The Exchanges

Q How much do you think about a conversation for the podcast in advance and how do you prepare for that?

A Depends on what the conversation is. So a lot of the people I interview, there's not a lot of public information about them or how they go about doing what they do. For that particular subset, the nice thing is I've sat in the seat where they're in. So I just will tell them, look, we're going to talk about you and your background, and we're going to talk about how you think about investing and how you do it, and that's the entire preparation other than, you know, whatever I can dig up. For other people that are outside the subject matter, you know, authors of books or things like that, it's just, you You have to read the book. I think anyone in this seat, every week probably someone is sending me a book which is terrific, and they'd like to be on the show, and I'd love to be able to read them all. I just don't have time. You have to pick your spots, and so it's changed from my first couple episodes. I similarly made a big long question list, and what I found was when I listened back to those episodes, I would miss a question or two, and the reason was I was distracted. I was distracted by being focused on what question I was planning to ask next, and what I evolved to is not really preparing questions at all.

AI assessment note: “what I evolved to is not really preparing questions at all.”

Q Do you recall a challenging meeting in your role as an allocator, and can you tell me what happened?

A There was one meeting many, many years ago where we had invested in a manager in an early stage of that manager's life, and the manager was starting to experience some very, very good success, and we learned some information about how they were going about their investment strategy that was quite different from what we had been told. And so we had a meeting where we shared that information with the manager. And suffice it to say, he was very, very defensive. And part of that was, and by the way, I should caveat this by saying there was nothing unethical going on. This was really about investment strategy. But he was very defensive because it was something that was boosting his performance in the early stages of his fund's life that would not Be able to do that later in the later stages, and he was just starting to get real traction in the community and grow his fund, and so I think he was very worried about any negative information coming out, and so that was sort of an interesting meeting, and it turned pretty hostile, I would say.

AI assessment note: “There was one meeting many, many years ago where we had invested in a manager”

Q fund to funds industry. So there's fund to funds, and then there, there's hedge funds and, and fund to funds, you're making decisions about other Investor. So I'd say you're one degree removed from the end product of touching a stock or touching a bond or security. How did you think about the difference between being kind of at the front lines investing, you know, directly versus picking other investors?

A It's the right question. It's a question everyone in that seat of picking people and managers thinks about. When I left Yale, that's what I thought I wanted to do. So I thought I wanted to be involved in the stock markets, picking stocks. I didn't know how to do that, and I don't know that business school really trains you for it either. It tends to be an apprenticeship business, and in that area, I just didn't work my way into finding great mentors. So I had this struggle, and it's almost an incredibly humbling struggle, as you know, where I knew people who were among the best in the world in this field, And I knew I wasn't one of them, right? I didn't have the training and, and at the same time, I had training from the person who's now seen as the best in the world in this certain style of investing. So I said, well, I guess I should just stick to that. But you do have this incredible humility being in that seat that you're not really in the action. You're kind of one step removed. And those are the guys that make the big bucks, you know, you can do fine, but not the people that are picking the managers. And If I can pick the managers well, and I understand almost like at a 2000 foot level, how they do this sometimes better than some of them, shouldn't I be able to do what they do too? So you definitely hold that as a question in that field throughout. And sometimes today I s…

AI assessment note: “you do have this incredible humility being in that seat that you're not really in the action”

Q Yeah. In this period of reinvention and transformation, what's been the most underrated attribute about yourself that you've discovered?

A Ah, boy, resilience. You know, I, I don't, we don't need to go through it all, but I, I got a pile of crap thrown at me at the same time, and then it happened again a year and a half later. Different pile. And everything you could imagine. Health issues, fortunately not for me, but family, uh, divorce, a job change, children problems, everything you could imagine getting thrown out. And I didn't collapse. And when I talked to my close friends about, like, What's going on? I can't believe you're still standing up, right? Some, some big stuff. And so I never gave myself credit for being a resilient person. And I should have because my mother is unbelievably resilient. Like she's someone that could get unbelievably upset about something and two seconds later be incredibly present. And so, you know, that's, that's one, but it is life throws people curve balls. And if they're in it, And trying to live and not die, boy, it can be tough.

AI assessment note: “Ah, boy, resilience.”

Q of course, debate whether that skill exists at all. But, um, it, Assuming investment skill, um, and let's say even a repeatable process, which is kind of seems to be on everyone's checklist these days that it can't be a shoot from the hip, you know, instinct sources back as hurting kind of, uh, kind of manager. How often was the business side of things an issue in early days?

A The business side is always, it's always an issue. It's a question of what type of issue it is. I think that there's really, you could probably break it down into two components. One is, Operations and the successful running of operations. And the second is the time allocation it takes to build a business. And, and, uh, on the former, there was a study that said, 50% of all hedge funds fail because of an operational, something in the operations that went wrong. Um, I always thought that was a bit of a, a simplification of something that was actually happening. So what tends to happen is that someone who's used to dedicating all their time to investing now has to take a significant percentage of their time And either build or oversee operations, build, manage people, spend a piece of their time talking to clients or trying to raise money from new prospects. And that diverts some of their, necessarily diverts some of their time and attention from investing. If they don't spend the time on operations, something in operations could go wrong. But more likely, they spend a little bit less time investing, the results aren't as they seem, and then they blame it on the operations. I think operations are similar to going to the dentist. In that when you go to the dentist's office, you have expectations. And the very best a dentist will ever do is meet your expectations. But if they, you …

AI assessment note: “The business side is always, it's always an issue.”

Q um, which is an incredibly, incredible place, and their frugality is, is inspiring, and I want to get into fees after this, but What do you think the current state is of fundraising? If you're one of the 32 to thirty-eight-year-olds that you kind of describe as the archetype in your book of people looking to start their own fund, how should they think about the challenges of raising money?

A I think you laid it out well in, in how much more difficult it's gotten over the last couple of years. And I, to give a broader, a little broader perspective so people understand, one of the things that always shocked me in seeding hedge fund managers And let's specifically talk about long, short equity. These people are in the business of analyzing other businesses and industries, and yet almost never would turn and say what's happening in this industry. And unfortunately for people who want to start, if you did that, what you would see is a mature industry, uh, where the demand for the marginal hedge fund is much, uh, is much lower than it used to be. And one of the things that's, that's been sobering in the, in the year after I left protege is the number of people that reach out To talk about some aspect of their business or strategy and underlying all of it is this desperation for how can I raise money? And I really wish I had a silver bullet, but nobody has a silver bullet because this is a question of supply and demand. And so what you see is that fewer and fewer funds each year are able to get traction and grow. And the ones that do have everything right. So they have the right pedigree. They might have the right tracker. They might have the right initial investors. They might have the right strategy, which doesn't mean it's their particular strategy. It means that in th…

AI assessment note: “what you would see is a mature industry... demand for the marginal hedge fund is much lower”

Q That's good. Let's say they've got a one or two year track record. That's, that's really strong or three, a strategy, which is, and we've already touched this, that there's nothing new under the sun, but maybe a strategy that on the sliding scale is very unique is one of those three options. More fertile ground than the others, do you think, for finding interesting opportunities from an allocator's perspective?

A That's a great question. I think you have to start with what, what's the allocator's interest? Because depending on the, and, and there's no right or wrong answer to this, but depending on the allocator's disposition, you will have three different answers. So let me, let me walk through that. An allocator in the seat like protege was, where the investing was really driven by the investment returns on who the seed was, The middle manager who just had a good track record is the least useful. They may be the most useful in terms of short-term being able to grow assets, but the least useful because, you know, we don't even know what we're talking about, what the strategy is and why they got there, but oftentimes with someone who's had outsized performance, they may revert, and that's sort of the worst thing you could do. Now you're left with a pedigreed person and someone in an esoteric strategy. Well, if that esoteric strategy is particularly interesting for some structural reason, that might May well be the right place to be. Now, if you're a seeder who views the business interest as valuable as the investing, which many do, it's not that they discount the investment returns on their capital, it's just they're also looking at it as a business. The esoteric strategy probably falls short because usually it's capacity constrained, and therefore you can't scale a business out of it. …

AI assessment note: “depending on the allocator's disposition, you will have three different answers.”

Q of the bet is even more so today, given how expensive markets are. So what do you think? Do you think that people have interpreted this the right way? You know, you said, I said silly, and you said, no, it's not silly. So what do you think about people's, what people are taking away from this, which is basically, don't buy hedge funds. They're too expensive. Buy the S&P.

A So I think it a lot depends on the audience. So the audience that Warren is playing to, that Jack Bogle is playing to, Is my parents, and my parents were a teacher and a doctor. They don't know. They, they have no reason to have an edge, and I think everyone in that boat should have a low cost approach to investing. Do I think that low cost approach to investing by definition should be the S&P 500? Absolutely not. Um, That is a bet that, as you said, Jack makes, and Warren likes to make, that the U.S. is the best country in the world. The U.S. should outperform everything else, and I think that's a fair bet. People can make that bet, but people who don't know that they're making that bet should probably invest in a more diversified portfolio globally, and probably across a wider selection of securities than what the S&P. have under really represents. So that's the less sophisticated audience, and that's the audience of the masses, and I have no problem with it. That is, I think that's the right advice. In fact, that's the same advice David Swenson made when he wrote his second book, and then in his, in his annual report this year, he talked about praising active management and Yale's success in that regard. I just think that we have a trend. That's happened now with passive investing, and particularly the S&P 500, that is setting people, those people up for disappointment in th…

AI assessment note: “Do I think that low cost approach to investing by definition should be the S&P 500? Absolutely not.”

Q insights around portfolio construction. Um, during your interview, uh, he talked about the, uh, concentration of his portfolio. I think he referenced six to eight ideas that accounted for over 80% of his exposure at the time. Uh, again, reflecting on the hundreds of conversations you've had with elite money managers to date. How should investors think about portfolio construction? Is there an optimum level of diversification, do you think?

A A lot of people miss the forest through the trees. And in a lot of these conversations, I pick up incremental nuggets, but there aren't that many where I'm exposed to a framework that is novel and for me, mind blowing. But that happened recently. So I had a conversation on the podcast with Ashwin Chopra, who manages the family office for Jim Simons of Renaissance. And before that, he was the head of private wealth at Merrill Lynch. So he spent his career really on the private wealth side before turning to institutional investing. And he developed a framework for thinking about really the goal of, in this case, individuals. And it was different from how we think of asset allocation, concentration, diversification. His framework was three pillars, and the first was stability. So you could think about cash, you think about reserves, all the things that make sure you're stable in life. The second was just the market portfolio. And the third he called the aspirational portfolio. So to think about the aspirational portfolio is something you're using to move the needle to move to a new wealth bracket. So often that might be an entrepreneurial venture, a big bet on a particular company. And the reason I bring it up is because that issue of concentration versus diversification somewhat should take into light where are you sitting in those tiers? Because ostensibly all of the conversatio…

AI assessment note: “issue of concentration versus diversification somewhat should take into light where are you sitting”

Q aspect of things, of being Tied to the mass of the algorithm versus owning their own direct relationship with the end customer. And obviously there's regulations for them that us as content creators don't have to deal with. But how do you think about that whole aspect? And as you think about the changing market structure of content creation and delivery as it relates to the trajectory of capital allocators?

A Well, there's two different aspects of it. One is brand and the other is direct sales. For brand, I don't think you need to worry about it that much. If you're planning to go out and create a bunch of content and put it out there so that people know who you are more, you don't have to be as wedded to who's listening. And podcast is a great example of that. We don't actually know who's listening. We know numbers. You get some demographic metrics, but there's no mailing list that Apple will tell you and say, oh, here are your people. So you have to create a mailing list and do something else with it. That's different from you're trying to turn that into something that you can implement and grow, which then does tie to, is it a mailing list? Is it something where ultimately you do want to own some piece of understanding who the audience is? And for what we've done, it's a little bit of both. There's a mailing list, and it's mostly curated content that we share, and there we do know who the people are, and that grows over time, and then there's a lot that the audience of the podcast is much bigger than that, and I don't know who the people are, but you get lots of anecdotes over time, and so you know they're out there.

AI assessment note: “Well, there's two different aspects of it. One is brand and the other is direct sales.”

Q point I'd love for you to unpack is just the anxiety of public speaking. I think every one of us has anxiety before a big presentation that's high stakes for your career or a big audience. In some ways, it almost doesn't matter how much experience you have. I think most people you speak with who do a lot of presenting doesn't actually go away. How do you manage that?

A Couple of tips that I've picked up along the way. The first is to acknowledge that you're nervous. It actually makes sense to be nervous in that setting. Maybe it's important. Maybe like this is your reputation. That's okay. That's a natural feeling in the moment. The next I would say is being present. So think of this as a form of meditation. When you're nervous, if you try to quickly unpack where the nerves are coming from, not analyze it saying, oh, I'm nervous because of this, that, but gosh, there's a little butterfly in my stomach right now. I just took a breath, an out breath. Oh, someone else is speaking before me. Let me actually listen to what they're saying so I get out of my head. There's a bunch of little ways that you can bring yourself present because If you're truly present in the moment, you won't be nervous. The nerves are coming from thoughts about something threatening, you know, fight or flight type response. So that's the second. And the third comes from what people say when they're nervous. And I'd say that sometimes they get tongue tied. More often, we all have verbal fillers, ums, likes. What we can practice is in any sentence, I'm going to do this right now, About five percent of my brain is thinking about making sure that I'm spacing out my words so that I don't say, um, like, uh, uh, while I'm not doing that. And if you practice it, it's not that any…

AI assessment note: “Couple of tips that I've picked up along the way. The first is”

Q types that you've observed. I'll throw one example out there since I've got sort of similar data, probably one example would just be like, they interview it and they're like, great, thanks for doing this. And that's it, right? This is very straightforward. Others might be really hands-on like back to feedback. How do people try to do a good job or how do people interact with you as guests?

A Well, I go through a process where I make sure I talk to them before, so off camera, not the same day, hear a little bit about their story, and that can be a two-edged sword. I don't want to know too much about their story because I want it to be fresh, but I want to kind of understand what the framework and outline of the conversation should be. On the day itself, very similar. We'll have a little warm-up ahead of time, but I probably have talked to them relatively recently, get people these days with technology sort of squared away, make sure they're comfortable, and then have at it. Sometimes when you turn off the mic, the conversation just goes on and on and on, and you get these great insights and you wish you hadn't turned off the mic, but it goes all over the map. There are a lot of times you're like, Hey, we just went longer than we thought we were going to. People are busy and great. We'll talk to you later. I do tend to have a feedback loop with them afterwards. So I like to go back to the guests as I'm going through the editing. And if I hear anything that I think will help them, I offer up if they're open to having some feedback on their public speaking. And that's kind of a fun thing to do too.

AI assessment note: “I go through a process where I make sure I talk to them before”

Q fun framing, but really what I'm after is the areas of the business and investing world that you feel you need to learn more about where you're interested, but not yet well informed. And so I'll ask it as if you could have a couple of dream guests on that you haven't had that could help you fill in those gaps. What are the gaps and who are the guests?

A So those are two completely different questions because Unlike the gift that you have for being able to go as a polymath in any direction and getting up to suite quickly, I actually enjoy staying in my sweet spot. And it's broad because I can interview kind of any manager, any strategy. But the one area that I know I don't know enough and is so important going forward is everything about technology. And so I get as much as I can from just listening to what you're doing on your show. But maybe it's a generational thing. I'm not sure. But it's so clear that what's happening with software and technology is driving everything. I just don't know as much as I'd like. So who are the right guests? I don't need them. I can just listen to your show, so it's not gonna be on my show.

AI assessment note: “the one area that I know I don't know enough and is so important going forward is everything about technology.”

Q You mentioned concerns about market beta going forward, and I agree. Evaluations are high. That, that's a bit scary. If you talk to someone with, I don't know, two hundred million dollars to allocate today, in broad terms, what would you be telling them to do?

A Well, I think that conversation has to, I've been involved in this exercise with a good friend of mine the last couple of years. That conversation has to start with who's the person, what are they trying to accomplish, you know, how they want to get there, and that doesn't mean, hey, I need this money for my living expenses, certainly at that size of, of wealth, but some people with two hundred million dollars desperately want to make two billion, and some people with two hundred million desperately don't want to lose twenty million and get to a 180. So depending on what their objectives are, dramatically colors a strategy. Now, if you had a pool of capital that had a lot of duration to it, because there wasn't a lot of spending and that size, I would be quite equity oriented. You can start with a baseline of, of different market exposures that you want access to in the public markets. And then, you know, as I'm managing that capital, I'm going to lean on relationships with managers that I've had over the years that I think are truly exceptional and invest capital with them. And then constantly be looking for something interesting, new, and different.

AI assessment note: “if you had a pool of capital that had a lot of duration to it... I would be quite equity oriented.”

Q favorite or most interesting private markets investment is. I think you have such an interesting perspective. You've been an allocator professionally, but now you talk to so many people, you're involved with a number of firms, and you have such an interesting purview on the market. I'll ask this question in the context of going forward, what do you think is the most interesting investment opportunity in private markets today?

A Those are all different questions. I don't view myself anymore as a professional investor, and the biggest difference is, first of all, I don't have time to do real diligence, but I also only invest in things where there's a relationship component to it for me. Maybe that means I think I can help them with what they're doing, or it's just fun for me to do that. So there are some examples within that of For what I know, asset management fintech businesses. There are people doing things that are interesting that are addressing the private market world. There's an AI business called Thema in London that I have a small investment in that's categorizing every private company. It's amazing. They're doing AI before AI. I'm an investor in iConnections, which was an initial phone call during COVID from Ron Biscardi, and has turned into the largest cap intro event in the world. Ron and their team have done a remarkable job, but that's a bringing together business. So the things that I tend to do directly are more ones where I can have some impact because of the ecosystem I'm around. In terms of broader, what makes for the best opportunities? How do you not pay attention to AI and everything that could happen? And there are a lot of parallels with the internet, 25 years ago, in terms of nobody knows what's going to happen. There are certain models back then, it wouldn't have been that har…

AI assessment note: “In terms of broader, what makes for the best opportunities? How do you not pay attention to AI”

Q interviewing people, we are speaking on panels, we are giving presentations, and you know, I think the thought was there may be some Very useful lessons learned coming out of your experience that we can all benefit from. So if that works, why don't we start with the why? So how did you get started with the podcast and how did you in particular approach mastering the craft of interviewing?

A The truth is I did not find the podcast. The podcast found me. It was a serendipitous series of events after I had spent twenty-something years investing at Yale and direct investing and then hedge fund funds at Protege Partners. And when I left, I didn't know exactly what I was going to do. And I had a bunch of consulting projects, and I had written my first book that was about startup hedge funds, and I was on a couple of podcasts. And it sort of demystified, oh, this is just like two people sitting down talking to a microphone. I woke up one day and said, well, I have some time. I don't have, like, the thing that I want to do next, so let me run around and talk to some of my old friends in the endowment world. And that was it. Now people say, oh, what a great idea, a podcast. It was so early. And I used to joke that the business model reminded me of the internet. So it's like, Matt, you and I will sit down. We'll have a conversation, record it. We'll share it for free, and here's the business. We'll make it up in volume. So the beauty of it was, from the very beginning, I didn't think that it could possibly be a business. I just enjoyed doing it. And so it started there, I had time on my hands alongside of other projects I was working on, so I just kept going with it.

AI assessment note: “The truth is I did not find the podcast. The podcast found me.”

Q Do you think in the second component of that, the inertia and the signaling, do you see those, you went to Yale and Harvard, you have the pinnacle of the degrees. Do you think that that signaling is Has started to fade or will fade in our lifetimes?

A Well, I, you know, I don't know. I do think that whenever there's an industry where all of the people all of a sudden are on the Forbes, 400, at some point in time in the future, that industry rolls over. So that happened with hedge funds, and now it's technology. What's happening in technology is amazing, but it's also a counterculture. And so a lot of what's happening in technology is going to drive the growth of businesses. It already has for the past 10 years. It will for the next 10 and 20. And to the extent it's truly counterculture, valuing programmers is not the same thing as valuing the degree from a certain school. You know, Facebook and Amazon or Google are big businesses now, and if they want to hire a programmer, they're not paying a programmer. A fortune. So it's a question of, does that just become the next line job? So you can look at it and say, it depends on what industries are driving growth. Now, the implicit thing I was saying is that there's going to be a rollover in technology at some point in time. And there was earlier in my career, you know, in 2000, and that that's likely to happen, at least in the valuation of companies and the access of capital to companies, which will cause some of the smaller ones to go away. I don't think that The education system is going to change overnight, and overnight for education is decades.

AI assessment note: “I don't think that The education system is going to change overnight”

Q seen it all. And yet, the fees in aggregate charged by hedge funds, I don't know what exactly they are, maybe, maybe you have a better, better idea, but they're high, obviously, relative to an S&P 500 index fund. So what, what do you think? How valid is this concern over fees? How much do they need to come down? What will they look like, you know, in the future?

A Let's just start by calling fees what they are, which is a clearing price for supply and demand. And what's happened over the last 10 or 15 years is that the investors have gotten more sophisticated about what they were buying. So part of the reason, if you looked pre-crisis, the fund-to-fund investments in hedge funds constituted something like 50 or 60% of all the industry's investments in hedge funds. And that was probably higher, certainly higher than the long-term natural audience For fund to funds. But the reason was that hedge funds had this, this sort of opaque quality, and the governance boards of pension funds were afraid of hedge funds, and so they thought having a blocker would help them. And so just that simple part of what's a hedge fund, oh, that's something we want, in part thanks to Dave Swenson's book, and sort of the, the stamp of approval that he and CalPERS, when they invested in hedge funds for the first time in 2000, gave hedge funds. So you had this period of time where Just getting there was, was okay. Clearly that's changed and people understand more and more what it is they're buying. You have firms like AQR who have made it a business to try to educate investors and show them the components of a hedge fund and then give them a cheaper alternative to get access to some of those components. So as, as those things have happened, you have more scrutiny o…

AI assessment note: “Some of the scrutiny is simple... That's too high if a hedge fund can only make six percent.”

Q more predictable over a long time horizon. And I wanted to bring this in because we talked to, uh, the readers and the subscribers to our newsletter about investing over a long-term time horizon. We feel that is the more prudent thing to do. But from your perspective, how crucial is it that retail investors think about returns over a multi-year or even a multi-decade time horizon, do you think?

A Time horizons are a funny thing, right? I've yet to meet many people, if anyone, who believes that they innately have a short time horizon in their investing strategy. So, and I started my career at the opposite. David Swenson was a guy who literally came into the office every day wearing the hat of someone who's investing for a hundred years. Um, and almost every Other week, somebody would be like, why are you so short term? It was just part of the language of, of that. And when you're in that environment and you feel it, there's just a different pace and cadence and thought process than almost anybody I've met has since. Like nothing ever matters today. If you're investing for, you know, a hundred years, like literally nothing matters. Yeah. Market goes up, goes down. 20%. There's a crash today. It doesn't matter if you're investing for a really long period of time. So nobody's wired to behave that way. One of the things I've come to learn is that given the constraints that almost everyone has, an individual with their spending, an institution with their board, that the long term, if you can really think about it, probably gets to three to five years. Um, in terms of long-term investing, even private equity that has ten-year life funds, they tend to hold companies for three to five years. Um, so I'm not sure if that's the right or not. Now, if someone is able to actually inve…

AI assessment note: “given the constraints that almost everyone has... long term, if you can really think about it, probably gets to three to five years”

Q So you mentioned your parents. If you had to tell your parents, or if you do tell your parents how to invest their money, what do you tell them?

A Well, my parents don't listen to me when it comes to investing anyway, and they're older. So it's pretty traditional. I had a, an uncle who passed away a couple of years that was the chairman of capital group. In California, the wonderful mutual fund company. And so my parents have always had their equity allocations invested with capital as very comfortable for them because there was a personal familiarity to it. And it was very comfortable for me because it's a wonderful organization, terrific way to get exposure. And my parents have had some mix of a stock bond portfolio through capital's funds. And as they've gotten older, they shift more and more towards bonds. I mean, it's a fairly, a fairly simple asset allocation and a, and a fairly straight Forward path to try to get them what they need, you know, as they're now retired and living off of those savings. We're going to take a quick break in the action to tell you about Ridgeline. Ridgeline makes your day unrecognizable. That's how refreshingly different it is from legacy investment management technology. With Ridgeline's front-to-back AI-native platform, your typical tech pains disappear. No integration headaches, no data discrepancies, and no upgrade cycles. Instead, you get real-time data flowing through everything from portfolio accounting to reporting to reconciliation, trading, compliance, and more. In the AI era, a…

AI assessment note: “my parents don't listen to me when it comes to investing anyway”

Q In those, you know, five to 10 years, you saw people get spectacularly wealthy, and presumably you had some tremendous amount of financial success in that, that period. I had Strong financial, personal success in that, in that period. But what did you learn about, what did you learn about greed in that period?

A So one of the, there's a, uh, a senior guy in the industry named Charlie Ellis, who's a brilliant guy and writer. And I knew him from my early days in the business. And he had said something to me once that always stuck with me. And I think is the best answer I can give to the question. And he framed it as money makes people More so. So the notion is, if you're a greedy person, and you have more money, you're going to be more greedy. If you are a kind person, and you have more money, you are going to express kindness in even better ways. And I saw that across the spectrum. And, and it shows, it doesn't show up quickly, but you do see it over time. I hope, and I think, in that period of time where I was, you know, making a little bit more money than I needed. That I was on the, I'm, I shouldn't say, I'm not even gonna say that. I, I'm, I'm happy with when I had a nice period of income coming in, I'll look back and feel very good about how I reacted to that. Like anyone else, and I mean anyone else. I had a conversation just the other day with a very successful hedge fund manager that's made lots and lots and lots of money that's having, you know, similar kind of, some Frustrations and challenges that I have, which is people gradually work their way into spending. And the key to wealth is not how much money you make. It's how much money you spend. And that's something I wish I kn…

AI assessment note: “money makes people More so. So the notion is, if you're a greedy person”

Q When you looked at these teams, one, one question for you is, did you ever consider, or I'm sure you did, did you, how did you look at their intrinsic motivation versus their extrinsic motivation?

A So you always try to figure out both, and I think the more time you spend with one of these people, you, and, and, and in as many different contexts, so a lot of the meetings are across the desk in an office, but you gotta try to get outside the office, and Doing this in Manhattan is, in some ways, is harder than doing it like in New Haven, Connecticut, because if someone visits you in New Haven, Connecticut, they don't have a lot of other meetings that day. So they're there, you meet in the office, you go out to lunch, maybe you play tennis, and you start to see people in different contexts. It's a little harder to do that, ironically, when you're in midtown Manhattan. So I think the most important thing to try to figure out is the intrinsic motivation. The people who are good at this Actually aren't doing it because of the money. But that's hard because the performance is measured by money. So you don't know, right, that you don't get to the point where I say, I have the answer, this person's, but, I mean, yeah, after you meet a few thousand people, you can start to sense at least good ones from bad ones. And then the other thing, as you know, which most people probably don't, most people don't know listening to this, is that the, the best guys in the world are In this business are right about 55% of the time. Barely over, like, you flip a coin, you're fifty-fifty. Barely bet…

AI assessment note: “the more time you spend with one of these people... in as many different contexts”

Q 2008, you and I were in the same industry. You're, you're a little bit older than me, and we are witnessing one of the most spectacular wealth creation environments in the financial services that, that I'm aware of. How do you reconcile this tremendous amount of wealth creation via performance with the statement that you just made? You're looking at 55, you know, 55% chance of being right or wrong.

A There's so many, there's so many ways we could take this. So that, that truth about 55% right or wrong is something, you know, I had known and lived with for 10 years prior to that. So that's just a fact and a truism of investing. It doesn't mean investing Doesn't work. It's just, that's how it works. You know, I think that there are these aphorisms in investing that when you're doing well, you're not as smart as you think you are. And when you're doing badly, you're not as dumb as you think you are. And, you know, I can look back at that time and, and, and think, you know, I really believed what we were doing. I thought we were great at it. And the results were showing that. Then you go through harder periods. And in our business, it wasn't 2008 and 2009. It was more like 2011 and afterwards for a variety of sort of specific reasons. And then you look back and say, wow, like on the one hand, we were really good. We were beating the industry. We were growing. We were getting recognized because that was true. And then you go through a period of time where you're not really beating the industry and it doesn't feel like you've done anything differently. And, and, and then I could look back and say, boy, I, I really did think we were great then, and I really did think we weren't as great afterwards, but how much of that was truth, and how much of that was just emotion? I'm not sure…

AI assessment note: “when you're doing well, you're not as smart as you think you are.”

Q Why not? Because asking a number of fund managers the same question, would you have been able to discern different answers, or was it just through the course of conversation you could tell the differences?

A I look at it a little bit differently. In order to underwrite a manager, There's a lot of information you need, and that information might be the same. So you could have the same outline of what you're looking for, and we did. We had a very long memo that had an outline, and until you could fill in all the boxes of the outline, you weren't ready to know if you wanted to make a decision. The specific question you would ask to get to that outline could easily change. No different from when we're doing a podcast together, whoever's on which side of the mic, have a pretty good sense of what you want to cover. But you don't have this specific question. That's where the allocation side of investing is the most human of all investing. You are making judgments about people. You want to know what they say their strategy is, and you have to get through that. But ultimately, you're making an investment in a person. We're going to take a quick break in the action to tell you about Ridgeline. Ridgeline makes your day unrecognizable. That's how refreshingly different it is from legacy investment management technology. With Ridgeline's front-to-back AI-native platform, your typical tech pains disappear. No integration headaches, no data discrepancies, and no upgrade cycles. Instead, you get real-time data flowing through everything from portfolio accounting to reporting to reconciliation, tra…

AI assessment note: “The specific question you would ask to get to that outline could easily change.”

Q And from there, you've interviewed hundreds of people, managers and allocators and others, similar to what you were doing in your seat, evaluating hedge funds. So capital allocators, can you tell us a little bit about the components of this business that you've built?

A I wish I could remember who said this to me because there's such a great line, but there's two types of entrepreneurs. They're the ones you think about who have an idea and drive at it, right? They go get money from venture capitalists. They're going to change the world. And then there's the others where life just happens to them. I'm definitely in that latter camp. I used to describe what I was doing as the most reluctant entrepreneur in the world. I was looking for jobs. Tim, please, any PC needs someone like me. But I started this thing on the side and I have an executive coach who happens to be my business school roommate. And a couple of years ago, he said, you're trying so hard to figure out what you want to do. Sometimes you just have to say, what's the world asking of you? And I just kept finding, I'd go talk to people about investing and doing, all anyone wanted to talk to me about was the podcast. Now, the problem with the podcast as a business is it reminded me of the early days of the internet, and I would describe it as this. Here's the business, Sarah. You and I are going to have a conversation. We're going to share it for free, but we'll make it up in volume. The math of that doesn't make for a great business. So I never thought it could possibly be a business. And then after a couple of years, I had a bunch of other projects I was working on, and when the larges…

AI assessment note: “an advertiser called. It was Northern Trust... that became what looked like a stream”

Q Cleaner alignment of long-term incentives is you got to run the business and you need to attract talent. Um, so what, if any, unique fee structures have you seen either implemented successfully or at least in the discussion phase that you think are intriguing beyond, say, low management fee or the traditional one and a half and 20? Is there any, is there any innovation happening on the fee side?

A Let's start with the baseline. And I think the, the appropriate baseline for hedge fund strategy is a management fee That roughly covers the cost of doing the business. It's a tough definition, but it covers the cost of doing the business, including salaries, but not get rich salaries, sort of stay in the business salaries. And then an incentive fee that rewards those people for taking risks that can't be achieved cheaply in the marketplace. For a long short equity fund, that might mean that a management fee, you know, again, we'll come back to, to that number because there's some interesting dynamics in what the cost of running the business is. And an incentive fee that might be Tied to the return excluding the beta sort of in the strategy itself. It could be 20% of that's a fair number. Let's talk about two pieces of that. The management fee, one of the things that's happened in the last 15 years that I don't think anyone anticipated was as assets came into hedge funds and hedge funds were growing at a fixed management fee, the cost of acquiring talent went up because larger and larger hedge funds could pay more and more people. So then you could ask the question, wait a minute, is wage inflation something that Is driven by the cost of doing business, and it has been. It's just been a reality. I don't know that that changes. So that's a, it's a difficult question, because you…

AI assessment note: “an incentive fee that might be Tied to the return excluding the beta”

Q your core fixed income manager 15 years ago. He or she had analytics. They helped you solve corporate treasury issues. You know, they were your problem solvers. And, you know, I, I think by virtue of the returns, maybe that's receding a bit. Who's stepping into that void? Maybe it's the credit managers or look, I'm here to solve that problem of getting you to your actuarial returns over time.

A How does the portfolio construction work when, if you put together some of the things we've been talking about, These markets aren't as liquid, which would mean that optimizing the portfolio based on risk reward might take time. Rebalancing can be tricky. And that also, if you need to have this particular expertise in each area, you have the same problem that, say, a multi-sector equity hedge fund has, which is each person has their favorite ideas. And if you want to rotate from real estate debt to private corporate debt, it takes a lot of time And you have people that do such different things that they're unlikely to be able to sort of cross over and understand the differential risk rewards.

AI assessment note: “How does the portfolio construction work when, if you put together some of the things”

Q Do you think by having the conversations in the way that you do, you're able to just get to the essence of who the manager is in a different and better way?

A I think so, but it's a certain style. My interviewing style is very open-ended, and I let people talk, and then I go where they're going. Now, if you put that in the context of more finite time, certain agendas, you can put those two things together, In a way that would have been quite different. I think the way that I interviewed in the past would be different if I were doing it professionally, and I think a lot better. That's probably the biggest. It's been 10 years since I was investing professionally. There's been lots of changes in how people think about portfolio construction and value add, but the core of investing is the same. You're either investing in series of companies or series of strategies that you think are going to deliver some economic return.

AI assessment note: “I think so, but it's a certain style.”

Q hard data, but sort of the soft data. How do you evaluate if it was a good relationship, strategic relationship? Because we all talk about strategic relationship, right? And we say, oh, they're going to be helping us sourcing deals, but What have they really done in that regard? So I think that's one of our challenge to really measure, find sort of the, the metrics to evaluate these relationships.

A When you take a step back and, and think about this big challenge of there's, you know, two hundred and seventy billion dollars to put to work. In the U.S., we see asset allocation strategies, right? We see a certain pocket in U.S. equities, international equities, emerging market equities, fixed income, private equity. The strategy as espoused at CDP is great projects, great companies. Which is a very much a business owner mindset, complete, very Warren Buffett-like, very different from the asset allocation structure in a lot of pools of capital in the U.S. Um, that requires deep conviction. It requires a real understanding of what are quality assets in a real economy, quite a different skill set, and it seems like it's a very bottom-up approach. You've been through different iterations of CDP and different models, so the current one of really owning great assets, how do you blend That thought process of bottom up with such a large pool of assets that there has to be some thought to the top down.

AI assessment note: “how do you blend That thought process of bottom up with such a large pool”

Q Going into next year, who are you excited to interview?

A I'm always pretty excited every week in almost any of the interviews because I have the luxury of having great guests in this ecosystem. When I get asked who would I most want to interview that I haven't, it's a very different answer than most people expect, which it is the CIO or the manager who I don't know, but they're amazing. And a couple of different of my friends or past guests say, Hey, have you ever talked to that person about interviewing them? The last thing I'd say is that the way I have guests come on the show is usually at any point in time, I've talked to, I don't know, six or 80 people about coming on in the future. And then we just wait for the right time. So there are two of those CIOs who I've talked to for multiple years about coming on, who are coming on this year. And there's a manager or two as well.

AI assessment note: “it is the CIO or the manager who I don't know”