I was writing a profile of. And I never would have known if I just didn’t ask, I didn’t talk and tell people what I was doing.

Terrance O’Malley 9:29
So is there ever that big dramatic moment that you think about where the journalist gets the envelope, somehow shows up on their desk that’s unmarked and you open it up and there’s the whole story laid out in front of you?

Kathy Burton 9:43
Yeah, that’s happened to me. And a lot of times they’re not quite as magical as you hope. But yeah, it’s definitely exciting when you get you know, someone calls you with an anonymous tip or something very explosive that you get to follow up on and find out about.

Terrance O’Malley 10:00
You took the lead on the Amaranth story. You were the first one to break that. And that became a big story, obviously. It still resonates with people who were involved in the business at that time. How did that come about?

Kathy Burton 10:12
That came about because people were talking about how much money Amaranth had made. And that was an example of you should watch this because the returns were so enormous. And it was obvious that all the returns were coming from one trade, or from one manager. So that was kind of a red flag that people said to me, you know, you should be watching this. And then sure enough, it blew up. And that story almost blew up the terminal back in the day,

Terrance O’Malley 10:43
so that was one of the records setting articles or series of articles for Bloomberg. Are there particular types of stories that tend to attract more interest than others?

Kathy Burton 10:54
I think people in the industry really like to read about their peers, and especially – which is just human nature – when their peers aren’t doing that well, and they are. So I would say those stories do well. Also stories when people do very, very well, when they have really smart trade, people like to read those. They like to read about frauds, they like to read about, you know, what really smart money managers are saying, people who they respect, what they’re saying.

Terrance O’Malley 11:24
So we talked a little bit earlier about the sources and where you get your ideas for stories from. Is it often that you have people in the business who are pitching you to try to get publicity or to try to get a story written about them?

Kathy Burton 11:40
Yes, absolutely. Especially smaller managers. And I think it’s frustrating to the reader if they read about someone who’s up two hundred percent, and then they find out that the person only manages $5 million dollars or something. So we try not to write stories about very small managers. But that’s not to say that we don’t talk to people like that to sort of follow their career and get ideas and maybe put them into a story as part of a bigger story, but not just a story about them alone.

Terrance O’Malley 12:12
So how does a smaller manager stand out? What makes him interesting to you other than just performance?

Kathy Burton 12:18
Well, I think if they have interesting ideas that other people aren’t doing, if they have an interesting background. It’s important for us to talk to smaller managers, but they can’t have the expectation that we’ll write some profile just about them if they don’t manage a lot of money.

Terrance O’Malley 12:36
If we shift over to the larger managers. There’s been a time in this industry, and maybe in certain circumstances it still exists, where there was almost this idea that any publicity was bad publicity. Some of that may have had to do with [SEC] registration. Some of it may have been if you were really successful, maybe you didn’t want other people to, you know, jump on your ideas and replicate what you were doing. Was that the case and if so, is it still the case?

Kathy Burton 13:00
It definitely was the case. But I think that that really has changed. And I think it’s a good thing. Because I think it’s good to have a relationship with the press and also to help educate us so that we write better stories. And I think during that time, when, inevitably, a manager will go through some loss, they’re going to get written about. It’s better that the journalists understand what they do and understand the nuances. You don’t really want someone who’s a French major like me trying to understand swaptions on the fly, or someone’s complicated strategy.

Terrance O’Malley 13:35
So what advice would you give the investment manager, the investment firms in dealing with the media?

Kathy Burton 13:41
Well, I think that they should deal with the media. I understand that they’re private and they might not want to talk to us all the time about trades. But just on the margin, they should try and have some sort of relationship with us. And as I said, even if it’s just to educate us about what they do. And also if we have a relationship, then we might also tell them things that they find useful about the industry, what their peers are doing, etc. And also, I think, within the organization, journalists, by their nature are for the most part very relationship driven people. And hedge fund managers, at least some of them are very transactional people. And so if they’re that kind of manager, that’s very transactional, then they need someone within their organization who will deal with us, who’s more relationship driven, because I think that’s the way the relationship works best.

Terrance O’Malley 14:37
Are there any pieces of advice? You might say, “Well, look, if you remember nothing else, just don’t do this.”

Kathy Burton 14:43
Yeah, don’t lie. Don’t lie to the press. That’s really the best.

Terrance O’Malley 14:46
And what are the consequences of that? You just lose credibility?

Kathy Burton 14:50
You lose credibility. Exactly. And no one likes to be lied to. And I realized that people spin us trying to maybe focus on something a little different, a little nuanced. I’m not really talking about that. I’m talking about really out-and-out lying. And that’s just going to motivate someone to write the story because they want the truth out there. I mean, then we’re doing our job by writing the truth.

Terrance O’Malley 15:14
So Kathy, taking this to a little bit broader picture, looking back over your career to date, what are some of the main events or key moments that you’ve seen in the alternative fund space?

Kathy Burton 15:24
I would say Long Term Capital Management. I would say Amaranth. I would say Madoff. 2008. Those are probably the biggest.

Terrance O’Malley 15:36
Then put that in perspective where we are today. Is the Coronavirus potentially going to have a big effect?

Kathy Burton 15:43
I think it’s very hard to say at this point. I mean, the markets have rebounded so much, and I think some of the reactions to the Coronavirus are things that we as the government and managers and LPs learned from 2008. And I think LPs have a much better idea that something really bad can happen. I think they’re better at constructing their portfolios to be perhaps more liquid. The government certainly stepped in and put some stability into the market much more quickly than they did in 2008. And I think that hedge funds realized that the liquidity mismatch that got a lot of people in trouble in 2008, they needed to try and avoid that. And also, they organizationally did things like investor level gates that made things much more orderly.

Terrance O’Malley 16:39
So Kathy, you mentioned some of the highlights or the turning points or big picture moments in the industry. And I think the most recent one you mentioned was probably Madoff or 2008. That’s been a dozen years now. Are we overdue? Or as the industry sort of figured some things out? Is there a cyclicality to this? What’s your take on this?

Kathy Burton 17:00
I think undoubtedly there will be something. But we definitely have learned from each of those moments. I think we learned about too much leverage with LTCM. I think with Amaranth, we learned about overconcentration in a trade. Madoff, we certainly learned a lot about due diligence. And so I think people won’t make mistakes in those areas again, or as big mistake. So I think we definitely have learned things from those big moments.

Terrance O’Malley 17:31
Kathy, final thoughts. So given your status in the business and your tenure, what do you think some of the long-term trends in this business might be? And where do you think we might be 5 or 10 years from now?

Kathy Burton 17:41
I think the long-term trend is that the big funds will definitely keep getting bigger, and there’ll be niche players like there were before. There seems to be some return to the hedge fund industry of old when it was mostly family offices. I mean, we may see more big institutions get out or not get bigger in the hedge fund space. And there probably will be, as people have been predicting for a long time, fewer funds. But it’s funny. I’m always surprised every year, even after a year when funds haven’t done very well, that there are still people who want to start a hedge fund.

Terrance O’Malley 18:24
Well, there is something to be said for having your name on the door. And it has to be the case every generation has its top managers.

Kathy Burton 18:32
Right? They think, “Oh, I’m gonna be the one that is the next, pick your hedge fund big name.”

Terrance O’Malley 18:38
Hey, Kathy, thank you for joining me today. It’s been great to have you here. It’s been great to get your perspective. If somebody wants to reach out to you. Maybe they have a good idea for a story. Maybe they’ve heard something that might be interesting. Is there a way to get ahold of you?

Kathy Burton 18:50
Sure, probably best is to send me an email

Terrance O’Malley 18:56
Okay, well, thank you again. It’s been great to have you.

Kathy Burton 18:59
All right. Thank you so much.