The Exchanges

Q Okay. How big is that world? How many seeders of similar style or, you know, economics taking of scale are there out there? What's the competitive landscape like for Protege's competitors?

A Yeah, it's a really interesting question because when new hedge funds look to get into business, they think of seeding as a great avenue to start their initial distribution strategy. In fact, there are no more than a handful. And you can effectively name them. It's Blackstone, Reservoir, Protégé, Julian Robertson, Grosvenor, the Fund Fund Chicago is doing some of it now. And there are families here and there that you hear about, family offices that do that around the world. But for the most part, there are very few cedars. There's a fair amount of capital there. Blackstone has a lot of capital. Reservoir has a lot of capital. Protégé has a lot of capital. But there are very few Entities who seed hedge funds, which, which makes it difficult because there are so, so many hedge funds that are trying to get into business. Uh, it makes it very competitive landscape, even to attract the seed capital.

AI assessment note: “In fact, there are no more than a handful. And you can effectively name them.”

Q you often find people, um, who are Whose success in hindsight seems to be as much because of the institution that they were a part of before as their own personal abilities. Is that an issue that you came across often with kind of the pedigree type investor that their, their independent success was less than success supported by these incredibly sophisticated, um, you know, tool laden parent hedge funds?

A That's a fantastic question. I, I do think you run across just about everything, so it's hard to, it is hard to, I, I'm thinking in my head, you see like me staring off into space as you're asking the questions, or what are the examples of each? Uh, I, I remember specific examples of people who came out with great pedigree who couldn't really replicate it on your own, and, and if you want to take a broad brush, now they don't even exist. The old SAC was a great example for many, many years SAC generated phenomenal returns on the capital, and yet, with somewhat, some great consistency, the people that spun out couldn't come anywhere near replicating it on its own, and, and back then, SAC was really opaque, and now I think people have a better understanding of what a multi-manager platform hedge fund is, and, and why, what the success factors are, and in contrast, you had the old Tiger management, where almost, there, there were people that, if you did your due diligence back in the day, were not well-liked at Tiger, And were not thought of as good people or talented investors, and then turned into uber successful hedge fund managers. So there was something about the training ground at Tiger that was repeatable. And I could reflect on, you know, my own background at Yale. There is something to the structure of what Yale did and the discipline that has been proven that David has b…

AI assessment note: “I remember specific examples of people who came out with great pedigree who couldn't really replicate it”

Q think like that? Could that thinking be incorporated into, let's say we've got a guy or a girl that's got phenomenal talent and is a, is a, uh, you know, a stock picking genius and they want to set up a two decade, three decade, four decade, multi-generational successful hedge fund business. Is there a way that we could incorporate that thinking, that kind of mutual thinking into a business?

A There is. I actually wrote a paper a couple of years ago about a fee structure that I thought was different and hadn't been used, and to do that, you have to get outside of the investment industry, because as we talked about, pretty much everything's been tried already, and I thought of frequent flyer programs, and so there, there wasn't, to my knowledge, and now I only know of one or two that exist, a fee structure that Would go down over time based on the duration of an investor's time with the manager. So you have seen discounts for size. You have seen early discounts. Once in a while, I know of only a few examples, you have seen managers reduce their fees for everyone just as their business grows. But the notion of almost a frequent flyer discount is obvious on the surface because everyone goes in thinking they are a long-term investor, but we know that data shows that's not the case.

AI assessment note: “There is. I actually wrote a paper a couple of years ago about a fee structure”

Q Can you tell me about the most memorable investment In the protege days. So of the, of the 40, let's call them, what one sticks out and what's the story behind it?

A Well, the one that obviously sticks out isn't one of the 40 and the protege probably made 200 investments. 40 were seeds. The most obvious one that sticks out was protege was the largest day one investor in John Paulson's subprime fund. The reason it sticks out for me isn't just the sort of windfall that came from it, but I was always more amazed at other people that invested in that fund because Our pattern to get there made a lot of sense. We had, had very bearish views on high yield debt starting in 2004 and had been short high yield debt with a manager on a risk reward that you'd say, okay, we're paying six percent and that became five percent. You're paying out four percent. And if it really worked, you're going to make 20 or 30 points. And then someone comes in with a presentation that says, you're going to lose eight percent a year. And if you're right, you're going to make 10 times your money. And we now know all the reasons why, but at the time it didn't take a lot of work. To start calling around and saying, are these things real? These no doc loans, these, all this crazy stuff that Michael Lewis and now movie theaters everywhere show. But it was a lot different to say, hey, we have a risk reward and a view that we already have that says we're going to make four up for one down. And now someone's showing us a thousand up for one down. What do you do? And living in the…

AI assessment note: “protege was the largest day one investor in John Paulson's subprime fund”

Q are, those are kind of two different things. So setting aside the, the micro cap part, First, what is appealing about just the idea of per, of a permanent structure relative to the more typical fund structures out there from your perspective? And then maybe we could kind of wrap up by, by sharing a couple resources for people that, that want to continue to, to pull on this thread.

A So there's, there's a couple aspects. One is we know from the start that it's incredibly difficult to pull off. So most people that are deploying capital have boards. And so the notion of, Hey, we're putting our capital somewhere and there's no Easily definable liquidity option as, as that immediately narrows the universe. Um, from an investment perspective, there are two things that if you're able to supply permanent capital, you can easily understand that makes the holder of that capital advantaged relative to other people. So the first is very Buffett-like. If you can make the case credibly that you don't have to sell someone's business, you become a more favorable buyer. So if someone has bought, I'm sorry, built their own company over the years, and they're nearing retirement age, and they want to sell their baby, they don't, they may not want to sell it to a private equity firm who they know will hold it for five or six or seven years, and then will sell it to someone else. They may want it to be preserved in some capacity, and And Warren has done this at Berkshire Hathaway over and over and over again, and has become the world's preferred purchaser of great businesses. So that's, that's a big one. The other is that if you're the owner of that business, and you have no date by which you need to sell it, you can make different capital allocation decisions with a much longe…

AI assessment note: “if you're able to supply permanent capital, you can easily understand that makes the holder”

Q telling people around here that in 2013. Um, and we know exactly what's happened since then. So it's, it's not a timing tool there. There's a positive correlation between cheapness and future returns, but But the dispersion is wide. So it's a fascinating, it's a fascinating question. If you have to look back and, and identify the most enjoyable aspect of this whole, this whole bet, what would it be?

A Yeah, that's, that's easy. I'm going to start with the least enjoyable. So the least enjoyable is the frequency that my friends say, hey, how's that bet going? Especially when you're losing, even when we were winning, like it just, I just didn't really care. Easily the most enjoyable aspect has been getting to know the people involved. So I have had the great fortune of a consistent stream of the least expensive dinners with Warren and Ted Weschler and Todd Combs that's just been so fun. Not quite every year, but, but pretty much. I got to know Carol Loomis, who is just such an high integrity and brilliant journalist, and to watch her, who clearly she's biased towards thinking Warren Side was, was going to win despite, really, she was the person who wrote the first story on A.W. Jones and, and popularized this kind of concept of a hedge fund back in 1971. Um, and that article is fascinating. If you go back, I think it's called Hard Times Come Hedge Funds. The things that she talks about in that article about the challenges that hedge funds were facing in 1971 are the exact same things we're talking about today. So, there's no doubt that, that meeting The people involved has been by far, you know, the most enjoyable part of the experience.

AI assessment note: “Easily the most enjoyable aspect has been getting to know the people involved.”

Q So what then prompted the decision to move this curriculum to an online, on-demand format?

A There are three aspects of it, only two that matter. One was the value that people got from repeatedly hearing the module. And I'm gonna listen to it 10 times. But when I do a podcast, I end up listening to it three times. I do the actual interview, I'm involved in the editing, I listen when it comes out. And I can internalize more of the lessons from that by more than a multiple of three. But sometimes it takes a little bit of repetition. To make it available so it's easy for someone to go in and listen when it's valuable to them was better than you have to come to New York this day once a year. We wanted to make it more broadly available because we had a lot of people that were interested in coming but couldn't come that one time. Like, okay, well now you have to wait till the next year. That was the first. The second part was that networking piece, which was so valuable to those people, doesn't have to be attached to sitting down and listening to To a whole set of modules over the course of the day. So we could bring those two together. And as a part of that, we'd bring this cohort of people together and they'd get together once. We all know if you have a cohort of people, if you get to see them more than once, you build the relationships better. So he said, if we make it so that everyone has come to the course, can come to a gathering each year, that becomes a more powerful…

AI assessment note: “There are three aspects of it, only two that matter. One was”

Q Do you get the sense that GPs feel the pressure? Do they know that LPs are sitting there with their foot tapping saying, when are these exits going to happen? When are these distributions going to happen?

A Oh yeah, this isn't a secret. They feel the pressure, but it's a different kind of a pressure. Because it's a pressure on the GP business. The GP needs to raise their next fund. They need to keep their talent. They need to keep growing. The LP actually doesn't care that much. If I want a 20% in privates and I have 20, I'm good. I'm just not going to commit as much because there's not coming out as much to the back end, but I'm okay. The LPs are not over their skis. The other is the structure of the industry. You went from 25 years ago, institutions had zero percent in private equity, to today, they're anywhere from 10 to 50. The institutions are where they want to be. So the market share in terms of asset allocation is not changing. If anything, almost every CIU you talk to, if their target is 30, they probably have 35 or 40% in privates today. It doesn't scare them, but over the next five years, they want to bring that down to 30. That's the institutional market, which is what's fueled private equity for 25 years. What the GPs then look for is what are the next areas of growth? Or two. There's sovereign wealth funds and private wealth. If you're sovereigns, you have huge pots of money to put to work, and you don't want to have 500 small relationships, so you concentrate on larger firms. The private wealth channel is a whole different distribution mechanism. What those two thin…

AI assessment note: “Oh yeah, this isn't a secret. They feel the pressure, but it's a different kind”

Q Was there ever an investment decision you made in evaluating a manager that was the most impactful on how you then thought about allocating and evaluating managers in the future?

A The biggest mistake I felt I ever made, I'll take credit for the mistake, was there was a period of time at Protege where we were raising a lot of money fast, and part of our business was seeding new managers, and we had a certain amount of our capital that we were supposed to go into seeding new managers. There was a manager that we seeded that didn't do particularly well, which was fine, but I felt after the fact that we didn't have time to do the work. And we would not have ended up backing that manager if we had. That was a mistake I never made again. But it was impactful because you don't think that's ever going to happen to you. You take pride in doing your homework, but there are pressures that come at different points in time. So not acting too quickly was a good example of that.

AI assessment note: “That was a mistake I never made again. But it was impactful”

Q big. Scale can actually be an advantage at times, I think. At times, being smaller can be an advantage. As you discussed a bit in terms of lower middle market, you can buy at lower multiples. Do you think that top quartile performers will look like a certain flavor, and the firms that have done it in the past will likely persist and continue to be top performers going forward?

A I don't think large becomes top quartile, small becomes top quartile. What you've seen historically in private equity is that over longer periods of time, there has been persistence of who's generally in the top quartile, and then there'll be a slip. So if you're generally a top quartile manager, your top quartile, now you're in the second or third for one fund, and then you can go back. The large alt managers have all effectively, and part of the reason they're able to grow and command assets is because they have delivered for a long time. So that bias probably, I think if you looked at managers has always been there, but today you'd look at that and say, well, that survivorship bias, the ones who have made it, have made it because they've outperformed, does that tell you they're going to continue to outperform? There's a lot of structural advantages in continuity from one fund to the next. So I don't think it's any different. Meaning that the ones who historically have delivered, whether they're large or mid-sized or smaller, probably on average will continue to more than others, but there's always movement.

AI assessment note: “I don't think large becomes top quartile, small becomes top quartile.”

Q don't do it. Even if the game on the field at a future state might actually present itself to be, maybe this actually is the right thing to do, but you You may not, or you may be more apprehensive in doing it because you got burned or saw something similar in the past and don't want to do it again. How should people and allocators manage that behavioral bias?

A It all has to be done through creating investment process because we as human beings are hardwired to make bad decisions. And this goes back to Danny Kahneman's stuff and Annie Duke's stuff where if you and I were sitting in the bush and you hear rustling You have a choice. Do you go close and make sure it's a lion, or do you just start running? So we've learned to just start running, which means in the modern era, if you hear something, The system one, Danny Kahneman thinking you believe it's true. And then you later decide if you want to evaluate it. And that's not great. That means we're influenced by other people's opinions. That leads to all these other behavioral biases. And so one of the more recent trends, and you'd say the allocator community is true of managers too, is understanding when you're in a group of people, what's the best way to make a decision? How do you get all the information available at the time on board? So whoever's making the decision has everything at their disposal. And there are things like the Ultimate decision maker should speak last. Because if they speak first, everyone wants their bonus, and so everyone's gonna start agreeing, and the person who's not sure because of this one obscure thing that ends up being the biggest risk factor that no one thought of, it doesn't come out on the table. And you can do things like pre-mortem analysis that h…

AI assessment note: “It all has to be done through creating investment process”

Q we'll get to when the light bulb turned on for you as, okay, this is a business and how you've since built it out, but on the point of talking to many managers and your friends, and now that you have done this for quite some time, how do you think it has helped you as an investor or would help you if you were a full-time professional allocator again?

A If I had the time, which I don't, to do anything like investment professionally, I'd say the biggest aspect is how I've learned how To ask questions and glean information from people. I look back at how I did that in all the years as an allocator. I never had a feedback loop. I never came out of a meeting with a manager and said, how did I do? It was always, oh, what do we think of them? Are we going to have another meeting? Or thank God they're in our portfolio, or we got to get out of that manager. There was never an evaluative loop. And the podcast, especially initially, it was just me, it forces you, because you have to edit the podcast. You have to listen to yourself ask questions, and realize, wow, like, how did I miss that question? And you start to pick up mistakes you make, and be able to improve. And then I had a couple of different experiences where I was still investing actively. I was on the board of a foundation for a long time and meeting with a manager I knew for a long time. And I had trained myself in a certain style of interviewing. I was catching up with this manager on behalf of this foundation. And I just found myself not going in with, oh, let me ask these questions and this question to understand what's happening with the firm. I was like, hey, how are you doing? And get caught up in the same way I do on the podcast and then start asking, oh, what's goin…

AI assessment note: “the biggest aspect is how I've learned how To ask questions and glean information”

Q When you're evaluating people, yes, to some extent, edge is not just about the people, but in some respects it is. How do you look for edge, and how would you define edge?

A Michael Mobison uses a great acronym, at least in the public markets, BAIT, B-A-I-T. Say edge can be behavioral, analytical, informational, or technical. Behavioral means markets are rough. Are you resilient? Are you consistent? Are you emotional? Which, again, afflicts someone in the public markets where there's decisions all the time more than the private markets. Analytical is, do you have a better ability to process what's out there than everybody else? Informational is, do you have more information than other people? The data sets that people have been in private equity business for decades have is a big advantage to someone who's new in the business. Technical is more of a public markets thing. Is there something you're taking advantage of in the markets? Are there for sellers? You can get that in private markets too. Those are the different types of edges. How you tease that out is just lots of questions, and not just with a person, but in an organization, you're looking for consistency, you're looking at workflow, looking at all these different things to try to get at is something likely to do better than the next thing.

AI assessment note: “Say edge can be behavioral, analytical, informational, or technical.”

Q that forum was it's rare to get investor relations people in the room together without a capital raise component involved. And when you had 50 odd people that are in those roles opt into spending time in a room without a capital raise component, it was pretty special. And I'll be excited to do that again. Where else do you see us heading maybe into next year and even thereafter?

A We're always thinking about different experiments we can do to add on to what we're doing and helping serve this community, and there's one that we've just leaned into, and there's one or two that we're thinking about that I think we'll get to next year. That one is strategic investing. So it's making some small investments into startups that are developing tools or services to serve the asset management community. In particular, if you think about things addressing the allocator community, allocators have infinite budgets to spend on money management services and next to no budget to spend on anything else. Now that's good and bad. The good part of it is there are a lot of gaps in tools and services that the allocator community really can benefit from that just don't exist because there hasn't been budget for it. And I do think those budgets are opening up. The bad side is, of course, if there isn't budget from it, it's really hard to build a very successful business off of it. So a lot of these I've seen over the years through my friend Ashby Monk, who runs the Stanford Global Projects Institute, also has a small venture fund called KDX, Raman LP. And we've invested together. There are one or two that I've seen that I think we can be very helpful to their businesses. And we're going to do those as part of the company. And we'll be sharing more about those two businesses in pa…

AI assessment note: “That one is strategic investing. So it's making some small investments into startups”

Q Why don't you share a little bit more about the structure of the summits? Because we don't often talk about them publicly.

A The premise of our summits is that most of the events that take place in any industry match buyers and sellers in their own way. And in the investment industry, that happens in two ways. One is the sellers go on stage and the buyers sit in the chairs. And the problem with that is twofold. One is it's just really hard to do. It's not very engaging to go sit in a chair for six hours, especially now we have phones in our pockets. And the other problem is that You don't need to go travel across the country to sit in an event to hear great speakers on investing. You can hear them anytime you want. So people are much more available than they used to be. The other type are the cap intro events. Our good friend and partner, Ron Viscardi at iConnections does an incredible job, and Global Alts is coming up, and that will be an amazing event. So what we try to do is not that. Fortunately, from the podcast, we have the ability to convene really great people, and we let them engage with each other, and we do it through a combination of some structured and unstructured time. Our structured engagements are all small group discussions, and depending on who the group is and what's most of interest to them, those are the topics we discuss, and they're two to one, allocator to manager. We have a team of facilitators that are all phenomenal people in the industry that come and help facilitate thos…

AI assessment note: “we do it through a combination of some structured and unstructured time.”

Q Excellent. All right, so you've interviewed, at this .1000 of people, and they're all very successful. Are there any common traits that you have observed, or pieces of advice that you would impart to our listeners, who are the 6000 CFHR holders in the Boston area, as well as anyone else who chooses to download this?

A Yeah. So two different questions. On the first, are there any common traits? There are. All of these people are really smart, educated, motivated, driven, good looking, super successful, right? One of the biggest challenges in money management is that people who have the characteristics that determine success, there are far more of them than end up being successful. Which gets to the second point about any advice. Life Is about setting expectations properly. And so a lot of what ends up happening that I see, I was talking to a couple of secondary HBS students yesterday, and they're asking me about, oh, what would you do if you were starting a money management career? And then the thing I said was make sure you have your expectations calibrated appropriately. It's an incredible profession and field that can keep you intellectually engaged your whole career. I don't think the remuneration for that in the future will be anything like it has been over the last 20 years. And so, people who are deeply passionate about what they're actually doing, not the outcome of that, will have fabulous careers doing this. And the expression, do what you love, Which is confusing when you're young, because you don't know what you love, or Andy Golden says, do what you like. I didn't even hear that until I went to business school. So growing up, I didn't even understand that was a thing, and I stumb…

AI assessment note: “So two different questions. On the first, are there any common traits? There are.”

Q Okay, so why don't we shift to public speaking, and I'd probably separate two different kinds of public speaking. So one is facilitating a panel and And then the second one is giving a presentation or participating on a panel as a subject matter expert. Do you want to start on either side?

A Well, let's do panels. I think we probably want to turn this a little more of a conversation because you've done this as much as I have, and I want to get a chance to get your thoughts too, but let me start with a couple of thoughts on panels and you can reflect on it for panels are really hard. And just to paint that out, we've all been on panels. We've all been in the audience and If you're in the audience, it's really hard to pay attention to other people speaking for 40 minutes when the dopamine of your phone's in your pocket. You don't want to have traveled a long way to listen to a panel so you can check out on your emails. Most panels have too many people on them to have a rich conversation. Each of those people has their own agenda, and I'd like to say there's always one. So if you rank four people on a panel, by definition, one of them is the most talkative, and we'll try to hog the stage. Unwittingly, they're just more extroverted than the other people. So it's really, really hard.

AI assessment note: “Well, let's do panels. [...] let me start with a couple of thoughts on panels”

Q When Ted hears certainty, he gets very suspicious. What's one investment mistake that you learned from and will never make again?

A In my early twenties at Yale, we were allowed to invest in stocks with the right approvals. And Yale's managers back then probably still today had a lot of very concentrated portfolios, really sought to have Managers that knew their stocks better than anyone else. And I heard this presentation from a guy who invested in energy stocks. His whole portfolio was like three or four names. And his newest name, I just was like, this is an incredible story. And so I asked David and Dean and got approval and I bought the stock and it was a big deal for me. And within three or four months, the company went bankrupt. So at the time, I'm probably done with CFA level two, maybe three, and then I went and looked at the balance sheet and saw in this cyclical business, the company had like four turns of debt on it, and it was a one-on-one mistake, but I just took for granted that this guy who is a super successful manager who knew the space, if he thought it was a great stock, it had to be a great stock. I was never going to do the research that he could do on the name, but I could have common sense Checked that. And so it was a great lesson that you have to do your own work. And whatever that means in a different situation, you can't just take for granted, even with someone who was perfectly aligned. He had so much of his own capital in this name, and he missed something that was totally obvi…

AI assessment note: “it was a great lesson that you have to do your own work.”

Q audience lives in, but then shifting that expertise to the art of interviewing, your natural curiosity, active listening, These new skills that are crafts in themselves, and we almost can consider those crafts as distinct. Part of that is certainly asking the right questions. I think you went from over questioning, as you described in the early days, to the art of the powerful question. How do you do that?

A This is one of the modules I teach in our Capital Allocators University, and in creating that module, It allowed me to take what was implicit in what I learned and make it explicit. So I'll share some of that framework. I would say there's three phases to it. So I think before you get there, you have to be ready to ask the question. Then the second phase was you have to know what question to ask, which comes from listening. And then there's all kinds of little things about when you're actually asking the question, how do you do that? So let's start with that first phase. Almost everyone in the business is focused on content. What question am I going to ask? What information am I going to try to gather so I can make a better investment decision? Before you even get to that, context matters a lot in the practice of investing, whether you're an investment manager interviewing a CEO or a lot of allocators investing managers. And what I mean by that is if you think about what the purpose of asking the question is, invariably in investing, it's you're trying to gather information so you can learn. In the process of making a decision. The question you have to ask yourself is, what context is most conducive to gathering information? What most people do across the conference room is a physically confrontational setup that's probably the worst way to make somebody open to sharing informa…

AI assessment note: “I would say there's three phases to it.”

Q Yeah, great. All right. Well, let's get to the result of the bet. How, how do you reflect on that result in 2022?

A You know, I get asked about it a lot, and I've thought about it a lot. Um, The result is less important to me than the process. Anytime you have an investment decision, there's only one outcome of many that could occur. And so the question is, most of the time when we have a bad outcome, which in this case, you know, it was bad. Let's say bad was losing the bet, which, which I did. Um, if a bad outcome, you assume that was a bad process and vice versa. Um, I think it was actually exactly the opposite. I mean, I wrote a piece at the time that laid out my thesis. So it's one of the great Decision making tools you can do to improve decision making is, is journal what you're thinking at the time. So then you can go back and reflect without, without the bias we all have to, to change our view of what happened at the time. And so, you know, I go back and look at that and I had, most things were right. And there were a few things that I thought that didn't come to pass that were wrong. And really what happened, you go about a year and a half into the bet. And I think the hedge funds were up at one point about 50%. Um, and that number, if you looked back historically at, at what the normal gap was between a market and the hedge funds, it was only like one or two percent a year. So the bet looked like it was over 1415 months in. Um, in fact, Warren made some comments that gave me an ind…

AI assessment note: “The result is less important to me than the process.”

Q after the recent turbulence we've seen in crypto, I was interested to get your view on, on your kind of long-term outlook. Maybe not for cryptocurrency or Bitcoin in particular, but just digital assets in general. Is that, is that something You know, are you similarly bullish? You know, you're as bullish as Michael is on this stuff, or are you less, you know, you're less enthusiastic on the outlook?

A Well, I haven't bet my career on it, so I doubt I'm as bullish as he is. Um, so the framework that I have been thinking about the whole blockchain ecosystem is as follows. You have two things happening that are driving, uh, innovation in that area. The first is this very novel incentive structure around tokens, um, which is pretty clear, and people understand that tokens, the way they get disseminated, the people actually doing the work can get rewarded. Um, the other is, is this concept of how innovation happens and where it happens. So if you look back, I mean, iPhone came out roughly, I guess it's just 15 years ago, so you look back 20 years ago, the technologies we use commonly today didn't exist. Um, I think that's likely to be the case 20 years from now. Yeah. And the question is, where will whatever is new get built? And there's really only three different ways. One is it's sort of entrepreneurs building it on legacy systems. You have the giants. Now you have these giant technology companies with infinite resources. Maybe they build it internally on their own system. But in this case, you've got a new platform. And what you hear from the venture capitalists in the space, like, you know, Chris Dixon or Olaf Carlson, we'll say, look, when they see all the entrepreneurial activity, all the talented new programmers are building things on the blockchain. We don't know what th…

AI assessment note: “Well, I haven't bet my career on it, so I doubt I'm as bullish”

Q as well. So you've gone on to, um, interview some of the top, uh, investors out there, some of the most elite, well-known high profile investors out there. You've been named on Barron's Business Insider Forbes as one of the top investing podcasts as well. So why do you think it's proved such a success? What do you think about your show particularly resonates with listeners to such a degree?

A Yeah, there was clear accidental product market fit, right? I never went into this thinking it would be the cornerstone of how I spent my time, which it has become. Um, I think there's, there's two parts of it. One is in any form of this type of media, there's an element of access that And so I didn't, again, I didn't appreciate at the time because when I started the show, I just said, well, I'm just going to catch up with a bunch of my friends in the business. And I had been on a few podcasts for my first book. That's kind of how I came to it. Um, and it just turned out that many of the people I knew from the business and particularly the CIO side, there's no forum for them to go out and tell their story for an hour. It just didn't exist. And I didn't really appreciate that. It was for me, it was more like, oh, I'll just have some fun conversations, catching up with some friends I hadn't had Time to catch up with when I was running around looking at hedge funds. Um, so there was this product market fit in terms of sharing the kinds of conversations that I had throughout my career, but just more broadly. Um, I think if you attach that to, let's just say passion. I mean, I absolutely love having conversations with smart people about investing. That's what I've done my entire career. The output mechanism is a little different, right? I used to turn that, put it into portfolios, h…

AI assessment note: “I think there's, there's two parts of it. One is in any form of this type of media, there's an element of access”

Q fear, it can lead to these unexpected and incredible places, and I'm really interested in The transition you've made, not that you stop being an investor, but to a degree from being an investor, to being an educator, to being an entrepreneur, to being a curator of information. What skills have translated well and where have you had to adapt? Give us a taste also where you might go next.

A So a lot of it is the same. So I come from a family of educators. My mother was a career teacher. My father's a doctor who also taught. My sister is a special ed teacher who's now an administrator. So I always thought I would be a teacher and maybe the podcast is that, right? It's a modern digital way of teaching. So that part, I think even when I was sitting in the seat of investing money, I had clients and the conversations with clients felt like maybe we're just teaching them about what we were doing, but that was very, very natural. The part that wasn't natural at all was entrepreneurship, because I'm very risk averse with my personal life and finances and how I think about stability, and so I just described myself for years as the most reluctant entrepreneur in the world. I did everything I could to not turn this into a business, but once the foundation got built, I mean that in an economic sense, Once there was sufficient sponsors and premium members, I said, well, this podcast actually is ok. Then I flipped the switch, and I went, wow, what can I do? And that is the biggest difference with what I'm doing today. In the past, I was managing capital, and Protege had a great run for many years. A lot of it was, I'm going to make this money so I can figure out what I want to do. And what I didn't appreciate at the time was that constant desire to innovate within what I was do…

AI assessment note: “So a lot of it is the same... The part that wasn't natural at all was entrepreneurship”

Q In what area from the first 50, let's say to the last 10, do you think you and or the show has improved the most?

A Probably style. I am a middle child and an extrovert by nature. I am not a natural listener. I was a talker. I was the kid in secondary school and high school that the teachers would tell to shut up all the time, and so in the early couple episodes, which I'm afraid to go back and listen to, I just think I talk too much, and I had to teach myself to bite my tongue, and over the years, that's become very natural. So stylistically, I think that's one. The other Is the evolution of who the guests are at any point in time. I've kind of stuck to what I originally wanted to do, which was have a core of the show being around CIOs, and to talk to them about how they're investing and how they think about investing, and then have some great managers along the way. And what's really fun are the other. So different thought leaders in different areas. That's been really pleasantly surprising how engaging people are willing to be.

AI assessment note: “Probably style. I am a middle child and an extrovert by nature.”

Q episodes talking to many of the best investors in the world, you pick up a thing or two on, on ways to improve the investment process. And I guess I'll start there with just with process, broadly speaking. Now I know you're, especially with decision-making and process, like you're extremely interested in, you can tell with some of your guests, how things get structured. So what have you learned there?

A Well, you know, I think that If you take process from a high level, there's not much to say about this, but everything starts with the purpose behind the capital. And one of the first real startling lessons I got with that was when I interviewed Josh Brown, the great, colorful Josh Brown very early on. He was the first private wealth manager I interviewed. And I'd ask him questions like, oh, have you thought about private equity or hedge funds? And he just said, we don't need it. We don't need it. Our clients don't need it. And at first I was like, oh, that's such a pithy private wealth manager, unsophisticated. But then you step back and think about it. And he said, if he knows that his clients have capital, That is there to fund their life, or as Brian Porten, I would say, fund their contentment, and they don't need these things to reach their objectives. He's absolutely right, and so you do hear, like, every pool of capital is a little bit different, and it sounds cliche, but, but that, that's, there's not much to say about that other than it's very true. Probably the most eye-opening thing I found from the first couple years of doing the podcast was how difficult governance is for these institutions, and I would define governance by If everyone's on board with the policy and the strategy, how inhibited is the CIO and the investment team from making the decisions that they t…

AI assessment note: “everything starts with the purpose behind the capital. And one of the first real startling lessons”

Q What has been the craziest, you don't have to name the person, like the most notable experience of recording an episode, and what made it so notable?

A The one that pops into my head is interviewing Anthony Scaramucci not too long after he came back from the White House. Part of that was I was scheduled to do the interview with him literally the Friday he was named to the press secretary seat. I had known him for years from the business. And part of it is he's just such an interesting character. People that hadn't ever had exposure to him were kind of eyes wide open about that episode because he's really an interesting person and in some ways very humble and in some ways much less so. And I think that came out. The experience part of it that was fun for me was that sometimes Anthony can't help himself. And he said one or two things only because it was such close proximity to coming out of the White House. I was afraid that if I'd put that out with those things he said, it might've like been in the news somewhere. They were fun, somewhat shocking, somewhat off color. And the part of it that was fun was I went back to him and I said, look, I really think you may not want this in there. What do you think? And he turned around and again, we've known each other a long time. He said, look, I trust you, whatever you think in the wrong hands, that could have been a problem. So that was one that I think if I said what they were, it'd be even more shocking. I'm not going to bother doing that, but he's an interesting guy. And that, that …

AI assessment note: “The one that pops into my head is interviewing Anthony Scaramucci”

Q more. In the States less so, and in Canada, there are still a ton of assets invested in public equities in actively managed mutual funds with high fees. So I agree there, there's probably alpha in, in hedge funds if you know where to look, but in, in public markets, it's a bit more dicey. Why do you think, why do you think people are still investing in that stuff?

A If you want to be really aggressive, there's probably some percentage of money that Is not financially literate to understand these trends. So I, I have no idea how to put numbers on that. That's kind of the skeptical end of it. I think that the US market for index funds is actually quite different from most other markets around the world in that, say the S&P 500 is very diverse with a lot of global leading companies. If you were to look in, say, emerging markets, there are a lot of countries where the index is dominated by a very small number of enterprises, and they tend to be either a state-owned enterprise or a utility. They're not the sort of dynamic companies in the economies, and so just an active strategy to not be forced to own certain concentrated names makes a lot of sense in a lot of countries around the world. In the U.S., It's just less the case. I mean, there are concentrations, or there's concentration in technology that's really driven the S&P 500 the last, you know, 10 years or so, but there's just, it's just a dynamic, diverse economy, and so I think that's one of the reasons why index funds make a lot of sense in the U.S. and probably make more sense in the U.S. You know, I don't really know the composition of the Canadian economy, but I know there's a lot of energy, and there's a lot of minerals and mining, and the question is, do you want all your assets e…

AI assessment note: “an active strategy to not be forced to own certain concentrated names makes a lot of sense”

Q So you live in a country where indexing is absolutely exploding with the popularity of Vanguard and iShares, much more so than, than we're experiencing in Canada. Do you have concerns about too much of the market becoming indexed?

A Not anytime soon. There've, you know, I've had this conversation with Charlie Ellis and a bunch of other people. People can go back and forth on what percentage of the market needs to be active in order to have efficient price discovery. And if, if you ask Charlie, he says, You know, other people think we're close to that point. Passive per se in terms of investment allocation isn't troubling. What is troubling is the ramifications that has on the governance of the underlying companies that will drive the returns. So you could imagine if you have 95% passive investors that corporate executives could do whatever they want because their shareholder base would never turn over, and that's a real problem. And we have some problems in the US relating to the short-termism That is set up an incentive structures and an executive compensation and, and how managers are paid and all kinds of things that have not been addressed for a long time. And there, there are some people starting to, or at least starting to try to address that. But in terms of actual size, my hunch is that there's still a very large universe of dollars that should be a natural audience for index funds in the US, but are still in some more active strategy, mostly Owing to that history and tradition, and less the, the conscious decision that a low cost alternative is better for that person.

AI assessment note: “Not anytime soon.”

Q So when you think about that, think about that level of due diligence and the process that's involved with picking a manager, allocating to a manager. Once that decision has been made, how do you know whether it was a good decision or not? How do you know that you're getting the outcome that you expected?

A Well, the first thing you, you go in knowing is that you will, you will absolutely have the data to figure out if that was a decision, probably in 30 or 40 years. So you know that you can't do that quantitatively, right? That lends you to determining what's the appropriate process to create so that you can make a decision if you need to make a change, and that starts with having, you know, some type of hypothesis about why you're investing that's not tied to short-term returns. It might be tied to disprovable hypotheses about the underlying investment strategy, It might be tied to your beliefs about the most important people that are there and how engaged they are. It might be tied to a quality of a team. In some instances, it might be tied to the pursuit of an idiosyncratic innovative investment strategy that you're fully cognizant may go away at some point in time, or that inefficiency or arbitrage may go away. And so in different situations, you can have different hypotheses. And then through Recurring, ongoing due diligence, and meeting with people over time, and talking to people about what's happening in their portfolios, you're sort of consistently retesting and pushing on that hypothesis, knowing all along that there's a lot more noise in the short-term results than there is signal. And of course, that's different across asset classes. So to give you one example, in the…

AI assessment note: “consistently retesting and pushing on that hypothesis, knowing all along that there's a lot more noise”

Q But you are a believer in active investment, right?

A Yes. Yes. Not for everyone, but I am. You have to take everyone's perspective at it. When Warren looks at this, he's looking at the entire universe of active managers, and saying that if you take all these people together, and they charge fees, together they make the market, you charge fees, and you're going to lose. And he's absolutely right. My perspective was I started my career working for probably the best selector of managers in the world. And I didn't Participate nor have I through my career in a large swath of active management. I focused on certain types of active managers that I saw through my experience have great success in beating the market over time. So it's not that I think that Warren's wrong and I'm right. It's just that active management can mean a lot of things to a lot of different people. In terms of the personal characteristics, There are some that are fairly consistent across successful active managers. That includes people who are incredibly competitive, highly intelligent, highly emotionally intelligent, and also go at it with a balance of perspective in their life that let them do it for a long time. There are many, many more people that share those characteristics than there are successful active managers. So You need a certain set of characteristics that have to do with the disposition of the person and the behavioral temperament of the person that …

AI assessment note: “Yes. Yes. Not for everyone, but I am.”