Apr 20, 2017 · 58m · capital-allocators
Brett Barth – Asset Allocation for Families (Capital Allocators, EP.03)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, Ted Seides interviews Brett Barth, Co-Founder and Managing Partner of BBR Partners, exploring his journey from Goldman Sachs to managing $12.5 billion for wealthy families. Barth details BBR's strategy-based asset allocation, rigorous manager diligence framework, and pursuit of niche opportunities in music royalties and orphaned credit.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 28.4% of the talking time here. How this is scored →
Ted as informed peer 3.6 Guest teaching 2.4 Guest disagreement 0.3 Ted pushing back 1.0
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 28:25 Calling out index funds in drag
Brett forcefully criticizes traditional diversified mutual funds that underperform after fees, labeling them index funds in drag that guarantee underperformance.
Hardest push from Ted ▶ 42:41 Ted challenges 9-person committee dynamicsTed challenges Brett on the reality of group decision-making, using a TV analogy to probe whether a 9-person committee with high consensus hurdles leads to internal politics and logrolling.
Biggest teaching moment ▶ 51:41 Brett explains the economics of music royaltiesBrett walks Ted through the nuances of music IP monetization in a post-streaming landscape, explaining how active management drives royalty yields via sync licensing.
Ted holds their own ▶ 25:11 Ted invokes the Bernstein-Swensen debateTed demonstrates deep institutional knowledge by citing Peter Bernstein's philosophical critique of David Swensen's strategic asset allocation framework.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Official Legal and Compliance Disclaimer | 2 | 1 | 0 | 0 | Ted opens with a disclaimer and transitions into personal rapport with Brett regarding their mutual experiences raising twins. | |
| Early Market Fascination, Wharton, and Investing Lessons | 3 | 2 | 0 | 0 | Brett recounts his early interest in markets, Wharton education, and Goldman Sachs tenure in Hong Kong and New York, while Ted prompts for historical market efficiency comparisons. | |
| Genesis and Founding Philosophy of BBR Partners | 3 | 2 | 0 | 0 | The conversation explores the genesis of BBR Partners, merging GAM's open-architecture model with single-family office independence. | |
| Launch Phase and Reaching Immediate Operational Breakeven | 2 | 1 | 0 | 0 | Brett explains how BBR reached immediate operational breakeven upon launching in early 2000 and reflects on wishing he had accumulated buy-side experience earlier. | |
| Core Investment Tenets and Strategy-Based Allocation | 6 | 3 | 1 | 4 | Ted introduces the debate between Peter Bernstein and David Swensen regarding strategic asset allocation versus market timing. Brett articulates BBR's approach of allocating to strategies with explicit beta and alpha expectations rather than traditional asset classes. | |
| Active versus Passive Framework and Core-Satellite Approach | 4 | 3 | 1 | 1 | Brett outlines a core-satellite framework, rejecting the active-passive binary in favor of passive efficiency in large-cap equities and concentrated active share in niche strategies. | |
| Total Return Focus and Illiquid Real Assets | 3 | 2 | 0 | 0 | Brett explains BBR's strict total-return orientation over yield-seeking instruments, favoring illiquid real estate and real assets over REITs, alongside portfolio customization across 125 families. | |
| Manager Research Process, Diligence, and Relationship Mandates | 4 | 3 | 1 | 3 | Ted questions the necessity of conducting 2,000 manager meetings annually. Brett defends the practice as an idea-generation and market-mapping mechanism. | |
| Evaluating Manager Integrity, Alignment, and Temperament | 3 | 2 | 0 | 0 | Brett explains his process for assessing manager character through cross-questioning team members and conducting independent, unprovided reference checks. | |
| Investment Committee Dynamics and Generalist Structure | 5 | 3 | 1 | 4 | Ted probes potential groupthink and horse-trading within a 9-person investment committee requiring 7 votes. Brett details how a generalist structure prevents siloed advocacy. | |
| Decision Tracking, Errors of Omission, and Turnover | 4 | 3 | 0 | 1 | Brett discusses tracking manager turnover rates to evaluate hiring discipline, tolerating errors of omission over errors of commission, and seeking emerging, smaller managers. | |
| Long-Term Partnerships and Rebalancing During Drawdowns | 5 | 4 | 0 | 0 | Ted connects BBR's tenure and family capital duration to leading university endowments. Brett elaborates on being a preferred counterparty by adding capital during drawdowns and investing in music royalties. | |
| Macro Risks and Normalization of Interest Rates | 3 | 2 | 0 | 0 | Brett highlights the risks of a regime shift if interest rates normalize to 4-6% for a generation of investors conditioned solely by post-GFC central bank support. |
Statements from this episode (23)
Barth: Asian financial markets have nearly caught up to Western sophistication
“I think it is light years ahead. They have, if not fully caught up, come very, very close. The management teams are sophisticated. The investors are sophisticated. The pools of capital are deep.”
Barth: BBR's founding model was replicating single-family offices for wealthy clients
“Being as close to a single family office as you could get for a family that wasn't wealthy enough or interested enough in creating their own single family office was always the model.”
Barth: 1990s wealth management grew via new wealth, not manager turnover
“People didn't tend to fire their wealth manager. They just had, you had new wealth in the business. The universe was growing.”
Barth: BBR started managing money on March 1, 2000, at the NASDAQ peak
“The fact that we didn't start managing money till March one of 2000, like almost right on top of the NASDAQ high, really framed our investment approach for years to come, and I think it served us well”
Barth: Hedge funds are not an asset class; allocate to underlying strategies
“Our asset allocation approach, we allocate to strategies, not to asset classes, right? Hedge funds aren't an asset class. You know, long short equity is a strategy you either do or don't want to be allocated to.”
Barth: Be passive in efficient markets and highly concentrated in inefficient ones
“We take a core satellite approach where you want to be passive, and you particularly want to be passive in the most efficient markets, and you want to be active in niche managers where there's a lot of inefficiencies, and they've got a structure to be concentr…”
Barth: BBR Partners is passive in U.S. large caps and municipal bonds
“U.S. Large cap. You could argue that we're passive in fixed income, where we own, you know, intermediate duration, high quality investment grade bonds, primarily munis again, because we're families.”
Barth: BBR Targets 50/50 Active-Passive Split in Public Equities
“All else being equal in public equities, we want to be about fifty-fifty passive and active on the long side.”
Barth: BBR Allocates 65% to Higher-Risk Assets, Half in Public Equities
“So if you looked at your average high net worth portfolio, you know, 65% equities is probably about right. We're 65% higher risk strategies, but call it only roughly half of that in public equities.”
Barth: BBR Partners evaluates more than 2,000 investment managers every year
“We meet over 2000 managers across the spectrum, you know, literally from wireless spectrum to muni bond managers. So our database That's 2000 a year. Thousand A year.”
Barth: BBR Partners hires 10 to 20 managers annually
“We're going to hire people You know, 10 to 20 managers a year. That's a pretty small percentage of the folks you meet.”
Barth: BBR Partners maintains about 50 core public market managers
“We have about 50 public market managers that are core.”
Barth: BBR demands 3-4 unprovided references before backing managers
“There shouldn't be anyone who's such a secret That I can't find at least three or four third-party unprovided references where we can get very detailed, thoughtful opinions on those managers. If I can't do that, and they can't all be positive, we can't make an…”
Barth: Allocating across different manager temperaments is a powerful diversification tool
“Temperament and approach is one of the ways to get diversification, and so I'll get a question from a client or prospective client, you know, if a stock's down, do you like managers who buy more, or do you like managers who have stopped losses and cut their lo…”
Barth: BBR requires 7 of 9 committee votes and CCO veto power
“There are nine people total on the committee, and you need seven to vote yes to get an idea approved, and separate of that, our chief compliance officer who oversees operational due diligence, Has a unilateral veto as well.”
Barth: Why BBR uses generalists instead of asset-class investment specialists
“First, from a structural perspective, all of the senior people are generalists, and so if you're a hammer, everything looks like a nail. If you're the private equity specialist, Every investment problem has a solution that looks like a private equity fund.”
Barth: BBR prefers errors of omission over errors of commission
“We think that there are two types of hiring mistakes you can make. One is you can hire a manager you wished you hadn't, or make an investment you wished you hadn't, or not make an investment you wished you had. And I would say we are comfortable with the latte…”
Barth: BBR Partners averages 15% annual manager turnover
“And so on average, our turnover has been about 15% a year. There's been years it's a little lower, a little higher than The highest number has been kind of low twenties. The lowest number is kind of high single digits, but we look at that data.”
Barth: BBR avoids asset-gathering managers focused on fee retention
“At the end of the day, managers who are focused on earning a management fee and keeping assets and just not underperforming, you know, your average mutual fund whose job it is, is to never be below three or four Morningstar stars so that the four one K consult…”
Barth: BBR secures fee discounts by providing acceleration capital to emerging managers
“You don't want to just be in the lowest fee managers, but you want to pay as little as possible, and one of the ways we do that is guys and gals who are earlier in their life cycle or smaller in their assets, where our asset base makes a difference, and we can…”
Barth: BBR adds capital to underperforming managers while other investors redeem
“All the things you loved about a manager and the strategy and the people and the approach aren't changing and they're underperforming. Most folks pull money. We write checks.”
Barth: Music IP's real incremental revenue comes from licensing, not streaming
“That historically, artists made money selling albums, cassettes, CDs, that doesn't exist anymore. And that you make modest amounts, very modest amounts of money for streaming, and that the real incremental revenue to owning the intellectual property is from ot…”