The Exchanges

Q What was that training ground like for you and the people around you?

A One of the things that I think is Remarkable about that period of time is that really we were all committing capital, so we were in a position to be able to commit capital on our own up to certain limits, so there was this concept of limits, basically, that created the way that we kind of went about the business, but they were pretty generous, especially for a bunch of young folks just starting out in the business. They were really flexible in moving past The treasury markets, and into more credit-related pieces. So I personally had the opportunity to invest and trade in high-yield bonds, municipal bonds, preferred stocks, bankrupt situations. I invested on behalf of the, in effect, the balance sheet at Cargill, but also on behalf of their insurance companies, and had exposure to Cargill's pension plan at the time. So this really became a hub of financial expertise And investing capabilities for the firm very broadly.

AI assessment note: “I personally had the opportunity to invest and trade in high-yield bonds”

Q What were some of those innovations over the course of your time just at Cargill?

A It was probably investing in bankrupt situations. Actually, it was exemplified by Texaco filing for bankruptcy in 1987. It was a very short-lived bankruptcy. It was really not a fundamental credit problem, but more of a litigation issue. I just remember very distinctly the rapid work that was done in and around enterprise value. But more importantly, An understanding of why there was motivated selling by virtue of the downgrade of a money good credit. There was motivated selling in the market. Prices were dropping quite rapidly. Cargill came in and had a bid, brought liquidity, and brought a lot of dry powder. So they just had this willingness to go into dislocated markets, be able to assess value quickly, And be prepared to have a bid. It's a very powerful early lesson in my career.

AI assessment note: “It was probably investing in bankrupt situations. Actually, it was exemplified by Texaco”

Q What was the Cargill organization at the time?

A Cargill is a massive global agricultural business. I was the beneficiary of innovation and an entrepreneurial view of how they wanted to tackle the financial markets. So they basically were taking some of their best merchants of grain. Think of wheat and bean and corn traders who had phenomenal global experience in Arbitraging cash and futures and options and understanding how to trade on the world stage, and they ported them over to this desk that was going to start, in effect, bringing those arbitrage skills to the financial markets, particularly in the treasury bond markets and the foreign exchange markets. Here I was as this young credit analyst on this basically developing group of traders that was kind of, in effect, a quasi-treasury function for Cargill at the time. I had the opportunity to learn relative value skills, trading capabilities from some of the best merchants. Cargill was also committing serious sums of capital. Wall Street definitely took notice of what was happening. Even though it was a relatively young part of Cargill, there was an enormous amount of credibility and an integrity in the way that the business was done that caused a lot of people to take notice.

AI assessment note: “Cargill is a massive global agricultural business. I was the beneficiary of innovation”

Q As you grew out the capabilities, the type of assets and strategies you looked at, how did that affect the construction of your portfolios?

A What it did really is give us an even wider range of capabilities from a relative value standpoint. So we had on the ground partners in Minneapolis, New York, London, Singapore, more recently Mumbai, that all had this capability of being able to look across the globe for relative value. Look across various asset types, and be able to bring that lens across both liquid and illiquid strategies. So it really gave us a very unique perch as a global firm to be able to evaluate relative value. The practical effect of that is that the portfolio can ebb and flow quite a bit in terms of how and where you're Exposures are at any given point in time, particularly in kind of the classic flagship vehicle. So for instance, our European exposure has been as much as 50% of the overall portfolio, but in the last handful of years our Asian exposure has increased quite dramatically. The liquid versus illiquid strategies have also ebbed and flowed. Sometimes they're fifty-fifty at other points in the cycle. The biggest dislocations can often happen earlier, and you're going to be all in on your liquid strategies while you wait for the illiquid markets to turn into motivated sellers that ultimately allow you to shift the portfolio to more illiquid strategies. So it ends up being a very flexible platform. The other practical reality, Ted, is that as Investors look for more specific kinds of exposure…

AI assessment note: “The practical effect of that is that the portfolio can ebb and flow”

Q What were the aspects of that plan that you implemented and then that worked in that transition?

A When we were doing Vardae two point oh, it was really intended to have the basic elements that were going to allow for that transition to occur. So it was really a combination of extended governance, leadership, development, and ultimately a communication plan with our limited partners. But it also required that we Elevated key people in the organization into more senior leadership roles well in advance of when those leadership transitions took place, so that by the time we got to those kind of announcements, there was a very clear sense of the next generation of leadership. A real practical part of that was allowing other people in the organization to have more Visibility in the fundraising and business development process. One of the challenges of this business is for the first 20 years, most of our investors were exposed to George Hicks, Greg McMillan, and Marsha Page. The cumulative exposure to the founding partners was something that we had to be very deliberate about and begin to build visibility across the next generation of leadership so that there was confidence on the part of the LPs that there was not just a high quality set of talent, but that it would be handled over a multi-year period of time, and that all of the operational pieces were well in place.

AI assessment note: “extended governance, leadership, development, and ultimately a communication plan with our limited partners”

Q Why don't you take me all the way back to your first steps into the markets?

A I've got a bit of a non-traditional background, and I have to take a step all the way back to my hometown of Olivia, Minnesota. Population, 2500, about a hundred miles west of Minneapolis, St. Paul, and self-proclaimed corn capital of the world. Small town, big ambitions, and a family structure that was very entrepreneurial and leadership oriented. Really, it started around 10 years old when I started working with my dad in his drugstore. He was a pharmacist in this small town, and I spent most of my evenings and weekends with my father in that drugstore, just absorbing everything about the business. With my siblings, we discussed that over meals, and he helped me really appreciate the measurability of business, but also the importance of exceptional customer service. My mom was her own force of nature. No limits thinking. Happy to challenge the status quo. First woman mayor in Olivia when I was in high school. Strategic, creative, visionary. So when I went to college at Gustavus Adolphus College, I was completely convinced that I was going to be a pharmacist and go back to Olivia and join my father. I went to a liberal arts school and ran into a wrestling match with organic chemistry and completely lost. I had no idea what was happening in that class. Literally. Literally had no idea, Ted. At the same time, I took a math and finance class from one of the math professors there,…

AI assessment note: “That became really my journey to go into economics and finance.”

Q management tech, request a demo at ridgeline.ai. And now back to the show. When you went from a centralized office to four or five different locations with senior people in each, how did you go about the process of moving from the centralized decision-making to five different regional heads who have their own portfolios because they have a sleeve, but then you also want competition for capital in your flagship?

A So really a combination of a much more robust investment committee process that was inclusive Of everybody from all of those locations together with limits on the more liquid parts of the strategies. We have always had a very robust strategic planning process, which meant that we came together as a firm at least once a year. We rotated that across various geographies, and we still continue to do that. That allows for each part of the organization to identify their expectations for the business on a going forward basis. And allow for thoughtful planning on what that would mean in terms of likely allocation across the portfolio. So with plenty of flexibility in that, you have an upfront plan that you're working around and a regular investment committee process that is bringing those individual deals for first look and final approval combined with limits on the liquid side of the business.

AI assessment note: “a combination of a much more robust investment committee process that was inclusive”

Q As you prepared for, let's just say, stepping back to be chair, how did you think about what's become the next stage of your career?

A As Vardae's business grew, in my view, we created a business with a really distinctive culture and one that I'm very proud of. Being a woman in a male-dominated field of alternative investing actually never seemed to hinder my success, and probably because I was always in a position to be able to commit capital. But what I believe happened is I think that success perhaps led me to overlook some of the facts, challenges, and barriers around diversity in the investing business. So it really wasn't until 2016 when I moved from that intense co-CEIO and co-CEO roles into my current role as executive chair, now shared with George Hicks, that I kind of looked around. It was the first time I had time to really look around and take stock, and I was like, where did everybody go? How is it possible that I'm one of the few women to found an alternatives firm that has a long track record that was built to scale? This really resulted in me taking a hard look around the data in our business, both at Vardae, but within the investment industry writ large. There's a ton of data out there on gender in particular, but it became pretty clear that the rate of change in financial services has been nothing short of glacial during my career, particularly among senior leadership in this business. When I looked at Vardae's numbers, I also, particularly among our investment professional ranks, also noted …

AI assessment note: “It was the first time I had time to really look around and take stock”

Q How did the path of Cargill take you to starting Bardet?

A Well, there's an intermediate step there, Ted, and that is my first high-yield bond that I pitched to Bob Lumpkins and three others. Those three individuals, Dick Emmerich, John Brandenborg, and Mike Fry, left Cargill in 1988 to start their own hedge fund. At the time, it was called EBF and Associates, Now it's called Merced Partners. Maybe it's that entrepreneurial DNA. I put up my hand and said, I would really like to join this firm. They really were doing a hedge fund strategy around global arbitrage. My area that I was going to focus on was really credit capital structure arbitrage. I had the benefit of being really in the early days when hedge funds were kind of a new concept and really a cottage industry. And started trading on behalf of their very first fund. When RJR was acquired by KKR, literally one of the largest LBOs at the time, they had one of the most complex capital structures that I had ever seen. It was filled with subordinated debt and paying kind bonds. It was a huge structure and a relatively small market, and there were just pricing dislocations across that capital structure continuously. I spent the better part of my first year at EBF, basically trading that capital structure. Then it moved to bank debt. Back in the day, bank debt was just bespoke documentation, right? I distinctly remember trading bank debt in a company called Revco, which is a defaulted…

AI assessment note: “there's an intermediate step there, Ted, and that is my first high-yield bond”

Q As you look five or 10 years out from here, what would denote Empowered to be a success for you?

A I would love to believe that we're going to move that 1.4% number, Ted, but it is an 82 trillion dollar denominator. So it's not an easily moved number. The way I'm personally thinking about this is recognizing that this cannot be a fund one and done. It has to be a long term commitment and take a long arc to this business. So that's the first starting point is taking a long view on this. But I'd like to believe that we're bringing structured solutions to these managers that actually is helping shape the market and ultimately expand the market for diverse talent. So success to me is that we've actually shaped the market. I've been in nascent markets before. This one is a relatively nascent market. I can see how it can play out over time, how we can help launch these firms, how we can help scale them, but ultimately how we can create A market for diverse talent and starting their own firms, launching and scaling their businesses. So to me, success would be that we actually continue to take a leading role. Our thought leadership and what we're actually doing in terms of capital commitment and strategic support shapes the market and creates something that people have never seen before.

AI assessment note: “success to me is that we've actually shaped the market”

Q What was it that led you to leave Merced to form Bardet?

A Fundamentally had the distinct privilege of being exposed to running a full portfolio, but also to being in fundraising discussions with existing and or potential investors who obviously were they themselves also early and identifying this as an opportunity. It was really a combination of seeing the tailwinds in First of all, total returns. The love of being on the line from a P&L standpoint, personally. Understanding all of the fund-related pieces, but also an appreciation that we were starting to see something that was moving from a nascent, more cottage-driven industry into something that was going to be much more substantial, and that there were some tailwinds for That opportunity set from a fundraising standpoint. It was probably my entrepreneurial drive. I just became very resolved that I wanted to start a new firm, and I wanted it to reflect a culture that I could be really proud of and that would ultimately reflect my values.

AI assessment note: “It was really a combination of seeing the tailwinds... It was probably my entrepreneurial drive.”

Q What have you found different sitting on the other side of the table from what you have for 25 years, 30 years as a fund manager?

A Well, the practical reality is we both have a GP and an LP hat going, right? At Empowered Capital, we are basically making commitments as a GP through three transaction types. So pre-fund direct deals, fund commitments, but also co-invest as well as what we call GP structured partnerships. We're investors full on. We have to be out in the fundraising markets ourselves. It really goes to assessing the quality of that investing talent, that underlying track record, relying heavily on deep diligence in terms of the quality of that track record, and deep reference checking. It's not like we're coming in and have a deep understanding of every single one of these individual investing strategies. So it's Being clear about what the universe that we're operating against, classic benchmarking against all talent, to be honest, and expecting a track record that's going to hold up against all of the peer firms out there. And then recognizing that this talent has probably had slightly different challenges in getting to the point of being able to start and launch their own firms. Those barriers have been somewhat structural in nature, but they're also been the function of unconscious bias. So this group of folks generally has statistically been promoted more slowly. They probably have been paid less statistically, and they're not necessarily as part of a privileged network. So we're very cons…

AI assessment note: “It really goes to assessing the quality of that investing talent, that underlying track record”

Q So you had a window. From those mid eighties till let's say the late eighties of the real growth of that high yield market. How did the functions that you took on at Cargill evolve over that period of time?

A It was early days in the high yield market, for sure. Aside from kind of the functional areas that I was involved in, one of the things that was very clear during those Cargill days and learning in and around the business was the mantra that your word is your bond. So there was an enormous amount of integrity that was being brought to all of these component pieces. I distinctly remember A moment where there was a counterparty cut off from trading by virtue of not operating with that level of integrity in what was a very much developing market. So it was not just the high yield bond market, but a willingness to kind of look at merchant banking type of transactions. So it was just this continued willingness to innovate and look at gaps in the market. And be quite opportunistic in how that capital was deployed.

AI assessment note: “Aside from kind of the functional areas that I was involved in”