This is the best market. This is the time to be in, right? And this is for all the listeners who worried about AI, like you need to be running in, not out. And we believe that.
Nobody would have guessed, including us, that we would have ever been married because there are a lot of wars that happened inside the walls. So, I would say he gets us into [__] and I get us out of it.
Welcome to Forged in America. As always, I'm Ravine Gandhi with my buddy Al Goldstein. I started a business about 20 years ago called GMM which we built to about 100 million in sales and then I sold it to a company called Resinac, one of the largest companies in Japan. My buddy Al is a serial entrepreneur who has built a number of tech unicorns. Sold some and still operating some of them. And today we are super excited. We have a great episode. We have Jenny Just and Matt Huliser who are the co-founders and managing partners of Peak Six. This is a multibillion dollar fintech empire that they built from a $1.5 million bet in 1997. Over the past two decades, they've created, turned around, or invested in more than 200 companies, growing Peak 6 into a powerhouse that spans fintech, insurance, sports, esports, I should say, and beyond. And most importantly, they are married. Yes, you are looking at a husband and wife billionaire team. It is super amazing. So welcome to Forge America, guys.
Matt and Jenny, you could see why Ravine does the intros. He does that from memory somehow. I'm not exactly sure. He clearly has a future in this, I think. Super excited to be here with you guys. I was struck by how you're able to work together and build so much while being married, having worked with my wife previously and honestly I think I tell Ravine this, I enjoyed that part maybe more than she did because I got to pull rank sometimes and she was very gracious and I keep telling her I'm like, 'Hey, why don't we do it again?' And she's like, 'No, no, no. We're good.'
Well, usually most people ask him why he's working with his wife, not why I'm working with my husband. So, I appreciate your wife.
And how many years into Peak Six was it that you guys sort of started dating and then got married?
So, let's see. We got married in 2003 and we started the firm in 97. So, I don't think we really started dating for a few years. We knew each other 10 years before.
Yeah, she pursued me for a long time before she finally gave in.
So now I just watched a really cool speech that Jenny gave to the Ross School of Business at Michigan. And in that, you talked about Jenny being at a Wendy's and you were sitting there watching the way Wendy's was making your guys' burgers and that kind of gave you this aha moment about how you might want to organize a firm that had never been done before where you had kind of a grill guy and you had kind of a fry guy. Can you let our listeners know what that vision was?
Sure. Going to Wendy's seems crazy at the time, but the fact that they had a screen there that was, you know, the person at the front desk was taking the order, it would show up on the screen. The different people would then organize themselves and it was an efficient process. It's not really how it worked in trading back then. And in many ways, doesn't really work that way today. At least the way we do it, we don't see it very often. And because the trader was the master of their domain, they did everything from beginning of trade to execution of trade to managing the trade to exiting the trade to making sure it cleared like the whole nine yards. And we just started pulling pieces of puzzle out just like in Wendy's. What we started to see was this idea of inventory management. It went from a Wendy's idea to like a Walgreens or Walmart. And how do you have inventory on the shelf every single day so you're available as a liquidity source for the market but also when you have to own the inventory that you know it doesn't rot it doesn't decay and that you're having the right inventory for the time and place. So we'll often talk about something like Jane Street, they're more like Door Dash and we're more like where Door Dash goes to get the stuff, right? We're holding and selling the inventory. So building those kind of systems was not how traders traditionally thought and that business now will be 29 years old and has never had a losing year.
So Jenny, that's fantastic. And we were talking about this just a little bit in terms of where does Peak Six fit in and I love the analogy versus Jane Street. And so where does Peak Six differ from some of those contemporaries as well as some of the hedge funds? Ken Griffin obviously is extremely well known and Baly came out of Chicago.
Yeah. So we invested early on in holding the inventory for a little bit longer. That doesn't mean we hold it. We're not a long only shop. We're not Fidelity. We're not buying stocks and holding them forever like Buffett. But we hold them longer than a micron of a second. We might hold them for a week or even a month. And so what you have to be is super efficient at inventory management. It's a different skill. It is a lower but not a bad return on equity. That's probably the best way to think about it. We tend to hold inventory longer than other people.
Jenny, when you know you are I assume a trader at heart because that's where you kind of you know you were in the pits and you know you progressed and given the scale that peak 6 has grown to now and in the intro we talked about so many disparate areas and you guys are clearly not a hedge fund and you have all these kind of moonshots and you have this in-house venture business now do you still feel like the trading operation is closest to your heart or are you kind of like I love all my children?
Well, we definitely think of ourselves as traders even when we're making business decisions every day. So, it's sort of calculated risk, range of outcomes, how do we want to do this? But it's hard when that is peppered into your brain as a young person, right? So, we are really good at making decisions quickly. Sometimes you shouldn't do that though in business. Sometimes you should operate a little bit differently. It's not exactly the same as that trade I'm going to hold for 20 days, that business decision that affects people and moves. And so we try and surround ourselves with smart partners who have either we hired and brought up or have come in from the outside to peel away a bit of that trader mentality that is certainly embedded in. It's hard when it's the two of us, right, who are the co-founders that we're both come from the same spot. But I think it's a way of thinking and being that it's impossible to separate us from.
Well, I'm curious if that judgment also goes into the decision about human capital because, you know, you're at Wendy's and you're thinking, 'Oh, I don't want more than 10 people.' But the mere fact when you look at your track record, by definition, you guys must be stellar at identifying talent, hiring the right people, knowing when to get rid of them, knowing how to motivate them, knowing how to retain them. So, do you think that that skill can be taught? Were you guys just like, 'Wow, we happen to be really good at this,' or how do you reconcile those two skill sets?
That's a really hard mix. I would say we have tried in very many ways to do a lot of different things to bring in to narrow down this skill so it's teachable to someone who's hardworking, who's curious and who's smart which also means there's another half of the population, women, that can also do this job. And the fact that we have been able to do that and other firms have not. So, we've been as high as 36% female capital allocators, right? So, you're actually making a decision on a trade every single day. We're probably right about 30% right now, but those numbers are unheard of. The fact that we can change and bring a whole segment of the population that wasn't there before means there's a lot of secret sauce in the culture and in the core product of not just how we teach options, but in the tools and the technology that you get to use when you're there. So, it is a top down and bottoms up system that has come together really well. A lot of people when they come, I mean, a lot stay a really long time. So, the system works. The combination of the two things really works.
So, maybe Matt, let me get you in here. And I don't know if you've seen Ken Griffin has a clip that's been going a little bit viral. I think he was at Stanford and he was talking about AI. And prior to this clip, he's been somewhat dismissive of the impacts of AI within the Citadel four walls. And he's talking about how in the last few months he's seeing Claude or these AI tools delivering outcomes that it used to take months for his master's degrees or PhDs to deliver and he went home and he was a little bit depressed about what that means. So what is your take Matt? Are you guys seeing that internally? Where do you think that goes from here? And obviously the followup would be on the human capital side. What does that mean for the human capital?
We kind of compete with Ken and we understand like he says a lot of things. We were early adopters of AI because it was pretty obvious to us again as founders like technology does things better than people can. Jenny and I were floor traders. Okay. We were good at fast math, right? We could add quarters and eighths and 16ths we used to call them on the floor. Like we were good at that and it didn't matter. It didn't matter how fast you were because the calculator displaced that in a way that is just not close and AI is going to do the same thing in many ways. But it doesn't mean the end of trading. It means you adapt and Jenny just spoke in Michigan and we obviously talk about like now is the best time. We lived this. It was 1997 and technology, the internet had happened, right? Everybody was trading on the floor. We were the first firm to really trade off floor and it was like oh this could be the end. What's going to happen? People migrate. People change and so I'm sorry that Ken's depressed but we are not.
They're really excited for people. By the way, I'm going to hear something, I'm sure.
Yeah, exactly. One of the things we've always said to our people, and this is way before AI, which is work yourself out of a job. It's the best thing you can do because if you're smart enough to work yourself out of a job, you're smart enough to do something else for us.
So, people who don't want to do that, we probably don't want them there anyway. So, the goal is to think about interesting things for the future, not to think more about what I'm already doing today. Very few people who would be naysayers today under the umbrella of peak six which is several thousand people but of course there are pockets and of course there are some big lumpy issues that can be scary for people but I think we want to jump on the how can we do things better for society for our families for the employees who work inside and how do you make their lives better. Like I always said if you work yourself so much out of a job in such a profound way you deserve some vacation for God's sake, right? And think about what you want to do next and we want people on the team who are doing that. So, it's been really fun for us.
Jenny, one of the things that I found very interesting when we were looking at what Peak is doing is this thing that you guys are calling trials, Peak Six trials, which is you have these internally, I don't want to call it an accelerator, but you're developing a lot of companies internally and keeping it completely within the Peak 6 ecosystem and where you're letting them kind of trial their business model, you know, with everything that is kind of controlled from within and you're really in a sense letting the market set the price and seeing who can kind of make things happen. Can you sort of like talk about the vision behind that?
Yeah, I'm going to let Matt start and then I'll jump in.
Look, I think we could either say like, hey, we've done really well in life. Let's not do anything new. Let's just hope society doesn't change. It's probably stupid. Or we can accept the fact that there's going to be massive changes. And so that's why we did trials. Like we're trying to displace ourselves. There are some young listener or viewer of yours that is out there listening be like, 'Man, Jenny, I could take them.' We hope so. And we want to give you the toolbox to do it. So we bring people down to Austin. We pay you a salary so you get 100 grand. We give you capital. We give you technologists. So, we've got a SWAT team of some of the best technologists and AI forward on the planet and we give you access to that and we say here's and we give you access to our 40 some million customers, retail customers on the clearing side, 90 some million customers on the tax side, three or four million customers on the insurance side. Like here. See if you have a lab that's fully functional on day one when you show up. And we're looking for entrepreneurs who want to come down and change the world. That's the whole goal. Come down and displace us.
And they could have the idea or we have ideas, right? And they just haven't found the idea but always wanted to be an entrepreneur. So both sides of that equation can work in this umbrella.
So what happens at the end of that first year? So they come down, they build, they build something amazing. What comes next?
So look, as a firm grows, this thing is going to spin out. As much as it's held within Peak Six Walls, the goal is to spin out. And the interesting thing we've seen as investors is that these people with great ideas, they tend to get diluted out by typically West Coast venture capital firms who take stakes and they just dilute them down, dilute them down, then they come public and they don't own that much. If you look at CoreWeave, a company we've been investor in since a long time ago, right? Those founders own significant percentages of the equity mostly because it's around structuring, which is what you really want. You want to promote the founders, the entrepreneurs, not dilute them out so that you can line your own pocket. And so what we've structured this as is as the firm grows, peak six gets diluted out. And by the time the firm is over a billion dollars in valuation, you have diluted peak six down and you own a majority. It's a reverse. It's basically reverse. It rewards success, which is what we want to do.
In terms of how you guys make decisions, I love the story where I believe Jenny talked about meeting these founders that ended up being the guys behind Robin Hood and that became this huge success story and you guys backed that really I think at the very ground floor and then she also talked about meeting this eccentric guy named Elon Musk when Tesla was getting started but passing on that. And my question is how do you, you know, Al and I have done dozens of direct tech deals and it's so hard, right? I mean so hard to know what is going to happen. My question for you guys though is do you disagree sometimes when it comes to a decision let's say about a founder and you're like oh I love this guy and Matt's like no no no come on now or vice versa like how do you guys manage that?
Oh gosh. Yeah, nobody, this is why nobody would have guessed, including us, that we would have ever been married because there are a lot of wars that happened inside the walls. So, I would say, or Matt would probably say this too, I think. You tell me, Matt. He gets us into [__] and I get us out of it. But we learn to get in less [__] over time. The one thing we were always good at was cutting our losses. So we have lost money in more ways than most people combined.
Is that a trader mindset? Because I think sometimes investors or maybe even operators get sucked in because you don't know how to do that and then 15 years later you might still be fighting the same fight.
I mean I think that it is definitely, Jenny and I are both traders. We both have trader mindsets. We play in poker terms we play a lot of hands right and what we have found is even if we disagree on a founder or a company or a technology like we try a lot, it's just a sizing your bet like how much do we want to do on the bigger things. So, I'll pick CoreWeave. Like, it was obvious to us. It was incredible. Jenny and I, we went to the data center. We're in like we went in and watched it and we walk out. Jenny's like, 'We should never sell a share.' It's just phenomenal. And when you get those moments where you're both in agreement, you know, to be bigger in your capital allocation. That's helped us a bunch. And so because we have differing views, one of the benefits of working with your spouse is you're not going to see things the same way, but when you get agreement, it tends to work really well.
I was asking ChatGPT to give me some kind of other married couples that might be proxy for you guys, and it really said there weren't many. I kind of feel like you guys are in a sense an N of one. I'm just not sure how you guys have actually managed to stay together over decades when any of us who have like my business partner and I would get into fights that were worse than anything that me and my wife had gotten into because you're talking about millions of dollars and you're talking about an ego thing and you're talking about you're in a conference room and everyone's looking to see who would win. So maybe there's like four questions embedded in there, but maybe each of you could take a crack at that and just see what sort of comes out from a Rorschach perspective.
I knew you were going to do that. I would say the good thing is we didn't start as a couple. I think that was helpful. Because it didn't matter all the arguments that happen in those particularly in the early days when it's like holy [__] like we thought we were going out of business after our first month of trading and then two months later we make our first million dollars then it's like Matt wants to have a Christmas party. I'm like we can't spend any money. Who knows if we're going to have any more money? He's like I'll just pay for it. I'm like yeah but if you pay for it then people are going to have an expectation. There was less than 10 people. Like there was nothing we agreed on. So, I think the early days are the hardest. So, if you can get through those and of course we had success. So, I think that helps a lot. But so when we started to have a whole bunch of fails in a row, let's call it, I don't know how many years in, and this was not in the trading business but we were taking money because we didn't know at the time how to put more money into the trading business as you know it doesn't use a ton of capital. So as we made money now what do we do with that pile of money we have? We could give it disperses. That's what traditionally trading firms they just give it to the people. Now the people have to watch two baskets the one in the middle and the one at home. And the great thing is, as our employees became partners of ours, they all trusted that let's all keep it here at the pot in the middle, but then we didn't know how to use it. So now we start using it in dumb ways. And because those were because we're trader types, they were six. There were many of them and then many quick ones and because they added up in so many different ways, we're like we suck at this. Like what are we doing? Pull back, focus on where we're good. And that's when we started doing that's when we did the hedge fund, for example. That would be a most obvious thing that we should do that and then but again, we knew it was a ton of capital. So now it's going to have to be strategies and other things that we didn't necessarily have skill at though we eventually hired for. So I think you have to also get lucky. I mean, we talk about the role of luck all the time in what we do. And so whether it's lucky that this thing succeeded or lucky that thing failed so I could focus on something else or just lucky for the people you meet in your lives like you guys right like who knows where it goes as a result of having this conversation today. So the combination... Sorry Matt you jump in.
I mean how did it work between us? Yeah. Early on it was more obvious for me. I think you guys are in Chicago, so you would appreciate this. Like, I have a big ego. I, in basketball terms, I am an elite basketball player, maybe one of the best ever. Okay, I really think that about myself. And on the Bulls, I'd be Scottie Pippen. My job was to get the ball to Jordan. That's I think I understood that. Jenny says things sometimes that are just I hadn't thought about. And when somebody teaches you something, you learn. And as a sports fan, when people do things better than you, it's easy to see. I think I just understood that maybe early on.
But if you think back right in 97 for him to make a bet and partner with a woman, like that's wild. Everyone's like, 'What are you doing?' And you better have the majority of this. It's like, 'What? Why wouldn't we be 50/50 partners?' So, like he had a really strong mom and has one sister, very strong sister, orthopedic hand surgeon. There's not many still to this day women orthopedic hand surgeons in this country.
Do you guys at this point have agreement or consensus about like who chased who? I'm sure that you've had to tell the story many times like do you really in your hearts agree that like oh Matt made the first move or like what like is there like to this day would your kids say that there's a narrative that is agreed upon or is it still apocryphal?
It's still not quite right. It's a very because we're there all day every day of our lives, right? So, it wasn't extremely obvious to either of us. Nobody would have guessed we'd end up together. So, like I think there's a fine line between love and hate and fortunately we ended up on the good side of that.
Hey, which side are you on?
It sounds to me like both of you are very introspective, which is not maybe a common trait. Maybe that's a big part of the success of this idea of compounding and obviously having the trading business the cash machine creates a powerful engine for which to try these new things which is amazing. One area for me that's striking is poker and Matt you made the poker analogy. I know Jenny poker is big. How does that mindset play into what you do every day?
So I think it starts like you guys asked earlier about people as well like by background like I'm a math person. I did major in English but I was a math person. I was a card counter in blackjack. I could do it. And I would say that I understood the math and the odds really well. But the markets aren't like blackjack. They're like poker where you could play everything correctly and still lose and you will be wrong for qualitative versus quantitative reasons. That is a different skill. It brings depth to something that is it brings depth and EQ to math problems. You have to have those qualitative skills, not quantitative skills.
In 1997 when we founded this firm, there was a firm called Long-Term Capital, famously blew up, with the smartest people. The guy who wrote the formula that we use, Black Scholes, is there and they blow up on math because they just didn't think about the qualitative aspect. People don't work just on math.
Yeah. John Meriwether, right? Didn't he go on to blow up a couple more times?
And the most famous one was long-term capital. If he blew up after that, it was less.
And for our listeners, Roger Lowenstein wrote a very good book called When Genius Failed about that specific LTCM situation.
Great book. So, I think poker is a great tool to help you understand that just because you do everything right, you may still lose. And understanding who you're playing against and who you're playing with is really critical.
And now Jenny, I just want to dial down on the poker question with you, but I want to add one wrinkle to it because poker is obviously an alpha male dog game where it's very very I would hesitate to say sexist because I kind of think it is. And you grew up with four brothers and you choose to go into the option pits which is also an absurd environment in the 90s. So the question I just want to expand it as it relates to poker is like what is it in your head that always attracted you to charge into these highly male-oriented environments, succeed and differentiate yourself that way and now kind of blaze a path for other females.
Well, hold on. Let me just chime in. I personally think it was because she was looking for a husband.
Yeah, you wish. So it wasn't about me charging into these areas. It was about I mean it was definitely fate, luck, whatever you want to call it. I happened to be good at math and fast math and I just wanted to work in Chicago and I happened to interview at O'Connor. I didn't really understand. I definitely didn't understand what I was getting myself into, but I didn't have a problem going in because that was just my life. I was just always surrounded by a lot of men. So, it was just my mom and I, my four brothers, and my dad. When I saw poker literally in 2019, I was like that everything we have been looking for to try and get more women into trading. I was like, 'We have to make this succeed.' We had two failed trials at getting women into trading. This is finally we got this one going and but poker was part of it. I saw that in the card game and I had never seen it anywhere else. So, young men get to do it in sports is close, but obviously it's a physical thing. But strategy in sports starts to get there but you don't have that probabilistic nature that you are thinking about and women don't necessarily they don't and girls they don't get that in their play and their hobbies typically. Poker it just turns out to be an extraordinary way to do it.
And by the way, it just happens to be fun. I mean, that's why so many men do it, right?
I want to take this discussion now to markets because we are in a very, very interesting time and we can find opinions on every side of whether we're going to S&P 10,000 or S&P 4,000. So I guess I would maybe start with Matt. When you look at the broader markets, we know that you're a techno-optimist and you're not depressed in the way that maybe Ken is, but do you find pause or anxiety when you look at forward earnings multiples of the MAG 7, for instance?
I mean, no. So by the way, S&P 10,000 and S&P 4,000 both are possible, just to be clear. That's what options traders think about, and both could happen. The forward earnings, you could look at, and I'll pick Amazon. So back when we started, there wasn't much earnings, but you could see what was happening with AI. I was wrong by the way back then because I was like all of the forecasters today who are bearish and saying, 'Gosh, if they have this, look how many books they sell even if they get to 100% market share of books, they're not going to get to this valuation,' because I just didn't understand. Look, the growth at Anthropic and OpenAI is like nothing we've ever seen. This invention is amazing. It is totally transformative. I don't know what it's going to mean for any of the MAG 7. Is it better for Tesla versus Amazon or Meta, etc.? But humanity will be better off. We will be more efficient and it will be a race. It'll be faster efficiency over the next five years. There's no doubt. In terms of how the market behaves, there's some other big things that are happening, which is the cost of energy. So if you told me how the Middle East was going to resolve itself, I can tell you what's going to happen in the market. And I'll give you both scenarios. Scenario one: Strait of Hormuz opens, oil prices start to decline. This administration will likely point at CPI going down, even though it is higher year-over-year, and all the economists are going to be like, 'You're wrong.' No one cares. The story is going to be lower. Hey, you see inflation's declining, declining, declining. We have a new Fed chair and he is going to cut rates because he cares about his job. That's what will happen. And we will get lower rates. The government is going to spend money on defense. You got Trump accounts coming. You got billions, hundreds of billions of dollars will be pouring into the market. The market's going to rip. It just is. And analysts are going to struggle with earnings estimates, which they already are because it's hard to do estimates when you've got hyper-growth. Okay, so things like CoreWeave and Nebius where you've got revenues growing four to six times, it's just higher. That is a path. The other path, though, is we don't get resolution. The energy continues to be high. And a lot of your listeners are thinking about buying a house. Well, if you go check your 30-year mortgage, it's expensive. And you're like, well, I got to drive, so I'm going to rent. I'm going to drive to work. Oh, it's super expensive to fill up my car. That's not good. Health care is not getting cheaper. It's still growing faster than inflation. And so when things are bad for the overall public, they tend to be bad for the market. And that is a much lower... For someone like ourselves, seeing both outcomes, the volatility around it is good for us but not good generally speaking for investors. So I think being aware of the distinct but possible range of outcomes, I think that's where people get caught off guard.
Well, maybe I just go a layer deeper there on that Amazon example and what's going on in the market. I agree with you. Anthropic, OpenAI, the numbers are insane. There are more numbers coming out all the time. Dario keeps going on podcasts and talking about how everyone's going to be unemployed, which I really wish he wouldn't do that because I think that's scaring the shit out of people. And in my view, probably somewhat unnecessarily because there are a lot of examples where inventors aren't really very good at predicting the future outcomes of their inventions. But the Amazon example is a perfect one. Amazon has been amazing but it had this massive drawdown and all the companies around it went to zero. And so it's like, how do you predict and spot that one? And you guys have done that many times. So maybe, Jenny, what is the secret? What is the magic in the formula? And I think it's what we've been circling around probably.
Yeah. I don't know that there's a secret. I think the long list of fails helps a lot. So we made, similar to what we're talking about in poker, making over many years a lot of small bets and seeing where your strengths and weaknesses are. Honestly, a lot of it is the quantity of things that we have done that allow us to see the special when it's truly in front of you. I don't know. What do you think, Matt?
I think the quantity helps. I also think we've gotten better at... there are some people who are exceptional storytellers and you have to put a value on that. Like certainly on an exit or how something will... and then there's people who are exceptional operators. And I think when you get one or the other, there's real opportunity. Because for us, I think that is probably what we're able to discern: is this person a great storyteller but maybe not a great operator, or vice versa. We probably pick the great operator, not a great storyteller, because we think it's probably easier to fix. And where we've done particularly well is it's just delayed gratification.
I don't know if you would agree with this, Matt. When I look at a Jensen or I look at a Zuck or I look at an Elon or a Bezos, I feel like they've proven themselves to be great storytellers and great operators.
