The Exchanges

Q Why don't you take me through your quick background that prepared you to write this book?

A Born in Milwaukee, Wisconsin, went to college, Cornell. The whole time, I was very certain of my future, which was to be a PhD academic historian. Summer before the senior year of college, I was in London doing research on undergraduate thesis. By the end of the summer, realized maybe I don't want to be an academic historian, and the historians at the British Library are like, we don't need a Jewish guy from Milwaukee adding to an already very well-covered history. I was fortunate to To be born in 1973, the demographic lull in a post-war America, and so at that time, you can get a job with just a liberal arts education. I had no interest in finance, particularly, and I had no experience. I had two job offers in front of me. One was to be a speechwriter for the Parks Commissioner here in the city, and the other was to be a junior equity research analyst at Goldman Sachs, and I took the junior equity research analyst at Goldman Sachs. I did that for a couple years assigned to the energy group, Eventually, I promoted to look at Latin American oils. After that promotion, I had a very big bout of insomnia and started writing what was my first novel, and I've always been a big reader of novels, always been interested in it. 25 years old, took the job in finance lightly because it was never something I'd really sought, announced like a real pretentious asshole that I was quitting to w…

AI assessment note: “Born in Milwaukee, Wisconsin, went to college, Cornell.”

Q So where did the idea come about for The Counting House?

A I wrote a book about seven, eight years ago on the shale revolution that was primer in my voice on the shale revolution, and I'd always thought a book like that around the age of alternatives, private equity hedge funds, et cetera, would be fun to write, but also never felt particularly compelled to write it, When you have a full-time job, you really have to, you have to really be gripped by something to obviously write it. Especially the time I quit Goldman, I was like a very pretentious and severe novelist. The novel is the highest form of the written word. But then, after writing two that got published, two didn't get published, I put it to the side. And my wife, after me moping around the house for a while, she's like, well, you haven't written a word of fiction in 11 years. Here's a story you always tell right in a fictional format. Take a Sunday and write something. So I did it, and then all of these private notes on this other nonfiction book just clicked into place into really what the format became of the novel. How it would go, how it would end, who would be the protagonist. It all clicked together in an intuitive way of just subterranean thoughts for many years.

AI assessment note: “all of these private notes on this other nonfiction book just clicked into place”

Q So whenever you sit down to do something like this, you are the author. There's always a perspective that you're bringing to bear from your experience. How do you describe what perspective you're bringing as the author to this?

A I'm the IR guy for the 180 largest private equity firm in America. Not a particularly important job in finance, and I joke, I'm the stable hand in finance, and I'm writing a book where imagine I'm a jockey. So a lot of the CIO's sensibility Is another path of my life had gotten me there. That sensibility is how I think about the world, my sense of humor, or a lot of that. I'm also in other characters, and other people are in the CIO. A few friends who have read the book are like, Gary, you're a very good CIO, and you've imagined yourself as a CIO. Maybe you should just do the job instead of writing a book about it. And so I think he has a similar ironic remove and wore it lightly too, but found himself very good at it and very proud. And like a lot of novels, you want precipitating action or conflict or something. The self-doubt coming in after he thinks he's kind of figured it out is one where I have a tremendous amount of respect for people who do the CIO job because every day you're relearning things that you thought that you had figured out about a manager disappointing you, manager surprising you, things you missed, and so that drama is what I was trying to say, that he had a model, and the novel's set in a time where the model doesn't really work.

AI assessment note: “I'm the IR guy for the 180 largest private equity firm in America.”

Q How do you think about, from a CIO's perspective, or you as the CIO, what goes into the selection process for a manager?

A I talk about input system and hunger, which is, if you think about hedge funds, you think about a private equity firm, you think about anything, what is the input into this investment system? Is it shop deals from Goldman Sachs? Is it data on stock price performance you can get from Bloomberg, that they're just smart people that can figure it out? That's, frankly, a lot of alternative assets is. If I were a CIO, that works. Is there a sector specialty? Is there some understanding of the data? Is there a data no one cares about? This input into whatever this model is, is hugely important. I think the second is the system of how they process it. Now, everyone pitches a very sophisticated system. We have this machine, and there's a scene in this about a guy who failed at private equity by calling bullshit on the machine, because especially in private equity, you don't get that many at bat. In the course of a career. But there has to be some system other than we're smart guys who know a lot of people. And then hunger is the one that probably the Excel formula doesn't get right, and probably one of the hardest things to do for people in a CIO seat is these natural life of a money management firm. You want someone whose life depends on it, but you also want them to prove that their inputs and systems work, and you don't want them looking at their Hamptons real estate And spending fou…

AI assessment note: “I talk about input system and hunger, which is, if you think about”

Q One of the things you mentioned earlier is that one of the characters in this investment team is someone who, whatever Yale's doing, I want to go chase that momentum. What have you seen in your seat about how some of the investor community behaves relative to what they're hearing from others?

A They're humans. FOMO is the chief driver of a lot of human behavior, and it's not like investing is going to be immune from that. I also think that the one thing we have to remind ourselves on our side of the table is the job of a capital allocator is to generate returns, but the job of a capital allocator is also to have a job. One sees the safety in slipstreaming, the safety in numbers, and the fact that they're not just there to maximize returns. They have to be concerned about volatility. There's real institutions they support. So I think sometimes the pitching crowd gets frustrated at the same time you have a certain amount of schadenfreude when it goes wrong, because there's also just a lot of laziness. So to try to find that CIO who can combine that independence of thought, but also understanding that there is some need to not make every single decision they do, an interesting, edgy decision is hard, takes tremendous conviction, and keeping your job loosely, I guess, in a way.

AI assessment note: “FOMO is the chief driver of a lot of human behavior”

Q How do you describe the book jacket summary of what it's about?

A It's about the chief investment officer who is unnamed through most of the novel, just referred to as the CIO. It is about a period in his life where he's coming off from being The recipient of the Times article of this is the CIO genius coming out of a very proud, going through a soft patch that gets very difficult in terms of performance, and as that happens, he is dealing with both trustees, the university president, his staff, and a lot of people coming into his office asking for money as his life is tightening, his self-doubts are increasing until the novel ends, and about a fifth of the novel is a scene where he meets This reclusive hedge fund manager, alumni of the university, very aloof from the university, in a scene where everything in his life, and hopefully investing, is brought into a very tense conversation.

AI assessment note: “It's about the chief investment officer who is unnamed through most of the novel”

Q I'd love to dive in on some of your thoughts on whether it's the strategies or the archetypes that you describe. And I can just walk through, you've mentioned a couple of times the lower mid-market private equity firm. What are some of the things that you teased out when you were talking about that example?

A In this case, I wanted an example of a firm that didn't do well. And this comes at the end of the book, amps up the despair of the CIO, because the CIO had made a big bet relatively. He's not picking 50 lower middle markets, so this is one of the bets. This was about how few decisions in a lower middle market private equity firm separate success and failure, genius and idiot and zombie, and I had a count. Six things we sold too early. Five deals that we decided not to do, but they were ours to do. We could have paid two percent more. We just decided not to do. Four things we did, and there were zeros. This game of inches for a firm that has Obviously, some success at the beginning to achieve some institutional success. Ecclesiastes time and chance happened to it all. Is this in that of a business that's so hard? And whether the firms we think of genius, there's a survivor bias to that based on if you just think about, yes, you can say, well, someone made the right decisions, but those very few decisions can really determine the life and the reputation and the success of these guys.

AI assessment note: “This was about how few decisions in a lower middle market private equity firm separate”

Q So what is the core thesis of this novel?

A There's a VS Naipole line that a novel is a sum of opinions that don't add up to a point of view. The purpose of it is trying in a classic novelistic way to combine ideas and feelings of really what it means to be an investor today. Finance in fiction today usually has two main formats. One is we want to write about rich people in New York City. They need to have a job. We'll ask our college buddy who works at a hedge fund to give us some notes. Send some trades. We'll have corny names for firms. We'll put in some prostitutes, probably a lot of cocaine, and then the other one is in the school of liar's poker, like the young person coming into New York and working in a job, but it's really classic building for a mom, but none of them really treated finance and investing. It's always the backdrop about the setting being more the fabric than the backdrop, so this one I really wanted investing to be the fabric of the novel. The thesis of the novel is can I capture In a LA to New York plain read, funny, but also pretty serious novel, what it means to be an investor today, and that is a window to what it means to be alive today.

AI assessment note: “The thesis of the novel is can I capture... what it means to be an investor today”

Q So you mentioned this as a fiction novel. The obvious question is, is this CIO based on a person? Are the individual stories based on actual manager's

A I'm trying to get away with everything. None of the main characters are based on anyone. I did that because there's sometimes in life where, like, laziness and conscientiousness merge by not doing the research, by not sitting down in the office of a CIO and taking notes or a manager and asking them to see their pitch deck, but just saying, this is going to be forged in my imagination. I also was a little more free to write sort of a little more wit, less worried about the feelings of the person on the other side. The intention of all of it is to be true. This is not a satirical novel. There's some dramatic heightening, but it should make you wonder, as a reader, this has to be X, Y, Z. So the purpose is not to have fantasy figures, but there's a trusty worship Goldman Sachs. I didn't make up the name. He's working for Big Bank, Inc. And so there are references to existing firms, but those are always rooting into the real language rather than this is an analysis of Goldman Sachs or this is a true, but I did want to not get too clever about that.

AI assessment note: “None of the main characters are based on anyone.”

Q Having sat in the seat you've been in for 20 years, you have lots of relationships with lots of these people. How do you describe the nature of the actual relationship between a CIO and the principles of a firm?

A It's a very strange one where I think our side, we presume they think about us more maybe than they do. Maybe this is incorrect because, you know, you're realistically a CIO is not going to every annual meeting unless it's a very glamorous one. But even there, your cocktail party conversation about kids and summer plans and things like that. And then in a meeting, the CIO is talking or whatever person on the LP side is talking to 15% of the time and most. And so I think there's this presumption because you're known from someone for 10 years, 15 years, but the amount of time of actual human interaction, do you know how many children the CIO has? You have to listen to capital allocator's final questions and know what he likes to do. It's a very strange relationship for groups that obviously economic life is tied together. Where not individually, there's not one CIO to one thing, but the collective judgment of CIOs on our business or any money manager's business is so subject to people you don't actually know that well, but you think you know that well because of repeated exposure. And I think one of the great challenges on the CIO side is your job is to figure out systems input hunger, the soul of these people pitching you, but you're seeing them in very controlled context for the most part.

AI assessment note: “It's a very strange relationship for groups that obviously economic life is tied together.”

Q How about the other one you mentioned, the hot VC firm?

A Yeah, and this one I had a lot of fun with, and it's just so central to Returns today, and Returns today in twenty-twenty-one. The novel was finished in twenty-nineteen. That era of the twenty-tens, both the S&P tech winners driving it and VC is a big difference in performance between the winners and losers of capital allocators over the decade. Then the self-importance of it is what I've always been very intrigued and fascinated by. This VC firm had IPO that went bust, one of these home delivery meal companies, and then had an Uber for babysitters, which was a great, great win. There's actually now an Uber for babysitters, but I was like, I invented that in a novel in 2019, so I should get some warrants. The one thing I'm really fascinated is the need to make this a philosophy, to make this a structure, to make this a long LinkedIn post, to make this a TED talk about what investing is, what meaning is, and to analogize to science when, in fact, it's just as hard as the lower middle market guy in hoping luck and skill gets you there, and the lower middle market guy was in a sector that didn't have those tremendous tailwinds. He leads himself to self-pity. And cursing is bad luck where the VC leads himself to peacock way announcing how the world works, which that hubris follows almost automatically any hot sector.

AI assessment note: “This VC firm had IPO that went bust, one of these home delivery meal companies”

Q What did you learn from writing this book that you didn't really feel you necessarily knew before you set out to do it?

A It's a great question. I think I learned and had to think about much more sympathy for the job of a capital allocator than I ever had. Obviously, in my life, they play a functional role. Dead leads. I'm trying to get people to do things, and 99% of the time they don't do things, and they annoy me for not doing things. I tend to look at them trying to imagine how challenging that is. Gave me a lot of respect when you try to really sit down and think about what is the daily life? What is the inner life? What is the challenge? And I think the second is, is it solvable? That's what the final scene is about. It is solvable. We've always known the answer. You losers are just limited by children and And lives and colleagues and desires to go have golf shirts and stuff, buy it. So the other one is how do you manage that fundamental conflict that we feel like we have an answer in investing already, and yet we have worlds, hundreds of thousands of people trying to come up with different answers.

AI assessment note: “I think I learned and had to think about much more sympathy”

Q compliance, and more. In the AI era, asset and wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now back to the show. What do you think, and what you've seen, are the most interesting questions that a CIO asks of managers?

A Great question. There's a philosophical one, which is repeated a lot in the book. Why are you doing this? I joke, all my friends got rich in private equity, why not me? School of private equity. There's a lot of firms, and that is the organizing thesis of that firm. All my friends got rich in private equity, why not me? So I think, first of all, what is the passion And differentiation, bringing to this business, why does this firm need to exist? A very philosophical one that I think is hugely important, and I see interesting CIOs getting to. And the other one is CIOs have, everyone pitching them is long. Some thesis or some asset class. The best of CIOs are like, hey, does this idea you have that whatever it is, you know, lower middle market industrial businesses are You think you're paying little in leverage. You think your multiples are cheap. But hey, I have 12 other private equity strategies that do it. I think that big lie in the sense of the organizing principle of a firm tends to often be random because this is the history of my career. This is what I've always done. And so for the CIO to be able to say, hey, I don't need exposure to this. The best CIOs I see are ones who, in a polite way, can see if there's something missing in their thesis that This sector of the energy side. I'm looking for innovation. I'm not looking for value, or I'm looking for value, not innovatio…

AI assessment note: “Why are you doing this? ... why does this firm need to exist?”

Q So you go from managing up to the board, then you have managing a team of people. What are some of the key challenges that you've seen for CIOs in being able to manage their team while managing a pool of assets?

A I mean, I think that's one of the biggest dispersions of talents in CIOs that I've seen. Because as you imagine, managing people and managing investments are not the same side of your brain. There's no a priori reason that someone should be skilled at both. And maybe there's, in fact, the opposite. If you're an analytical, quiet person, you actually don't want to manage people. The CIO definitely is on the side of, in a perfect world, he would do everything himself. And I think there are other CIOs like that. This is a very simplified investment office. There's really two deputy CIOs, managing directors under him that represent the opposite of it. One is just like a very attracted to the bright, shiny thing. Ariel calls, you see how it calls like a pop in jail. Yale is doing must. We all know that this exists, and he's just really into the horse race, really. And the other one's very diligent, but almost the flaw he sees in her are some of his own flaws. Of just feeling like you can master this as something that should be able to fit into the Excel formula, making these capital decisions, which obviously is not something that if Excel had a formula, it would make everyone's life a lot easier.

AI assessment note: “managing people and managing investments are not the same side of your brain”

Q Especially with the years you've spent in the energy sector, how about your thoughts on ESG?

A Yeah, that was third rail that I didn't want to do too much on. I also felt it'd be a little tacky to not have anything about it. How I dealt with it in the novel was to think about the pressure of the CIO, a line that I often repeat to CIOs, which is like, it's three percent of the portfolio, but 97% of our headaches. And so really tried to dramatize that and the feelings around that. Of this is such a hard job to do with all the other things to try to deal with small parts of our portfolio that are just lightning rods for it. There's a activist professor on campus who does a lot of jokes told at his expense from the trustee and the CIO sort of defending it. But then the CIO, as much as it's a clear cut, leave me alone. I'm busy. I don't have time for this. The university president's like, You're a good person. You're doing this and not working at another part because you believe in the mission of the university. You want to be remembered as someone exceptional at this job and the use of proceeds, so why wouldn't you? Think about that.

AI assessment note: “it's three percent of the portfolio, but 97% of our headaches.”

Q I'd love to dive into what you see as some of these challenges of the CIO. So clearly there's this performance pressure from the guy who was in the New York Times, who's now not. What have you seen as how different CIOs respond to that performance pressure?

A It's a good question. It's hard because, as you know, a CIO doesn't make that many decisions a year. You're not running a pod for .72. The ability to move a highly illiquid portfolio is not easy. There's a lot of stages of grief when a portfolio is starting to move, and first is denial. The markets can always be different tomorrow. The markets are wrong now. The markets are going to come, or this manager's J curve is deeper, but still. So I think those stages of grief is what I see. It has challenges even defining success. I follow along, probably like you do, the P&I, the endowment tracker. The numbers are always surprising, but the five-year numbers, the ten-year numbers are pretty tight from very different sophistications, very different styles.

AI assessment note: “There's a lot of stages of grief when a portfolio is starting to move”