INSTITUTIONAL INVESTOR | The Quant Trader Singing His Heart Out
At a cozy Italian café in the West Village, waitresses ferried drinks as a singer crooned jazz-infused pop songs about love, heartbreak, and finding a soulmate.
To an outside observer, it would have been impossible to know that the man singing his heart out and pounding the piano was the same person named on several 2017 lists of the highest-earning hedge fund managers, or that he’d once been the most high-profile proprietary trader at Morgan Stanley.
Then again, the fact that Peter ("Pete") Muller — the 54-year-old founder of the $5 billion, New York–based quantitative hedge fund firm PDT Partners — was belting out lyrics about 13th-century Italian mathematician Fibonacci to the tune of Luis Fonsi’s “Despacito” might have given away his status as a math-geek-done-good.
Such a highly public dual identity is unusual in the hedge fund industry. But for Muller, who first took up piano at the age of ten and has released three albums, striking the right balance between his passions for finance and music has been a lifelong quest — and one he has finally achieved.
“I kind of do this finance thing,” Muller — backed by a three-piece band, including bass, drums, and violin — told the audience at his gig. He added that earlier in his career, he took a break to focus on music and worried that if he returned to finance, he would no longer be able to perform. “But it turns out you can do both,” Muller told the crowd through an ear-to-ear grin before belting out more love songs, with titles like “Kindred Soul” and “Scraps of Your Love.”
The day after his West Village gig — at Caffè Vivaldi, one of his favorite places to play — I met with Muller at Manhattan’s Avatar Studios, recently rechristened Power Station at BerkleeNYC. (Muller, a trustee at Boston-based Berklee College of Music, recently bought the studio, which will serve as a center for the school in New York.) Some of the most iconic albums of the 1980s were recorded here, including Madonna’s “Like a Virgin” and Bruce Springsteen’s “Born in the U.S.A.”
Clad in black pants and a dark-gray sweater, the sandy-blond Muller radiates enthusiasm from his lean, 5'10" frame. He rattles off details about his personal history, his hedge fund career, and his musical journey before taking a seat behind the grand piano at the center of Power Station’s cavernous Studio A to perform a piano ballad.
Muller grew up in Wayne, New Jersey, the son of a chemical engineer father and a general-practitioner-turned-psychiatrist mother. After studying classical piano as a child, Muller was connected by a friend to a studio musician and jazz pianist who taught him how to improvise and introduced him to a major influence, jazz saxophonist John Coltrane.
A math whiz, Muller attended Princeton University, where he played in a jazz band, with occasional gigs at small cafés. After graduation he was offered a job at a computer company in New York, but he put it off and drove to California to compose and perform music for rhythmic-gymnastics teams. The realization that he wasn’t earning enough to live on led Muller to take a job at Barra, a portfolio analysis software provider that was later acquired by MSCI. That’s where he got hooked on the math behind quantitative finance. As his career was taking off, he moved to Berkeley and formed a jazz band that played together every Thursday night. He also began to play poker competitively — a lucrative side gig that happened to be perfectly legal in California. After several years at Barra, he got a call from a recruiter at Morgan Stanley who wanted to hire him as a quant analyst.
“I said, ‘Thank you, but no. I play with a jazz band every Thursday night in Berkeley. It’s really fun. I have a great life. I dress casually, and I’m not coming to New York no matter what you pay me for this job,’” says Muller.
And then he made a counteroffer: Let him set up a proprietary trading outfit within the bank. To his surprise, Morgan Stanley agreed, giving him two years to make it work. Muller quickly accepted, figuring he could just move back to California if it didn’t pan out. He set up PDT Partners (the acronym stands for process-driven trading) in New York in 1992. It didn’t take long for things to click and for Muller to become very wealthy in his new job, but his personal life was floundering.
“By the time 1998 came around, I was making more money than I ever dreamed of, and I wasn’t happy,” he says.
Realizing he was burned out and that his music had taken a backseat, Muller asked his boss if he could take a sabbatical. He spent seven months trekking in Bhutan, kayaking down the Grand Canyon — and, most famously, busking on New York City subway platforms with an electric keyboard.
Muller returned to Morgan Stanley, but after the Volcker Rule provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act prohibited banks from engaging in proprietary trading, he agreed to spin PDT out into a hedge fund.
Now PDT, which counts Blackstone Group among its investors, is heading into its fifth year and boasts 185 employees. Though Muller is extremely tight-lipped about both his strategies and performance, PDT operates two statistical arbitrage funds: the Partners Fund and the Mosaic Fund. Muller landed on the Institutional Investor’s Alpha2017 Rich List of top-earning hedge fund managers at No. 25, having earned $130 million in 2016 owing to his funds’ double-digit gains that year.
With the firm in good shape, Muller was able to take time off to promote his record, which included a gig in July at the prestigious Montreux Jazz Festival in Switzerland. Today he spends most of his time in Santa Barbara, California, where he lives with his wife and two children, and about a third of it in New York, where PDT is based. He starts each day with a half-hour each of yoga and cardio, then downs an espresso before getting to work. He sleeps six to seven hours a night; when he’s not working, playing music, or spending time with his family, he continues to surf and also creates crossword puzzles (some of which have been published in The New York Times) and plays poker.
It’s an enviably balanced existence — “We’ve Never Been More in Awe of Someone’s Life Than We Are of Quant Legend Pete Muller’s,” a 2011 Business Insider headline declared — but Muller says balance is critical to his passion for both music and finance. As our conversation in the studio draws to a close, Muller wanders over to the Yamaha grand piano sitting in the middle of the room and plays a new song he has written, “Please Be Gentle with My Heart,” about the vulnerability necessary to love and be loved.
“When I first left Morgan to do music, I thought, ‘Wow. I’ve got to really focus on music, and if I do that, I can’t do the finance,’” he explains before he begins to play. “I even wrote this song about being afraid of getting sucked back in, called ‘Almost.’ But I realized that in your life, you can have more than one passion. The energy you get from one can go to the other.”