This is about Khe Hy, a former BlackRock executive, sharing his view on the hedge fund industry. He says after 2008, the industry shifted from easy profits to tough competition and lower returns, and fund-of-funds lost their value. He advises focusing on managers' alpha sources and risk management, not chasing high returns. He mentions Susquehanna (known for options trading) as a source of unique skills, and Blackstone and Reservoir as examples of large seed investments.
At a Glance This episode of Invest Like the Best features Khe Hy, former youngest Managing Director at BlackRock, who discusses the evolution of the quantitative hedge fund industry and personal growth. The core argument: the hedge fund landscape has shifted, and investors should focus on a manager'
Khe Hy, former youngest Managing Director at BlackRock (age 31), spent 14 years specializing in quantitative hedge fund evaluation and seed investing. The main themes of this episode: structural changes in the quantitative hedge fund industry and the individual's transition from an "I-shaped specialist" to a "T-shaped generalist." The most weighty judgment in the entire episode: Khe Hy argues that the hedge fund industry has shifted from the easy mode of "leverage + trends" to the hard mode of "saturated competition + low returns," and that the value of funds of funds (FoF) as intermediaries has been severely eroded since 2008 — investors should focus on fund managers' alpha sources, risk management, and transparency, rather than chasing high returns.
Khe Hy argues that 2008 was a watershed moment for the entire hedge fund industry, marking two fundamentally different eras before and after.
Historical Context: From 2003 to 2008, with cheap leverage and clear trends, hedge funds could deliver net returns of 10–15% to investors simply by "capturing beta trends, applying leverage, and charging 2/20 management fees." Khe Hy notes that funds of funds (FoF) added another layer of 1/10 fees on top, creating a chain where "everyone was making money." After 2008, "the emperor had no clothes" — assets that were originally claimed to be uncorrelated with the market became highly correlated, leverage amplified drawdowns, and some funds lost 50% of their value. When investors tried to redeem, they discovered "we hold copper mines in Indonesia, and it will take seven years to exit." Subsequently, the Bernie Madoff scandal broke, and the due diligence capabilities of FoFs were thoroughly called into question.
Mechanism Breakdown: The core value of FoFs lies in "access plus due diligence" — large institutions (endowments, family offices, sovereign funds) lacked the channels and expertise to directly engage with 7,000 hedge funds. However, after 2008, as institutions matured their own capabilities, the intermediary role of FoFs was significantly weakened. Khe Hy concludes: "The FoF industry has fundamentally changed since 2008. Small firms are consolidating or disappearing, while large firms are forced to transform."
Data Chain: During Khe Hy's time at BlackRock, the quant equity team reviewed roughly one fund per week and invested in about two per year. Seed investments ranged between $50 million and $150 million. Funds with less than $20 million in assets were difficult to work with due to high compliance and operational costs.
Extrapolation and Falsification: Khe Hy believes that competition in quantitative strategies has become extremely saturated — more capital chasing limited alpha, and the technology stack of quant funds is growing increasingly complex. "Every new tool and data source adds complexity and risk." Falsification condition: If new, underexplored data sources or strategy spaces emerge in the future, quant fund alpha could potentially expand again.
Khe Hy argues that there is no formula for evaluating quantitative funds, but "negative screening" is more powerful than "positive confirmation" — eliminate the wrong people and strategies, and what remains naturally deserves attention.
Mechanism Breakdown: Khe Hy's evaluation framework consists of three levels:
1. History and Lineage: Understand the fund manager's "family tree" — for example, options traders from Susquehanna possess unique skills (poker mindset + options pricing), the legal arbitrage style of Goldman's Special Situations Group, and the GARP style of the Tiger Cub network. Khe Hy emphasizes: "Knowing Susquehanna doesn't mean you can make money, but not knowing it means you haven't dug deep enough."
2. Technical Dialogue Ability: Khe Hy has built a "toolkit" for conversing with fund managers through self-study of PCA, mean-reversion risk models, high-frequency trading infrastructure, etc. Key Signal: If he finds himself more knowledgeable than the interviewee on trading infrastructure issues, that is a "red flag" — indicating the fund is not cutting-edge enough.
3. Motivation Assessment: Khe Hy's core philosophy — "I would never fund someone who wants to buy a private jet." He judges whether a fund manager truly loves investing itself, rather than pursuing symbols of wealth, by observing whether they still wear a "Swatch watch" (rather than conspicuous consumption).
Data Chain: During his time at BlackRock, Khe Hy met approximately 17 people per month (3 people/day plus 1 on each weekend day), managed systematically through Calendly. Over his lifetime, he has facilitated roughly 2,000 "mutually beneficial introductions" (MBIs), expecting nothing in return.
Deduction: Khe Hy believes that the differentiation of quantitative funds comes from "unique insights into datasets" and "depth of technical infrastructure" — for example, one fund uses crowdsourced earnings forecast data, while nine other funds never mention it. Falsification Condition: If a quantitative fund cannot clearly explain its strategy logic and execution capability, or if the fund manager's motivation deviates from investing itself, it should be directly excluded.
Khe Hy argues that the "zero-sum game" culture of the financial industry and the deep specialization of the "I-shaped specialist" ultimately led him to feel "intellectual emptiness" — he chose to abandon everything and embark on a journey of self-discovery after becoming BlackRock's youngest Managing Director at age 31.
Historical Context: When Khe Hy joined the fund-of-funds industry in 2003, he told friends "this industry will disappear within 10 years." Fourteen years later, he realized he "only mastered one basis point of the investment landscape" — from high-frequency trading to FinTech datasets, yet remained "I-shaped" (extremely specialized). He aspired to become "T-shaped" (a CEO-style generalist: understanding technology, hiring, marketing, operations, sales, and other dimensions).
Mechanism Breakdown: Khe Hy's transformation path consists of three stages:
1. Self-Dialogue: At the end of 2015, he told himself "I don't want to do finance anymore" — a difficult moment of "loss aversion," but he gave himself permission to try anything.
2. Physical Disconnection: After resigning in May 2015, his family bought one-way tickets to Bali and traveled to 7 countries (including 22 flights) over 3.5 months. During this time, he began writing through the "Rad Reads" email newsletter (initially only a few hundred subscribers), shifting from "hidden opinions" (citing others) to "authentic expression."
3. From Writing to Speaking: Starting in January 2016, he wrote about fear, self-doubt, and death anxiety — initially read by only 5 people (including his parents). He then shared stories via Snapchat (because "millennials don't like email"), eventually being covered by Bloomberg and CNN, becoming a "well-known figure in the self-discovery space."
Data Chain: Khe Hy's "2-year plan" assumed zero income, but he actually began generating revenue (Coursera entrepreneur-in-residence, speaking, Patreon, limited coaching). He describes: "The market can stay irrational longer than investors can stay solvent — my 'emotional solvency' is more important than my bank account balance."
Extrapolation: Khe Hy believes the key to transformation is not "finding the answer" but "trusting the process" — through his "Mutual Benefit Introductions" (MBI) network, he secured a TED talk, Coursera opportunities, media exposure, and this podcast invitation. Falsification Condition: If he fails to establish a sustainable income model within 2.5 years (with a second child on the way), he may be forced to return to traditional finance.
Khe Hy proposes four core pillars, which he considers the foundation of investing and life: compassion (especially self-compassion), stillness (from a single breath to a 60-day retreat), uncomfortable introspection (confronting fear), and living your truth (using joy as a compass).
Mechanism Breakdown:
1. Self-Compassion: Khe Hy discovered that his inner dialogue was "90% blame, 10% kindness"—he once spent 40 minutes attacking himself after losing his subway card. Through practice, he adjusted this to 50/50, and believes that "if you could reclaim the time spent on self-attack, you would not only be happier but might also 'achieve more'."
2. Stillness: Khe Hy once invented a Blackberry shorthand language (converting 40 common words into 2-letter abbreviations) to "squeeze the sponge of time." Now, he uses the 4-4-4 breathing technique (inhale for 4 seconds, hold for 4 seconds, exhale for 4 seconds) to reduce stress, and has set his phone to a black-and-white screen with a 15-character password (disabling Touch ID) to minimize unconscious usage.
3. Uncomfortable Introspection: Khe Hy publicly admitted for the first time, "I am afraid of death"—as an atheist and hyper-rationalist, he cannot accept that "everything will eventually end." He further reveals the hierarchy of fears: fear of death → financial fear (an immigrant mindset of "could lose everything at any moment") → health insurance fear (the uncertainty of the ACA after the 2016 election nearly made him abandon his entrepreneurial venture).
4. Living Your Truth: Khe Hy uses "joy" as his compass—he wrote down "what success means to me and my family," and whenever he feels jealousy or criticism, he returns to this list. He admits: "When the CNN article was published, I frantically refreshed my MailChimp account—the dopamine rush was real, but I knew it was my ego at play."
Data Chain: In January 2016 (early in his transition), Khe Hy wrote his "proudest article" (about the fear of death), which he had pondered for 2 years but "wrote in one go." He believes that "when joy arrives, things become easy"—this is an "exponential upgrade."
Extrapolation: Khe Hy argues that these four pillars form a closed loop—stillness allows you to see fear, uncomfortable introspection lets you dance with fear, compassion prevents self-attack, and living your truth helps you find your true calling. Falsification Condition: If he fails to maintain ego awareness after gaining external recognition (CNN, TED), he may fall back into a pattern of "living for validation."
| Position | Guest Sentiment | Key Data |
|---|---|---|
| Susquehanna (Quantitative Options Trading Firm) | Positive Mention (as a case of "unique skill source") | Proprietary trading firm based outside Philadelphia, known for options trading and poker mindset |
| Blackstone (Seed Investment) | Neutral (as a reference for "large seed investments") | Seed investment size: $50 million to $150 million |
| Reservoir (Seed Investment) | Neutral (same as above) | Same as above |
Note: This episode focuses on hedge fund industry analysis, not specific position recommendations. Khe Hy did not disclose current holdings or specific investment actions.
1. Khe Hy believes negative screening is more effective than positive confirmation — "What I tell you is more about 'red flags' than 'seal of approval.'" In evaluating quantitative funds, excluding the wrong people and strategies is more important than finding the "right" ones.
2. Khe Hy introduces the concept of "emotional solvency" — "Markets can stay irrational longer than investors can remain rational — my emotional solvency matters more than my bank account balance." For entrepreneurs, the ability to manage fear and anxiety is more critical than revenue.
3. Khe Hy reveals the trap of the "I-shaped specialist" — "I mastered only one basis point of the investment landscape and collected outsized rent from it — but it was profoundly empty." Deep specialization may yield short-term returns but leads to long-term intellectual and emotional depletion.
4. Khe Hy argues that the hedge fund industry has shifted from the easy mode of "leverage + trend" to the hard mode of "saturated competition + low returns" — After 2008, the intermediary value of FoFs eroded, institutional investors matured in their own capabilities, and the alpha of quantitative strategies shrank due to intensifying competition.
5. Khe Hy proposes the "Mutual Benefit Introduction" (MBI) principle — "If two people in the world should meet, and I know it, it is my responsibility to make it happen." He has facilitated approximately 2,000 introductions in his lifetime, expecting nothing in return — a practice of the "abundance mindset."
6. Khe Hy believes self-compassion is more important than compassion for others — He found his inner dialogue to be "90% blame, 10% kindness," and through practice adjusted it to 50/50. He argues, "If I could reclaim the time spent on self-attack, I would not only be happier but might also achieve more."
7. Khe Hy proposes "joy as a compass" — "When joy arrives, things become easy — it's exponential acceleration." He wrote down "what success means to me and my family," and whenever he feels envy or criticism, he returns to this list.
8. Khe Hy reveals the hierarchical structure of fear — Fear of death → Financial fear (immigrant mindset) → Health insurance fear (the ACA uncertainty after the 2016 election nearly made him abandon entrepreneurship). He advocates "taking fear out of the box and dancing with it," rather than burying it.