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I’m no expert in the space but was under the impression FTX was still considered a low volume exchange. If Alameda mm was still providing substantial volume they may have felt the price they were paying being bad at trading was worth it from a marketing point of view. This was the same crew buying stadium naming rights and over paying for eSports teams.

As for hiring an adult, have you seen some of the things they’ve said in public? They thought the adults were wrong! Like on a mathematical level. People that far into their own cult-think don’t want outside help.

Finally, the Ontario Teachers thing feels extremely overblown. They put in 75m of ~220b aum. That’s a minuscule investment in a category that was clearly part of their highly speculative book. I think people keep bringing it up for the “think of the teachers!” benefit, but of a pension fund doesn’t have some outsized return opportunities on their book they’ll not be able to cover their outflows under certain future economic scenarios.

> FTX was still considered a low volume exchange

According to a random source, they moved volume on the order of 500 billion. Transaction fees of 0.1% for 500 billion is a lot of million to keep the lights on.

For a maker and taker with best fees, the exchange only made 0.5bps, not 10bps. We happen to know that top rebates were pretty hard to achieve though, so most volume probably paid at least a couple more tenths of a basis point.

> According to a random source, they moved volume on the order of 500 billion.

According to FTX, the entire market moved 250 billion including derivatives of which they were 13 billion

https://ftx.com/volume-monitor

In the trailing 24 hours, presumably sampled at the time FTX's servers for dynamic content such as logging in and trading were shut down. also did you reply to the wrong person?

OTP put in something like that in the fund I was at. Yes it's small for them but it's still serious, the guy in charge wants to move on to bigger things.

Oh and I totally forgot to comment on the math. Kelly criterion, I don't get how the guy could have studied physics at MIT and not understood it. It's simply a result that tells you how much to bet of your stash if you are presented with some repeated betting opportunity. It's essentially an extension of high school level probability theory, with similar clean-room constraints (independence, etc). There's also a continuous version of it using Sharpe ratios, no surprises.

If you read anything about it, it's very very not smart to bet beyond the ideal size. This is actually the reason why a lot of people use less than the ideal, because you don't want to end up over the hump. Both the assumptions that underlie the result and the measurements of the parameters are not easy to ascertain, so don't act like it's a dice game within a known environment.

By the way anyone studying Kelly Criterion needs to read this: https://en.wikipedia.org/wiki/Proebsting%27s_paradox

Kelly criterion is not the best strategy for one. It’s the best strategy for an ensemble of ones in many universes but you can only live in one universe. It’s a nerd trap because it seems so elegant and reasonable.

This isn't true? If you aggregate utility across universes using addition and have utility linear in wealth then you maximize your aggregate utility by going all-in on every favorable bet.

Kelly turns out to be equivalent to maximizing expected log-wealth, if one stays within a single universe, or to maximizing the probability that one will eventually have more wealth than any agent in the same universe that employs any other strategy on the same sequence of opportunities.

Only on HN is it necessary to define that we are only discussing the single-universe case!

You are still using infinite universes: expected value and probability still are calculated across an ensemble of parallel universes.

This is the worst comment I have ever read. There are reasonable definitions of expected value and probability that do not require infinitely many universes to figure out whether you should raise pre-flop with aces.

Can you provide any such definitions or references?

use google next time https://sites.math.rutgers.edu/~zeilberg/mamarim/mamarimhtml...

You are conflating time-samples with ensembles. That lecture refers to finite time series which may be shown to converge for N < infinity. That’s fine.

I have not mentioned either of these things. You can find other finitist formulations of probability if you want.

You replied to a post about aces. For any finite number of chips and players (n_players > 23 starts to raise some questions), there are finitely many games of NLHE anyway.

I don’t want to besmirch this particular person I’ve never met, but I definitely have met engineers who look at the stock market, look at their sophomore or junior level signal processing class and decide that all those Econ guys are a bunch of dummies and they could totally beat the market with some Fourier transforms or whatever (the fact that investing firms hired a bunch of quants is left unaddressed). So, I could see somebody making this sort of error.

I'm friends with a retired quant, and one thing I learned from him is the big firms on wall street will hire the absolute most brilliant people they can even to work on utterly banal well known basic strategies. PhD's doing high school math. Because when you're moving billions, nothing is actually basic.

Yes, the crash at FTX gets all of the press, but it's really the slow motion collapse of things liken pension funds that should really be getting our attention. SBF is just a piker compared to the pension funds.

> I actually got Ontario into a fund I was at, and we'd have lost the investment if we hadn't behaved like adults. This is causing me some cognitive dissonance, because I don't think of the investors as the kind of people who'd even smile if they found me in the office playing a video game, let alone addled on drugs.

They might been starstruck by Sequoia more than SBF and his team, and just gone along for a ride with the most storied VC firm in the world.

>If SBF really was on drugs and playing League of Legends badly, perhaps he also didn't know what was happening in his shop

You can be drunk by your own success. Without a voice of reason or an adult in the room (like sheryl sandberg) that can be quickly deadly.

The Ontario Teachers' investment is outrageous. They are charging middle-class people (by definition) good money from their retirement savings to make reasonable investing decisions and do due diligence.

OTPP has quite a solid reputation and this particular investment was a miniscule speculative bet. You can see the performance over time here [1].

[1] https://www.otpp.com/en-ca/investments/our-advantage/our-per...

It's not about performance or risk management, it's about due diligence. They should not be giving any amount of money to an organization with such poor internal checks of their finances.

--if you made an investment based on audited books but the books were still cooked - what more can you do? - audit the auditer maybe - at some point you have to trust the books --

What if you made an investment based on not seeing any books, there not being any reliable guide as to the company's liabilities, seen or unseen, and not being aware of any regulation or oversight preventing fraud and/or blowing up? But you had a good feeling about the company's hype and the CEO seemed like a nice young man with main character energy?

If the company turns out to be a fraud and the investment worthless, are you still entitled to say "nobody could have known" and "only 1 in 10 has to be a winner"?

I'm sorry but thats not how it works. This investment was made out of their venture fund which deliberately makes risky bets, but is a small amount of the overall pie. OTPP is fine and is going to produce returns which are favorable, let's stop with the hyperbole.

How do you know there aren't many other bets like this on their sheets?

They are quite open about their investments: https://www.otpp.com/en-ca/investments/our-investments/

Here are the other bets in their venture category: https://www.otpp.com/en-ca/investments/our-investments/teach...

They have 220B AUM.

Canadian teachers and retired teachers have $220b, which they paid into the plan from their not particularly opulent pay packets. Nearly $100m was given to a company based in a regulatory haven, which does not know to within $5bn how much money it has, and which was able to steal from its customers without any oversight.

Ontario Teachers were an anchor investor in a round which lots of less clueless people must have passed on.

Not sure why you think this is ok.

an enormous amount of our economy is based off gaslighting and manipulation

they can blur the line between honest mistake, gross negligence, nepotism, corruption, and thievery, enough that people who will applaud beating up a shoplifter for taking 20 dollars of junk will say "oh but they have nice suits and went to Stanford" about someone who gave 75 million dollars for magic beans.

They accepted the risk of losing $100m because they thought there was a significant chance of getting a much bigger return. Obviously in this case the bet didn't pay off, but putting 0.05% of the AUM in a high risk investment is hardly a scandal.

-- also it was out of their early stage fund - the vast majority of their money is in traditional investments - don't understand why everyone is so up in arms - they really think they know better than the most successful investment group in Canada? --

Why do an investment group which is successful in making large, traditional, real money investments think they know better than the numerous seasoned venture funds and experienced crypto investors who did not give $95m to FTX?

What was it about FTX's lack of internal controls or experienced decision-makers which only TVG was able to identify as a source of value?

-- their portfolio is pretty fantastic - so they made 1 bum investment based on cooked books - VC is literally about standard deviation --

https://www.otpp.com/en-ca/investments/our-investments/teach...

Lol. FTX’s investors were a whose who of “seasoned venture funds and experienced crypto investors”.

Sequoia, Third Point Iconiq etc. Coinbase Ventures gave them money. Blackrock was an investor.

If you want to see FTX as an indictment of the entire venture industry I think there is an argument to be had there. But picking on OTP is just a lazy rhetorical device. They made a similar investment to other funds in the industry they are in, that was a reasonable size of their portfolio in an investment style known to be risky.

Coinbase Ventures (a fund whose wheelhouse is, uh, investing in crypto ventures) did not invest anything like $95m.

Your fourth example, Blackrock, is tellingly neither a seasoned venture fund nor an experienced crypto investor.

Teacher's Venture Growth is 8bn AUM. It makes complete sense to me that Ontario Teachers as a whole should put 4% of its assets into a venture fund.

TVG put well over 1% of its assets into FTX. Numerous people who work for the venture fund, who are paid 10-100X the income of the retirees in the fund to make investing decisions, went ahead with this investment without asking themselves:

1. Why isn't there a crypto-savvy lead investor for this funding round? Why are we, Teachers Venture Growth, the best placed people to make this investment?

2. Why are 3 individuals with, ostensibly, enormous personal wealth, seeking outside investment from Ontario Teachers for this business?

3. Why isn't this business headquartered in a jurisdiction where people who commit massive financial fraud will be investigated and held to account?

4. What checks and balances regulate the relationship with Alameda, a hedge fund which a) trades with leverage and favorable fee structures on FTX b) is reputed (long before the Series B and the recent trouble) to have privileged access to FTX data c) is run by a romantic partner of the head of FTX?

5. Who are the grown-ups at FTX? You might well think that SBF and his posse have some magical crypto skills. But why don't they have senior people with experience in accountancy, compliance, or risk management helping keep them on the right path? This is the easiest question to answer - you can simply check who works for them, who's on risk committees and other oversight bodies, and what their resume is.

People like to excuse massive due diligence failings like this by pointing out that not all venture investments are supposed to end up in the money. It's fine, if you have huge winners, to use them to justify a certain number of losers.

If you don't have a proven track record for finding out-of-the-park winners, it's perfectly reasonable to ask why you think you can risk large amounts of money on things that look dubious to other investors, while not performing basic checks.

1% of the 4% for a single years worth of capital isn't that much, especially considering the good reputation and other high end investors putting money in.

Unlike in the US, Ontario teachers are paid well relative to the average Canadian, especially with their pensions taken into account.

Doesn't matter. It's still a neglect of their fiduciary duties.