The Exchanges

Q What's your favorite space of all of them?

A So biotech is maybe my favorite example because it's for us so clear to see what is going on there. At its highest level, you have today some 600 public companies in this country, about out of 4000 total public companies, so it's about a seventh of all public companies in this country are in biotech per se. They small caps, so the total caps about six hundred billion out of 36 trillion. So a very small cap, but a very large number of firms, and the reason they exist is that pharma is not good at, at R&D. These little firms all do R&D. They do drug discovery, uh, on the path to drug commercialization, and what we find, you know, they exist because pharma isn't good at it, and the capital markets have figured out that, hey, pharma, you shouldn't do this. We'll fund these little biotech companies. At first, they're nascent firms that are created by venture capitalists and others, And then as they become successful, they eventually go public, and more of them have been going public than any other piece of the capital markets, something like 50 a year. It's remarkable to see this year has been a very vibrant IPO market in the space. These firms are all trying to discover the next good thing. What feels very good about the space is that you're actually curing diseases and helping people, That feels good. The wind is in your back in this area because there's been so much of the gains …

AI assessment note: “biotech is maybe my favorite example because it's for us so clear to see”

Q So how have you thought about risk and return on your portfolio of these managers?

A If you look at biotech stocks, they're extremely wild. If you look at biotech indices, they have at least twice the volatility or typically twice the volatility of equities. A typical manager, because they're so concentrated, also is not quite as high as twice the vol of equities, but pretty high. By being diversified, and we also do a little bit of hedging, We can get that ball down to mid teens, 15 or so percent, which is very similar to equities. But you get all of the alpha, much higher return, and the correlations are very low. The correlation with equities of the strategies is something like between . Five and . Six, which is a pretty low correlation. So now if you ask earlier about how do you create a diversified portfolio, if you were going to own equities and you have a chance to put some of your equity exposure into this strategy that has similar role to equities, but a low correlation and a higher return, it's a wonderful diversifier.

AI assessment note: “We can get that ball down to mid teens, 15 or so percent”

Q So you initially said you have to look at the world as it is and not how you wanted it to be. And I know when you first started the business, even when we talked a couple of years ago, The Hivesta model was a one-pool endowment model style approach. How has that changed?

A The basic idea of the one style, the beauty of one style, for us, style meant mandate, and it's a very broad mandate. We absolutely still have that. And the mandate is to go and find the best set of high returns that you can find, put them together in a diversified portfolio where they, they don't correlate that highly with each other. And then by being diversified, you know, that's your best defense against risk. Do that first, and then think about tail risks that might occur, and try and find ways to protect, and that aspect hasn't changed, and the beauty of doing that is, it makes you think about the world at large all the time, because you're looking anywhere and everywhere. That's a great strength, if you can pull it off, to be able to have such a broad mandate. So I think for us, that's a pretty key piece, but also over time, as we found subsets that we think are more enduring, places to get alpha, clients who don't want the holistic portfolio said to us, what if I do a lot of that myself, but I really like some of the things you're doing in certain component areas, and we've started to make those available, and as we've done that, that's broadened our ability to work more closely with clients, Of different kinds, be they family offices we do a lot of work with, but other institutions as well, and so that's actually very exciting.

AI assessment note: “we found subsets... and we've started to make those available”

Q Yeah. I mean, it sounds wonderful in theory. So where have you found some of these in practice?

A So I think it's a matter of degree. I think the China equity market is a very inefficient market. It's a huge retail presence in that market. It's dominated by retail investors still. It's vast, but within it you have hundreds and hundreds of quality firms That actually a skilled person set up to do research in that area who's very connected there can find great growth companies and do pretty well. And we absolutely believe that. And we understand the inefficiency. China's the one exception to the rule that an inefficient market is small. It's an enormous market that still seems to be quite inefficient, not just in equities, but in other securities as well. Other markets, I think in the smaller cap areas, in the micro cap spaces, micro cap public equities are sort of almost private companies. They're not liquid. They're not widely followed. They're not well understood. There's a lot of stuff, I think, in the small cap market that is very efficient, but you need to pick your spots and be pretty careful about what you're doing there, but that's another example.

AI assessment note: “I think the China equity market is a very inefficient market.”

Q What are the characteristics of the managers that you've selected to partner with in the space?

A I think the characteristics are all, they all have the ability to figure out the signs. They may not be MDs or PhDs themselves, but they have been around long enough. They deeply person in it. They now have a call on experts. They have the networks to be able to do the work. They have others who work for them who are, so they can figure out the science, think of that as understanding the fundamentals of these firms, and then they're good investors as well. It's not enough to know the science. You have to be a good investor. Often things are not obvious. You get a clinical trial where they had the dose wrong, and the trial works out badly, and some people don't quite see that, so they sell as soon as it comes out, thinking it's bad, and the smart money says, hey, wait a minute, It was just the wrong dose. We know when you put the right dose, it's going to work. Others dumped it. It's a bargain. But if you owned it before and it fell, if you're not a good investor, you may be tempted just to run as well. And the good investors understand when to double up and when not to. So it's a combination of someone who's a good investor who has a deep understanding of the fundamentals and who can do both sides of that.

AI assessment note: “they all have the ability to figure out the signs... they're good investors”

Q And do you have a bias with the individual managers about the level of concentration in their portfolios? Yes.

A So what happens in a space that's inefficient, if you really do your homework, you can figure that out. So the managers who, as I said, it's small, smart money. They love what they see. And so they just love the idea of having 10, 15 stocks in a portfolio. So imagine you have 10, 15 stocks in a portfolio, each of which is risky. Obviously they hold it because they think they're going to do well, but the fact is it's risky. So what we love about it is it means that they have high conviction. So these are specialists that we work with. They have high conviction. We love it, but it's still risky. So for us, If we can find a range of such experts who do it differently, one of the nice things in the space is there are many ways to do it that don't really overlap, so you're not giving up much return by spreading your money among different strategies, but you are spreading your money among each of which is a very high conviction approach in the space, and then we get the diversification, we get the benefit of their concentration and their conviction, but yet we're not bearing nearly as much risk because we are diversified.

AI assessment note: “we get the benefit of their concentration and their conviction”

Q So if that's your favorite example, what's your second favorite?

A I think the second favorite would be corners of the private credit markets. Credit is as vast a space as any asset class in the world economy. It's huge. A lot of credit is safe or on the safer end. There's high yield and stuff, but at the level of private credit, a lot of folks, a lot of firms don't have easy access to credit. There's a reason why there's something that isn't easily figured out. And the big lenders have machines, the big lenders in particular banks, They have a sausage machine of wanting to have loans conform to certain criteria where they can score them, and they don't want to do too much work for each loan, and so when something fits their criteria, they can make the loan, and it'll be at relatively low rates, but what if it doesn't fit? Then that's where private credit steps in and says, okay, we can configure a loan. We're finding there's all sorts of things to do in NIF Corners of the credit markets. There are corners of the litigation finance market. There are corners of the catastrophe risk markets, uh, corners within energy distress, corners within small ticket European distress, some MES lending in certain cases. These are the stuff in aviation finance. There's just a very wide range. If you just look at the credit space, it's vast. And within it, there are corners that are just not that efficient. Because credit is really hard work. Credit isn't abou…

AI assessment note: “I think the second favorite would be corners of the private credit markets.”

Q So as you take a step back and think about your business implications of these strategies, how do you figure out whether one of these niches has a long enough duration that you turn it into a product as opposed to something that is a great investment opportunity but may be more ephemeral in nature?

A I would say on the latter type, the ephemeral ones, they come and go all the time. There are opportunities there. These are more where you need to, again, it's under the heading of you want to find a phenomenon that exists out there. It's a certain sector of the world where capital is scarce. The big money can't play. It requires great specialization. It's got to be inefficient. You need to understand the inefficiency, and then you need to find players Specialists who can actually succeed for you. And it's that combination. So when you see an inefficient market, and you see that, and you find these specialists, you can make a judgment as, okay, this is going to go on for a while. And if we can find more than one specialist, maybe a range of them, we can bet that will be there. Our job is to keep reaffirming that the inefficiency is there. And that the specialists are still available, and they're not being swapped with capital. And so I think that's what it takes to form a product. So in the case of biotech, it is one area. But in credit, it's actually a wide range of areas that are all put together. So we're sort of betting that we can find a range of these inefficient markets. And take advantage of them, and that there's enough out there to make it worth our while, and that we can give our clients a really good investment that is spread across of those.

AI assessment note: “when you see an inefficient market... and you find these specialists, you can make a judgment”

Q How do you see High Vista evolving over the next five or 10 years?

A I think we're a firm that like every other investment firm, you always have to keep developing your edge. And you always have to be able to evolve and innovate in a very competitive world. And I think in our case, working with smaller, specialized firms in niche areas is a very big piece of our future. But working alongside them and doing direct investing, in many cases with their help, so that as we execute, we can be that much more efficient, bring costs out of the system, Have more liquidity, ah, not do everything in an extremely illiquid way. Have much more flexibility. I think that is our future. There is a bit of a convergence. I think if you look at most firms that are deep in the active space, they all have networks. They all have people they talk to. They all have ways to develop expertise on the fly when there's an opportunity. We have our particular way of doing it, but every firm does that. And I think I just see us going more and more in that direction.

AI assessment note: “working with smaller, specialized firms in niche areas is a very big piece of our future.”

Q Well, somehow, it's been 16 years since you started High Vista, and we'll replay, you know, our first recording. So we'll have the High Vista story. What's happened Over those 16 years that's kind of changed the way you think about your investing in the business?

A You know, that's such a good question. A few things. One is the original idea hasn't changed where we're very much looking opportunistically for returns and having the freedom to look around the world in any asset class, in any type of security. For opportunities is very powerful, provided you have the skill set to pursue those opportunities, that you have the governance to make sure that you don't go off the rails when you go to further away corners of the world. And that hasn't changed. I've always said, and I still believe that alpha is scarce, and it's transient. It doesn't stick around for very long because it gets competed away. And so you always have to skate to where the puck is going, knowing that it's not going to stay long in any one place. And so, having the freedom to be able to do that is very powerful. So that hasn't changed at all. When I look back, I think the single biggest change has been how the opportunity set itself has changed. Uh, investing is a game where you're dealt a hand every day. The hand is different, and you need to play the hand you're dealt. You can't play a hand that you wish you were dealt. And I think the challenge for us all has been how we adapted, and I must say I'm pretty proud of how Our firm has adapted to get some sense of how the opportunity set has shifted. When we began in 2005, bond yields were three percent higher than they are …

AI assessment note: “the single biggest change has been how the opportunity set itself has changed”

Q What are the kinds of conversations you're having now with your peers where they're seeking your advice?

A I think everyone's trying to build a business. It depends which peers we're talking about. If it's others in businesses similar to ours, it's what's going on in markets, what's going on with clients. I still think that in the investment business, it gets to the issue of the end clients need somebody they can trust, and they value the ability to be able to trust and work with you more than almost anything. So being super close to your clients, If your clients can trust you, then you can do wonders with them. Their ability to be better investors themselves goes way up and your ability to do better for them and for yourself and for your firm also goes way up. So if you build your firm around this notion of trust in a very explicit way, I think the worst is you'll be okay. And the best is it could be an extraordinary business.

AI assessment note: “it's what's going on in markets, what's going on with clients”

Q Let's talk about those differences. So let's start with the sourcing of opportunities. And in this, as you're looking for these niches, how do you spend your time differently than when you're looking for managers?

A So I think the first thing I'd say is having now been doing this for, for a decade and a half, we have an amazing team. We have a team that understands that to find opportunities, it all begins with networking. It's in the middle. It's networking. It ends with networking. You just networking constantly. And as a firm, you build a strategic asset called your network that is profound. And we get lots of inbound calls, but we're always calling people we know and asking them constantly, many times a day, the team is on the phone, talking to experts in subspecialties, like, what are you seeing? Tell me the opportunity set. What's your favorite idea? And it's all bottom up. But eventually, when you go through those ideas, You start to see pictures, you start to see patterns, and you say, wait a minute, that same idea is coming up in a range of places. Aha, this is actually a common theme here. Let's stand back and say, is that a theme that we can exploit? And then you say, okay, what's the best way to exploit it? And then you design a little bit more of a top-down look at it, as opposed to having a more macro perspective, where you're thinking about, hey, I think rates are going to rise. I think the dollar is going to go down. I think we're going to have inflation. I think equities are too high. Those sorts of macro perspectives don't really feature into what we do. They're very hard…

AI assessment note: “to find opportunities, it all begins with networking. It's in the middle. It's networking.”

Q So if you're looking out five or 10 years from now, what does High Vista look like?

A I think for us as a business, what's exciting is leaving aside the excitement of trying to find opportunities. It's that client's We all have the same problem. We're all trying to not be in the 60 43 real bucket if we can avoid it. And we find our clients want to know what to do about it. What do you do for bond substitutes? How do you get returns? How do we do it? And so I would say the opportunity set for us to work with clients pretty closely and help them see the world the way we see it through a bottom up that becomes a top down perspective. Aided by all these specialists that we work with is a very valuable thing. So I would say working much more closely with clients, we see the world quite broadly and interestingly and in a differentiated way. And that means the opportunities to work with clients are that much better. And so I think that interface of us being a strategic partner with clients is just going to grow and grow and grow. And I think that's a very exciting part of the business. And that will be over time that has grown for us and And it's changing the character of the firm as we go down this path.

AI assessment note: “that interface of us being a strategic partner with clients is just going to grow”

Q What is the breadth of these strategies that you've pursued? And then maybe we'll dive into one or two.

A Let me first say that there are certain markets that are inefficient. That don't avail themselves very easily to be exploited for alpha. An example would be, I think in many frontier markets, It's not always clear that the accounting is right. It's not always clear that the people running the firm aren't conflicted, that there's transfer pricing, what's called tunneling, where they shift things between firms and you don't really see it because you don't have the means to see it. There just isn't the transparency. In some cases, the governance of these firms isn't great. Even if the price is wrong, you don't quite know it's really wrong. And you also don't know what catalysts there are to give you the return that you are seeking. So I would say in markets like that, they're inefficient, but not in a way that is helpful. The best inefficient market is one where everything's perfect except the price is wrong. And if everything's perfect and you can see it and understand it completely and handicap it, and all that's wrong is the price. It's so much easier to invest and take advantage of A price anomaly. So it's sort of like a treasury bond. Most treasury bonds are trading at par, but there's one with the identical coupons in principle. That's a treasury bond trading at 90 cents. You know it's a steal. And you just have to be able to know it's 90 cents versus power to take advantage…

AI assessment note: “Let me first say that there are certain markets that are inefficient.”