When Mike McCarty was a kid, his parents figured he’d become an accountant, following a track similar to the one his dad followed at a large consulting firm.
In his college studies, he learned that such expectations were natural—sociological research has found that the biggest predictor to your career path is what your parents did.
McCarty, however, started veering from the middle-class status quo as soon as his dad was assigned to Japan. Large chunks of time in Asia eventually included a summer gig in Osaka with Kidder Peabody that jumpstarted a financial industry career that bounced McCarty from proprietary to customer-facing roles and back again, setting him up as a multifaceted expert to partner with Dennis Davitt in starting MDP in 2020.
“The name of the game really is to expose yourself to new things,” McCarty said.
“A doctor still goes to seminars to learn new things at 30, 40, 50, 60 years old because there’s the evolution in how medicine is applied. That’s the same in our business—you need to keep relevant and on top of how things work.”
McCarty recently discussed his life’s path (responses lightly edited).
What was your childhood like and how did your parents influence your upbringing?
I was raised in the western suburbs of Chicago by a pair of typical Midwesterners. My dad worked for a large consulting firm and I think if it was up to him and my mom, I would have become an accountant. But as I worked my way through grade school and high school, I certainly sought more stimulus. That segued well with my dad’s transfer to Tokyo when I was a junior in high school as I spent part of my formative years traveling around Asia. That certainly had an influence on my willingness to try and be exposed to new and different things, and I think that has regularly manifested itself over the years since.
Suburban Chicago to Japan is a significant move, especially for a high schooler. How did that play out?
It was the mid-80s, so there was no such thing as the internet or the cell phone. At that time, your life was essentially how far you could ride your bike or drive on half a tank of gas. Plus, it was a boom time in Japan, with many declaring that Japan was taking over the world and every manufacturing plant in America was under pressure to adopt just-in-time inventory and other principles pushed in Japan.
So, it was an exciting time to be there, but it was very much a culture shock. I did continue to go to school in the US, but during the summers, I would live in this completely different culture where there was little English spoken and I had to figure out a lot of things. And then when I went to Princeton, I was classified as a foreign student because my home address was in Japan.
Was your Princeton experience otherwise traditional?
Outside of spending some time every summer break in Japan, yes. Well, that and being an anomaly in that I competed in two sports—football and wrestling. It took a lot of time and effort—I can only imagine what that would be like nowadays—but I loved it and I made friends for life. I also majored in sociology, which couldn’t be further from my career path, right? But if you think about how the true goal of education is to teach a person to think for themselves and to be exposed to as many opinions and ways of doing things as possible, then a classical education actually makes a lot of sense. A company can teach you the needed skills.
Obviously, that happened to you—what company taught you?
The summer before my senior year at Princeton I got an internship at Salomon Brothers in Tokyo. It was a back office operations role, running profit-and-loss statements on Lotus 1-2-3. One day on the elevator, though, a guy named Bernie started talking to me and said I should stop down at the trading desk where he worked.
When I found him a few days later, he’s got two phones stuck to his ears, he’s yelling at somebody about something, and he tells me to sit down. He proceeds to explain that he’s trading US government bonds during Tokyo hours—essentially the center of the bond world as the US 30-year bond was the benchmark by which all finance was based on at that time. Within a week, he had me reassigned to his department.
And you were hooked?
Within those first few days he’s pointing at a screen and telling me “See this? See that? That’s how you make an eighth (of a point).” I had no idea what was going on, but it was certainly a vibrant environment and that trading floor mentality meshed well with my personality. I like lots of stimulus, I’m more or less an aggressive person, and I’m very outgoing, and those are certainly traits that you need to survive in that environment.
It was certainly a vibrant environment and that trading floor mentality meshed well with my personality.
Plus, he explained how he was trading the long bond, the short end of the curve guys were over there, and we have to hedge everything with futures over there, so I saw how things are inter-related. I found it all interesting—certainly better than working on Lotus 1-2-3.
How did that lead to your first job?
I graduated in 1991, when Wall Street wasn’t hiring with abandon. Especially in sales and trading positions. So, I was back in Japan for the summer and I met up with a good friend of mine, Rich Tavoso, another Princeton wrestler.
Richard was in the equity derivative business at Kidder Peabody, doing proprietary index arbitrage. He invited me to sit with him for a day and I thought that was more fun than the other job. A week later, he called me and said someone had turned down a job offer so he wondered if I could start in two weeks in Osaka. My parents were pushing hard for me to go to grad school, telling me that finance was a dead end, but I said I’d defer my grad school choice and go there if this didn’t work out.
Barely 22, I went down to Osaka, joined the four people in the office—only two of whom spoke passable English—got an apartment about half the size of my dorm room, and started trading options with Richard.
A classic start in the field, but how was the Japanese experience unique?
We were only working with the Nikkei 225 and TOPIX, and to enter orders, you had to use Kanji symbols via a Japanese keyboard. I memorized the five things I needed to know: the symbols for buy, sell, calls, puts, and futures. It was an electronic exchange, unlike the open outcry option pits in Chicago and Singapore at the time, but the machines had to be plugged in within the Osaka city limits. They were keeping their hold on the finance industry there by requiring that trading Nikkei 225 futures had to occur in Osaka, even if the orders came from Tokyo.
Other than that, I was basically joined at the hip with Richard, who was still in Tokyo. Every day starting around 8:30 in the morning, we flipped the switch on the internal speaker between Tokyo and Osaka and said “OK, I’m here, what do we got?” We discussed pricing, a rudimentary short-term volatility surface to trade around, and some pricing parameters. I was thrown right into it and there was no place to hide. It was a lot like being here at MDP.
How did your career evolve after that?
I spent two years in Osaka and moved to Tokyo to take over Richard’s position after he was transferred to New York. When Paine Webber acquired Kidder Peabody in 1995, Richard moved to RBC Dominion Securities and he brought along a group of us to start an equity derivatives business.
That was like a true startup, from calling 1-800-Dell to buy some computers to setting up processes, all while learning how a bank works. And experiencing firsthand how finance was evolving in the 1990s.
After about two years there, I was recruited to Morgan Stanley, which was more of a customer-facing business at the time, so I learned another facet of our business. Seven-plus years later, I moved to Credit Suisse to join the Delta One desk, which doesn’t sound like much, but it was at the forefront of integrating technology that streamlined trading, wringing out execution inefficiencies, which was critical to helping the mutual fund and ETF businesses evolve.
I got to know Dennis (Davitt) and a bunch of other great people there, but I got recruited back to Morgan Stanley. The firm had changed, however, so that didn’t last long. In 2010, I did another back to the future move and rejoined RBC Dominion, which was then just known as RBC, and took a job in the repo business. Yet another different role, and this time that role exposed me to another perspective on what was effectively a fixed-income job. I feel I’ve truly been exposed to most of the parts of the Equites and Fixed Income sales and trading business.
Certainly, expertise that would benefit MDP—did that follow next?
No. In 2015, I partnered with some former clients and started up a hedge fund less than five miles from my house, which was great because I wanted to be closer to my kids. We had an equity fund and a credit fund and I did everything from trading, operations and finance to ordering water for the office. We were backed by a family office and that was great, and again I learned a lot of new things, but 2018-19 hurt and my partners decided to join Millennium to ease the overhead burden.
After some chaos due to the pandemic, we launched MDP in September 2020.
I’d been talking to Dennis for a while and since he had just left Harvest, we said maybe we can do something together. We put together a presentation, I introduced Dennis to Richard Tavoso and Mike Novogratz, another college wrestling connection who was Richard’s roommate at Princeton, and after some chaos due to the pandemic, we launched MDP in September 2020.
Dennis and I had been frustrated with years of working places where we had no control. But as we talked about the possibility of forming MDP, we agreed it would be great if we could work together in understanding what the end goal is and always be aligned because we’ve known each other a long time. Plus, we understand each other’s strengths and weaknesses.
Outside of the hands-on knowledge you have learned over the years, any other insights that have resonated over the years?
“I make money between the wall and the wallpaper.”
Rohit D’Souza hired me at Morgan Stanley and he went on to have a very big career. Back when he was hired by Merrill Lynch, he told a firmwide meeting “I make money between the wall and the wallpaper.” While most people say go ahead, you do whatever you want between the wall and the wallpaper, he says that’s great, I’ll do it on volume. He was very prescient with that statement.
To learn more about MDP, watch our interview on championing trustworthy, efficient low volatility strategies below.
