Patronus Capital co-founder and CEO talks tech, trading and career trajectories

Jeffrey Liu graduated from the University of Missouri’s Robert J. Trulaske, Sr. College of Business in 2002 with a dual degree in finance and banking and a sense of direction that led him to high-frequency trading. Ten years into his career, however, Liu felt the tug of entrepreneurship nudging him in another direction. We recently spoke with Liu, co-founder and CEO of Chicago-based Patronus Capital, about hedge funds, high-frequency trading, and the unexpected value of setbacks. 

Hi, Jeff. Thanks for taking time to chat with me today. First off, can you tell me a little about your work with Patronus?

Liu: We are a hedge fund. We specialize in medium frequency electronic trading and what’s unique about our approach is we have a much more short-term perspective of investments, by capturing idiosyncratic dislocations in the markets over short periods of time. Our investment timeline fluctuates between two to eight weeks for the trades to materialize into potential profits. The core mission of our Fund is to provide our clients with consistent returns in all market conditions. The direction of the market is irrelevant to us. Our goal is to provide consistency and steady profits, building wealth for our investors.

My partner and I had a background in high-frequency trading. We elected to go the hedge fund route and bring that proprietary trading ethos of market-neutral, independent returns  to investors. This required us to raise money in the beginning, bring on investors and then obviously build out our trading systems.

How are you using technology to improve investment profiles?

Liu: We are about 90 percent automated, so everything is code-based in Python, and essentially we adjust all our inputs into the models and the model dictates the entirety of the outputs. But what goes into those inputs? Utilizing our proprietary data lake, we apply machine learning to our algorithms and compute in Python for speed.

The focus of your work has shifted throughout your career. What inspired that change?

Liu: I originally got my start with high-frequency trading in the mid 2000s shortly after I graduated from the university and I stuck with it for over 10 years. What evolved was that I really wanted to do something entrepreneurial. I also felt that there was a gap between the high-frequency trading space and the hedge fund sector. Most people that are in high-frequency trading, stay within that space because it's highly lucrative. They also don't really want to build a business, they just want to make money. Not to fault any of my former colleagues by any means, but after about 10 to 12 years in that space, I wanted to build a business by filling that void between the high frequency and the asset management sector. So I left.

That is essentially how we segue into the start of Patronus. I started it alone in 2019. Just as most startups, it was not a great success at the beginning. The Fund did not perform and almost failed in the first nine months. There were a lot of hardships and lessons learned, which I credit have led to our current success. My partner and I overlapped at our previous firm for five years and maintained a good relationship. So after he resigned in in 2020 we partnered together and started to rebuild our business and change how we ran things. The end of 2020 and the beginning of 2021 is really when we found our path. 

How did you stay committed through those initial hardships, before your partner came on board?

Liu: I mentally prepared myself. ‘A common rule of thumb is you should expect your business to not be profitable for 18 months to two years.’ The one thing I was unprepared for, though, was a major setback. There’s a difference between building your business and taking two years to become profitable as opposed to experiencing a major setback. My wife was very supportive during that time. She also works so we were able to survive and she still believed in me and the business. I credit her a lot.

But most importantly, even after nine months of setbacks, my partner still believed in the business. Once he came aboard that really kind of re-energized it, we call it the ‘rebirth’ of our firm. We also had great loyalty from our investors. Their loyalty was critical for us to stay in business.

Someone you met in your previous position ended up being integral in building your future business. Is there a lesson there for those who are just starting out in their careers?

 Liu: When I joined the firm where I met my current business partner, I wasn’t all that excited about joining the firm because it was a very corporate large trading firm, and I had only worked at small firms. I didn’t think it would be a great experience to go corporate, but I am very happy that I took the job. There were an unbelievable number of lessons learned by doing something that I never thought I would want to do, and on top of that, the relationships that I built were invaluable. A lot of people say ‘no’ to opportunities that don’t fit their personalities, but sometimes saying ‘yes’ can lead to great opportunities and life lessons.

Why is it important to be willing to adjust your vision and change your trajectory?

Liu: One thing that is commonly frowned upon in life is when people flip-flop. I think that is a common misconception, being willing to adapt and change is a good thing, not bad. Recognizing when you’re wrong, acknowledging when someone has a better idea, knowing that you’re not the best manager or a best trader — is invaluable. To think you know everything and have everything figured out is naïve and arrogant

How did your Trulaske education prepare you for your career?

Liu: I think that the class sizes got me to realize how many smart people there were, and how much good competition there was in the world. It showed me that I needed to try harder, to study more, to apply myself more, in order to stick out. Being surrounded by quality individuals, you had to apply yourself much more.

What special connection did you have to Mizzou, before attending college here? 

Liu: My dad was an engineering professor at the university for almost 50 years. My dad gave his entire life to that university, so I was always happy to attend once I was accepted. One of my fondest memories was having lunch with him on a weekly basis. I'm glad that I was able to do that and stay close to home.

Where did you go for lunch?

Liu: One of my dad's favorite restaurants was just eating at the McDonald's that used to be on campus. He wasn't a super fancy person, so we used to meet there and have lunch or breakfast sometimes. That's just a fond memory that I have.

What excites you about engaging with Trulaske? 

Liu: Two things excite me about working with Trulaske. 1) Using my experience in the Hedge Fund space to help provide a meaningful impact on the opportunities Trulaske is able to offer future students. The launch of the Hedge Fund program will allow students to learn about investments and markets in an applicable format. Offering my insight to the program I hope helps build a strong foundation that gives the students the tools they need to be successful if they choose that field. 2) GIving back to the University. My father gave his entire professional career to Mizzou. He would be very happy for me to help in any way possible. He loved this school.

What are some ways alumni can make an impact on the Trulaske College of Business? 

Liu: Staying engaged I feel is the most important. Having strong alumni strongly impacts recruitment. And keeping alumni engaged with the school will build a pipeline to the professional world. Most people attend universities to take the next step to the professional world. Mizzou alumni can help future students achieve those goals by staying engaged. 

What do you find fulfilling about the work that you do?

Liu: I have always enjoyed building a business. We’re a hedge fund, and I think a lot of people are only focused on returns and investors, but most hedge funds fail because they can’t run a proper business. I think that’s what’s made us successful, is that we can run a sound business. Running a company was something that has always intrigued me. Finding quality people to hire, and putting people in roles where they will excel are essential. Doing everything possible to ensure our employees are successful is my focus. I find all that very satisfying. Providing people enough means to live their lives and succeed helps me sleep at night.

Anything else you’d like to share?

Liu: You can do as much preparation as you want, just like I did, but there’s always going to be massive setbacks. But I strongly believe that failure actually makes you stronger. I had already had a failed venture before this Fund. At the beginning when we launched this business, the first year was very difficult. We had a massive setback and were able to learn critical lessons and turn it around. I would much rather invest with somebody who has already experienced that failure. Early setbacks have made our business that much stronger because we learned a lot from our mistakes.

Mizzou’s Robert J. Trulaske, Sr. College of Business prepares students for success as global citizens, business leaders, scholars, innovators and entrepreneurs by providing access to transformative technologies, offering experience-centered learning opportunities and fostering an entrepreneurial mindset.