HUGH HENDRY: Bob Treue. Truly, Bob is truly a legend. I feel like I invented my next guest. I'm not sure if he really exists. When I read the statistics regarding Bob's fund, he has everything. He has tenure, which is to say this fund has audited returns for 20 years, it's a heck of a lot of time for truth discovery. He's compounded at 15% per annum. Remember, that's doubling nav every five years. I want to say I can't prove this, but I've heard-- and I'm sure Bob will confirm or otherwise, that he has exhibited really a low correlation to just about all other financial assets.
I think that's too good to be true, I doubt that. I'm saying that I doubt about it, I will let Bob confirm. Then finally, this is the guy who talks about volatility, put the 15% compound returns in the context of someone out there achieving 8% to 10% volatility. I'm going to stop talking, I'm going to hand it over to the ghost like legend. Bob, please share with us your knowledge,
BOB TREUE: Yes. One of the points on the correlation, for 20 years, we've been uncorrelated to the major investment indices. We've been uncorrelated to stocks, uncorrelated to bonds, uncorrelated to emerging markets. There are times when there are correlations, but I'm just saying that over the 20 years, it's been uncorrelated. For example, this year, we've been somewhat correlated to the stocks. That's a bit frustrating, but just there are times when we have correlation to various things. Over the long haul, over the 20 years, it's been uncorrelated to all the other major investment indices.
HUGH HENDRY: Bob, we all want to hear from you. In my head, I recall-- I don't know if it's true, or it's a myth, but I recall in the early days of the fund that you had to wait in line at the Public Library in New York City for your turn at the Bloomberg terminal to investigate some of the trades you were putting on. Truth or not so?
BOB TREUE: That is true. That is true. The fund began when long term capital went under. This was late 1998, and long term, when they went under, they were doing fixed income relative value just like we do. Their trades, they didn't have enough collateral to support their trades. When they went under, they moved those trades to incredibly mispriced levels. I thought, and this was all incorrect, but I thought, hey, I can go out and show investors these incredible trade opportunities and they'll trip over themselves racing to get into my fund. That was all incorrect, or as per me, that was all incorrect.
For two years, so that was 1999 and 2000, I put my own money in the fund and had excellent returns but nobody wanted to touch Barnegat because we traded the same things that long term had done, and they had just gone under and gone bankrupt. Given that I put all my own money in the fund, I didn't have much money left. I was a bachelor at the time. I lived in a walk-in closet of a friend. Then in order to save money, but still have access to Bloomberg, I'd wake up early and go down to the New York Public Library on 34th Street.
Funny enough, I wasn't the only one there looking to use the Bloomberg, there would be a line right as the library opened to get onto Bloomberg. You'd have to sit there and if you were in front of the line, obviously you get to Bloomberg, but you only get it for an hour or two. Then you have to get back off and then wait in line again.
I would go down there, like write down all the quotes from the products that we were looking at and trading. I'd write it down on a sheet of paper. I'd carry that sheet of paper home to my computer and input the data. It was a tough time at the beginning. Those first two years was no income, no nothing. It was just 1999 and 2000 was just trying to get things started. There were fantastic opportunities but given that we were doing the same thing with long term capital, no one wanted to touch that.
HUGH HENDRY: I think the original title to Blade Runner was when computers sleep, do they dream of sheep. I'm not sure. I want to ask you the same questions. What does statistical bond arbitrage guys dream of in the sense that there you had been-- so we're back. We're back 20 years ago, you had your position in the financial universe. You had been invited to participate in London, and then you'd move by, and then you've launched this fund. You feel like you're making money on your own account but no one seems to care. I like the emotion of these journeys. Can you just give us a little bit more color? Again, and there you are in your pajamas, I'm imagining, in the public library, looking at a Bloomberg, can you tell me more?
BOB TREUE: Yeah. It was a difficult time, particularly because in my mind, I'm like, oh, these are the greatest opportunities if people would just invest. It's one of those catch-22 situations where people don't want to invest in a fund that doesn't have a track record. Obviously, to begin a fund, at some point, you have to begin without a track record. It was a frustrating time. It was bittersweet in the sense that we had so much to offer at that time, and at the time, there were only two of us at Barnegat.
We had so much to offer in terms of fixed income, relative value opportunities. The mispricings after long term went under, those mispricings were huge. Things were very mispriced. It was one of those things where like one person sees, I guess, like in the movies where one person sees what's going to happen, or the audience sees what's going to happen, and all the characters in the movie, don't see it. Not that I could see into the future, but I saw that I had these big mispricings that we could capitalize on, but it was very difficult to convey that to the world.
HUGH HENDRY: I think anyone that's enjoyed some success in hedge funds has had that. I don't know what the term is, it's those people that can feel the trembling on the rail track, you can feel the approaching train. You can see it is a mile off, but you can feel the tremor. How were you-- for me, I was cast into the wilderness as a troublemaker for the best part of six or seven years in my 20s, but how were you able to eventually convey that message? Was it just simply, simply, the delivering of these returns, or did you have a lucky break?
BOB TREUE: A little bit of everything there. When I put the money into the fund in 1999 and 2000, I had good returns because there were good opportunities, had good returns but it was only on my own money. I wasn't earning any fees or anything like that. I spent that time flying back and forth, between 1999 and 2000, I spent it flying back and forth between New York and London. My father was also sick at the time. I'm from Detroit, so oscillating between those three cities, but really pitching to anybody who would be willing to listen to hear about Barnegat. Two years of that, just nonstop trying to pitch, trying to trade, make money, illustrate our trades.
I created a website that said, here's the trades that we have on, here's our share price. Just made it super easy for anyone who wanted to follow it. Then had three institutional investors at the beginning who put in 25 million bucks on January 2001. Just as a note, my father died January 2nd, 2001, died the exact same day that Barnegat began, but finally, three institutional investors put money in the fund, 25 million total. It wasn't a lot, but then we were off to the races and things worked quite well from the beginning, again, on the back of these mispricings from long term going under, there was very little fixed income competition at that time.
When long term goes under, it wipes out all the fixed income relative value competition, so we are in a good spot right there at the beginning. We started off with a couple good years, and we got up to like 650 million quite quickly, which is where we still are today.
HUGH HENDRY: When did you first hit that 650 million AUM?
BOB TREUE: I would say that-- 2001 was the beginning, I would say we hit that in 2003 so it wasn't like instant. One of the original investors was ED&F Man, the big hedge fund group. My original pitch to them was, hey, Barnegat is negatively correlated or uncorrelated to AHL. At the time, Man was going gangbusters. Everybody wanted to invest in AHL, they were raising a ton of money. My pitch to them was, hey, I have something that's uncorrelated or negatively correlated to your big fund and they were interested in that and they had some excellent people there who understood fixed income.
There's obviously hard work goes into it, but lucky break helps as well. Meeting that group was a lucky break initially. Now, Man is no longer an investor in the fund, but meeting that group was a lucky break to get Barnegat started. It worked well for us and for them.
HUGH HENDRY: If I'm right, I think Bloomberg lists 26,000 fixed income managers, where they can either at a long short pedigree or whatever. From the beginning, really, obviously, from your inception day, I think you ranked number one, but you've plateaued, if you will, at that 650 million AUM level. Is this got something to do with your website and those rules, the pointers that you ask everyone to read and sign off before investing? Could you say something about those rules or observations?
BOB TREUE: Sure. I just had a couple of those points. Bloomberg has 26,000 fixed income funds. Over the last 20 years, we are number one out of those 26,000. Just an interesting side note, like the SEC came and visited us, as they do all managers, and they looked at our marketing doc, which said, hey, we're number one out of 26,000. They said, wait, you can't just say that. We said, well, actually, we are number one out of 26,000. Here's the list, and we're on the top of that list. Then they said, okay, that's fine. That's good.
That part is true. Being on top of that list, we get quite a few phone calls. Now, the difficult part of fixed income ARB is that one, we're doing the same thing as long term capital. The other thing that's difficult about it is that when we lose money, so let's say we have a mispricing that's this mispriced, and it becomes this mispriced. Looking backwards, we have lost money. We had a mispricing that was here. It got more mispriced, we lose money on that trade. However, looking forwards, now we have a much better trade looking forwards.
The difficult part is trying to find investors that understand that that's A, when Barnegat loses money, that's a better time to invest. That has worked great for us. One thing I'm very proud of. 2008, we lost 37%. It was a very difficult year, but we had net investments into our fund that year. I went to the investors and said, hey, I know we're down a lot, but we're in a great situation. We have fantastic opportunities. It is very hard to find investors like that. Even though we've been going for 20 years, we only have about 70 investors. We're not very good at marketing.
As you point out, one of the things that we start all meetings with when people contact us is, hey, here's the reasons not to invest in Barnegat. Because we have a lot of attributes that people hate. Do you have leverage? Yes, we have plenty of leverage. What do you do to losing trades? Well, we add to those. What do you do to winning trades? Well, we reduce those.
We try and encourage the same of our investors to say, hey, when the share price goes down, it's best to add, and when the share price goes up, it's best to redeem. For the last 10 years, basically, it's been a constant stream of redemptions. That has kept our AUM very stable at 650 million, which has worked great for us and has worked great for the investors as well.
HUGH HENDRY: Life as I've found commonly to say is truly absurd. 2008, you lost 37% when you got dead inflows. My congratulations to you. I recall having dinner at beginning of September 2008. Actually, I'm beginning to join the dots somewhat because I had been all over the place. I had been sitting-- in terms of performance, I've been sitting on a 2s, 10s steepener position two years out on the curve. As much and as quickly as the Fed had pushed down spot rates, the market and its infinite lack of wisdom was saying, yeah, but the economy's booming. Oil was 150 bucks. In two years' time, rates are going to be back up here. Bang. I was getting no joy. I was maybe up 3% on the year.
I had a client dinner in New York. Maybe these guys knew you, I hope so. They were saying, you're an idiot, you don't get this market. I'm like, I'm not, but they're like, you don't get this market. They're like, we've got a guy, he's done it 32%. He gets it, we're going to give him the money. I always wondered until this moment, but now you're giving me this revelation. You were the guy that they were giving money to. You were the guy who got it.
Seriously, that's a big number. I think we have to reflect, we have to pause there. I think it would tell me that-- the summer of 2008. Again, it's not often that you have the discourse with the clients but that was one of the points where almost like electing a new pope in Rome. There was white smoke emanating from your office saying, the ball is getting bigger, the opportunity is we would welcome money, and then boom, you have that drawdown. Can you just discuss that, please?
BOB TREUE: Yeah. Just so you know, the fund has been closed three times in the past. We were closed prior to the Global Financial Crisis. We were closed one time between the financial crisis now and then we were closed in 2018-2019, because we didn't have as many opportunities. Coming into the Global Financial Crisis, didn't have as many opportunities, and then the crisis hits and particularly in the spring, the problems started occurring, Bear Stearns went under in the spring, and this big fund in Japan called Endeavor went under, and they left fantastic opportunities.
One of the mistakes that I made is I reopened the fund in the spring of 2008 and our share price at the time was $2.50. I went to investors and I said, hey, we have fantastic opportunities. We were down, but what happened then, some investors invested, but then by the fall of 2008, then Lehman goes under, and the difficulties get much worse, the mispricings get much larger. All those trades we put on lost money initially, our share price went from $2.50 down below $2. Our share price now is like $15.50, so it didn't seem like a big deal but at the time, it was crushing. It was the most difficult time of my life.
I started Barnegat when I was a bachelor and Barnegat, the share price is everything to me like all of my pride is in that share price. Being down 37% was crushing. I don't want to make it out to be easy or fun. It was brutal, but the general idea of that opportunities were much better. Yes, that was true and I tried to convey that to investors. There's nothing etched in stone that they have to invest, but fortunately, they did.
HUGH HENDRY: Do you have a secret surveillance system and you've got dirt on the clients? You are the guy who said, hey, invest with me, and it's certainly you're down 37%. When I call clients, and I was never quite in dire straits, but when I call to say, hey, look, we were down 4% or 5%, they screamed and shouted at me. Yet, what is your superpower on that telephone? How do you convince them not only to stay, but to give you more money? What did you say?
BOB TREUE: One of the things that we're not good at, we're not good at marketing. We make clear of all these negative things, but one thing we have done well, is we have found a few investors who are very stable. At this time, even after 20 years, we only have about 70 investors. Now, the positive part is that about 60% of our investor base has been with us for 20 years, so we have a super stable investor base. When we get these calls, the first thing we do is send them those reasons not to invest.
Let everyone know, hey, when we lose money, we're going to add to those trades. When we make money, we're going to reduce those trades, and try and educate the investor. Try and go through the trades. Talk to them about the trades. One example that was in 2008, where we lost a lot of money, was TIPS versus treasuries. TIPS pay a real yield, plus whatever inflation turns out to be. Then treasuries are the standard US government bond. They're both issued by the US government and in 2008, we had two 2014 bonds. One was a TIPS that matured in 2014. One was a Treasury in 2014.
Once we hedged out inflation on the TIPS within inflation swap, the TIPS yielded 5%, and the Treasury, same maturity, same government, same credit, same everything, yielded 2.55. That was the kind of trade where we're going out and we're saying, hey, we have excellent opportunities. Here, we have two US government bonds, completely different yields. That's the thing that Barnegat is hoping for. Now, on the things that Barnegat does poorly, we're not good at timing these trades. As I mentioned, we reopened the fund in the spring of 2008. We got into that TIPS/treasuries mispricing at a mispricing of 125 basis points.
As in we own TIPS at 4%, shorted treasuries at two and three quarters, the TIPS went down in price so we got hurt there. The treasuries went up in price, so we got hurt there. We lost money on a variety of trades, but they were all similar to this theme of mispricings around the world, government bond markets that got more mispriced and that's how we were down 37%. Now on the positive side, we went to investors and said, hey, look, here's the trade, here's how it's mispriced. They were willing to listen and some of them invested.
HUGH HENDRY: With all strikes, you typically have a lot of unencumbered cash unified, essentially, cash to me are redemptions, but what did you called upon? Did you have to shrink the leverage available?
BOB TREUE: We did shrink leverage a little bit, just historically, we have about half the fund as excess collateral. Over the 20 years, roughly, it's been about half. Now, currently, it's up around 70%. It's to the high side,