From Video Games to Wall Street: Corey Hofstein's Entrepreneurial Journey

Corey Hofstein's entrepreneurial journey has taken him from programming video games as a kid to building a successful asset management firm. Along the way, he's faced major challenges that tested his resolve and taught him valuable lessons about business and life.

Early Passion for Programming

Growing up in Massachusetts in the 1990s, Hofstein developed an early passion for computers and programming. With computers always around the house due to his father's tech business, Hofstein taught himself to code at age 12 with the goal of making video games.

"I truly thought all the way until I got to college that I was going to go work in the video game industry and program video games," Hofstein recalls. He spent much of his free time as a teenager writing games for his Game Boy Advance.

This early experience with programming would prove invaluable later in Hofstein's career, even though he ultimately went in a different direction professionally.

Pivoting to Finance

In college at Cornell University, Hofstein's interests began to shift toward finance. He saw the potential to apply his programming skills to financial modeling and quantitative analysis.

"I started to get more interested in finance and I saw the obvious application of computers and finance and automating bunch of stuff and doing statistical tests," Hofstein explains.

After graduating in 2009 during the financial crisis, Hofstein went on to get a master's degree in computational finance from Carnegie Mellon University. The program focused on using advanced math and programming to price complex financial derivatives.

Launching a Business

While still in grad school, Hofstein developed some novel trend-following investment models. Through a serendipitous connection, he was introduced to an asset manager who wanted to license Hofstein's models.

Hofstein set up a company called Newfound Research to handle the licensing agreement. He expected it to be a small side business while he pursued a career on Wall Street. But things took an unexpected turn when the asset manager's business exploded, growing from zero to over $1 billion in assets under management.

Suddenly, Hofstein's tiny licensing company was generating significant cash flow. As an "arrogant early 20-year-old," Hofstein decided to forgo Wall Street and focus on building his own business instead.

"I said I can always go back and work on Wall Street. Why go get one of these 80 hour a week internships at a bank when I can go work for myself?" Hofstein recalls.

Major Setbacks and Challenges

While the business got off to a fast start, Hofstein soon faced major challenges that tested his resolve as an entrepreneur.

In 2013, the SEC began investigating Hofstein's main client for fraud related to how they were marketing Hofstein's investment models. Though Hofstein himself wasn't accused of wrongdoing, he had to spend years dealing with SEC subpoenas and investigations.

"At the ripe old age of like 24-25 I get a subpoena to go sit down in Boston in front of 13 SEC lawyers," Hofstein says. The experience gave him a "very healthy respect for the SEC."

The client company eventually went bankrupt, owing Hofstein's firm millions of dollars. This led to years of lawsuits as bankruptcy trustees tried to claw back money from Hofstein's company.

"I was in a lawsuit with them both personally and at the corporate level which dragged on for years," Hofstein explains. The legal battles weren't fully resolved until 2023.

The whole ordeal took a major psychological toll. "I was blackballed from events...it was just a very dark place for me," Hofstein recalls.

Reinventing the Business

After weathering these challenges, Hofstein had to reinvent his business as market demand shifted away from the trend-following strategies that had initially fueled the company's growth.

In 2020, Hofstein lost a $750 million mandate when a major client was acquired. This forced him to consider shutting down the business entirely. But with encouragement from his business partner, Hofstein decided to take a step back and rethink his approach.

He ultimately developed a new concept called "return stacking" that uses leverage to layer alternative strategies on top of traditional portfolios. This led to the launch of a new suite of ETFs in 2023 that have grown to over $850 million in assets in under two years.

Key Lessons Learned

Reflecting on his journey, Hofstein highlights several key lessons:

• The value of having a strong business partner and mentor. Hofstein credits his lawyer/business partner with helping him navigate major challenges.

• The importance of evolving your business. "I wasn't thinking about what products were going to be relevant going forward," Hofstein says of his earlier struggles.

• Maintaining perspective during setbacks. "These are privileged problems," Hofstein notes. "I wasn't starving for food here."

• The power of persistence. Despite considering quitting the industry entirely, Hofstein was able to reinvent his business and find new success.

• Balancing work and life. Unlike his father's intense work schedule, Hofstein has structured his business to allow more time with family.

Hofstein's journey demonstrates how early passions and skills can lead to unexpected opportunities. It also shows the resilience required to overcome major setbacks as an entrepreneur. By learning from challenges and continually evolving, Hofstein was able to build a thriving business in a competitive industry.

For aspiring entrepreneurs, Hofstein's story offers valuable lessons about persistence, adaptability, and maintaining perspective through difficult times. His experiences highlight both the potential rewards and significant challenges of building a business from scratch.

Article created from: https://www.youtube.com/watch?v=0ZU7sTT03-A