Launching an investment research firm on the eve of the greatest financial catastrophe since the Great Depression may not seem like a textbook example of being in the right place at the right time. But for Keith McCullough, it was a serendipitous opportunity.
“I left Wall Street at the end of 2007, and I had been with the Carlyle Group in New York,” said McCullough, recalling his work as managing director and portfolio manager for Carlyle’s Blue Wave hedge fund. Carlyle liquidated the hedge fund in 2008, little more than a year after the private equity firm launched Blue Wave with investment partners.
“I felt like it was time to build my own company,” said McCullough. “I started in New Haven. It was during the financial crisis and we had a view on where the world was going. By the virtue that no one was hiring on Wall Street, we put up a sign in New Haven that said, ‘We’re hiring.’ We were lucky that we had the opportunity to hire so much young talent.”
Fastforward a decade, and McCullough’s initial staff of Wall Street castoffs has grown to 80 employees at Hedgeye Risk Management, which later relocated from New Haven to Stamford’s High Ridge Park. This year, the company passed the $100-million revenue milestone. McCullough said the research firm’s clients include “hundreds” of institutional investors who run more than $1 trillion in funds and an individual investor base “in the thousands.”
Hedgeye deepened its initial focus on the hedge fund market for institutional investors, spurred by a chance comment from its founder’s mother.
“My mom said to me, ‘How do you change the world with this stuff that you do?’” McCullough said. “I was a hedge fund analyst and a portfolio manager and I couldn’t really answer the question.”
His company turned to more extensive, detailed reporting on the inner workings of the hedge funds. “Making open and transparent what it is that hedge funds do was the real vision of the firm,” he said.
While tracking hedge fund activity, McCullough also began to incorporate calls on the state of the economy and leading industries and companies into Hedgeye’s reports. He also worked to call attention to himself with the 2011 publication of his autobiography, “Diary of a Hedge Fund Manager,” and a skein of appearances on financial cable television shows. A round of Twitter sparring with CNBC stock market analyst Jim Cramer in 2013 further raised McCullough’s profile, although Cramer wound up blocking McCullough’s tweets after the Hedgeye chief re-posted the “Mad Money” host’s 2008 remark that “Bear Stearns is fine,” not long before the collapse of the global investment bank that year.
McCullough eventually opted to expand his company into the financial media realm with the creation of an online network. “HedgeyeTV was my challenge to CNBC or Bloomberg TV or Fox Business TV, where I appeared for a long time,” he said. “I felt it was easier to go direct.”
A key element of HedgeyeTV is “The Macro Show,” which is available to subscribers for $39.95 per month and includes an interactive question-and-answer exchange with viewers. “That runs every day at 9, before the market opens,” McCullough said. “It is everything that we think matters today in the world, what’s actionable, what you should be thinking of in terms of your money.”
HedgeyeTV serves up free content via its YouTube channel and podcasts via iTunes. It also features editorial cartoons by Bob Rich, a former Connecticut Post staffer who finds inspiration for his work in the firm’s morning research meetings and boils down economic complexities into single panels of humor and mirth.
“A cartoon makes it come to life and gets a much broader population to understand what you’re trying to say, as opposed to all of the economic gobbledygook you see on TV or in the newspaper,” said McCullough. “His job is to draw one cartoon on the most interesting thing in that meeting.”
Last year, Hedgeye acquired Potomac Research Group, a Washington, D.C., research firm that provides federal policy analysis to institutional investors. McCullough has sought to keep those analyses and Hedgeye media reports free of the politics that have roiled Washington and the nation with the election of President Donald Trump. Some people, he said, were “tone deaf to what was going on economically because they have such a political opinion.” In McCullough’s own opinion, “The economy was going to accelerate from what was a very slow year in 2016” regardless of who occupied the post-election White House.
Neither Democrat nor Republican, “I’m a Canadian with a green card,” he said.
And not unlike many of his countrymen, McCullough is hooked on hockey. While pursuing an economics degree at Yale University, he captained the school’s hockey team to an Ivy League championship. He is a co-owner of the Arizona Coyotes of the National Hockey League. Earlier this year he teamed with retired pro hockey All-Star Martin St. Louis in launching Seven7 LLC, a private investment firm in Stamford that funds startups. McCullough noted that he preferred working alongside St. Louis rather than against him.
“I actually played against him in college and it was nasty,” he said with a laugh. “He played so hard and his team at the University of Vermont would crush us. He’s driven, and he has a tremendous amount of work ethic.”
Looking to 2018, McCullough forecast a slowing of the economy, but warned that investors should not view that as the inevitable downturn that follows a bull market.
“The fear embedded in our past has impeded our ability to see what is happening currently,” he said. “Past is not the direction of the future.” In Hedgeye’s market analysis, “What we try to do instead of calling a top is show people how to measure and map a topping process.”
“Real basic things that might start to top in the first half of 2018 are profits and GDP growth,” he said. “Or, put another way: Everything I am bullish about this year is going to become a headwind effectively because next year you’ll have to compare against it.”