It’s that time of the year when you make your March Madness picks and pray that your colleagues, friends and family members flame out before you do.
Many go to extreme lengths to work out the short, wild journey that is the men’s and women’s college basketball national championship. You can drill down into adjusted efficiency margin, deploy artificial intelligence or just rank each team’s mascot.
But how do hedge fund managers, bank CEOs and advisers make their picks?
We asked some of the big names in the annual Bloomberg’s Brackets for a Cause, where entrants donate $20,000 and select a charity that receives funds if they are a top-three finisher in the men’s or women’s bracket. In total, the respondents below help manage roughly $3 trillion in assets under management.
Their general consensus? Get help.
Bill Ackman, founder of Pershing Square Capital Management, has a handy head-start. He’s the boss of a hedge fund that oversees $18 billion and asks his number crunching analysts to try and beat the bracket.
“Outsourcing,” said Ackman on how he makes his picks. “I rely on recommendations from others who know more than I do.”
Not everyone has a hedge fund. Instead, some have a basketball team. Last year’s men’s winner was Steve Pagliuca, the former co-chair of private equity firm Bain Capital, who also happens to be the co-owner of the Boston Celtics, plus a member of the Duke University board of trustees.
“I get input from basketball folks at the Celtics, as well as from Duke, then I throw a dart and try and triangulate,” Pagliuca said. “The winner is usually the person who picks a dark horse team. That team usually gets into the final four and wins the day.”
Pagliuca declined to reveal his dark horse pick this year.
Franklin Templeton Chief Executive Officer Jenny Johnson won the men’s bracket in 2021, outpacing Ackman. Like Pagliuca, she says that there are a “few upset picks,” as well as “a few flip of the coin decisions.” In the end, you “hope for some luck.”
But the San Mateo, California-based asset manager has about 10,000 employees, which has some benefits.
“Just like active investment management starts with teamwork, I rely on my team at Franklin Templeton to help me do a little research,” Johnson said.
Unsurprisingly, some in finance take a more quantitative approach. Cliff Asness co-founded hedge fund AQR Capital Management LLC, which has about $99 billion under management, and employs some of the best stats gurus in finance.
Asness also outsources, this time to Aaron Brown, a self-professed “quant nerd and computer geek” and former chief risk manager at AQR (and a Bloomberg Opinion columnist).
“The trick is to focus on finding selections different enough from the crowd,” Brown said. (More on that below.)
The private equity bosses are — unsurprisingly — enthusiastically competitive.
“We love a competition — especially when the winner’s success goes to a worthy cause,” said Bill Ford, chairman and CEO of General Atlantic. “We run GA’s Bloomberg bracket process like a deal sprint.”
Contestants are divided on how much to listen to their family. Jon Gray, president and chief operating officer of Blackstone Group, cruised to a win in the 2022 men’s tournament.
“I used to call my nephews and kids, and I just didn’t do very well,” Gray said. “Then in 2022, I called my best friend from childhood who’s a long-time basketball coach, and I used his brackets to win in 2022. Like a good private equity investor, you’ve got to pick a good management team.”
Others are sticking with youth. “I have played every year since the Bloomberg contest began,” said Richard Handler, CEO of investment bank Jefferies Financial Group. “I am terrible at picking NCAA winners.”
This year, Handler is outsourcing the task to his four kids. So too is Michelle R. Seitz, founder and CEO of investment and advisory firm MeydenVest Partners, who is picking her 17-year-old “statistically minded sports fanatic” son as her lead analyst. Seitz, who placed third in the men’s tournament last year, also has some tips.
“Firstly, consider the strength of the team’s season schedule and their performance in the conference tourney,” Seitz said. “Secondly, since it’s called March Madness for a reason, pick one or two teams with a seed of eight or lower to make it to the Sweet 16. Thirdly, look for streaky teams that maintain momentum.”
Sometimes blind luck is the best approach. Joe Reece, a managing partner at investment and advisory firm SilverBox Capital, claimed third in last year’s women’s championship.
“I’ve had my sons pick it, my analysts pick it, I’ve even done totally random picks like last year,” Reece said. “In no case, other than last year, have I been successful.”
Aaron Brown’s Methodology:
Brown says one factor driving his strategy is that historically two-thirds of NCAA March Madness games are won by the lowest seed that could fill the slot. Bloomberg bracket players pick the favorite 77% of the time for the Men’s tournament and 84% of the time for the Women’s. He takes that into account when making his picks, so his bracket wins in more scenarios.
His thinking goes like this:
“For the women’s tournament, I estimate that the winner will have to win five more upset picks than he or she loses, based on the historical picking for the Bloomberg Women’s pool. Of course it matters which upset picks they are since the points vary by round, but that’s a later refinement. The single most important decision is how many upset picks to make, it’s a secondary decision how to distribute them early or late in the tournament, and which specific upsets to pick.
“You could find five upset picks that are nearly 50% chances to win, but it’s only 1/32 of winning all five, and that’s not a lot better than the 1/51 of a random entrant using the 2023 pool size. You’re best off with nine upset picks, hoping to win at least seven. That means taking some that are considerably less than 50% chances, but you need to get more distance from the pool to have a chance of winning.”
This article was provided by Bloomberg News.