The Exchanges

Q Well, that's the podcast. A lot of excitement. Playlists are going to be super helpful to allow our listeners to access older episodes that they may not have heard before. What else is going on in the business?

A Most of the business is the podcast in our summits, and there's always a series of experiments. We started this coaching business this year. We haven't figured out how to crack it as a business, but we have a bunch of retired CIOs and asset management executives helping managers tell their story, understand the process of marketing. We also started doing a few strategic investments. We sit in this intersection between GPs and LPs. The most obvious way to unlock that would be to cross sell, but I don't want to be a broker dealer. It is wildly profitable, but not the profits we're going to make. So that said, I've come across a couple of great fintech products that either serve the allocator community or the Significantly move the needle in business development. We've done three of those this year. Olwell Labs, Campbell Wilson's business, that is the best tool I've ever seen for allocators to get information on holdings, on personnel moves, on other allocators holdings. And now managers are starting to look at it too, because for their marketing, if you know someone you're talking to is invested in a certain subset of managers, not only can you understand them a little better, but you can then click and see, well, of that manager, who else? One of their clients. So it's a great tool. There's one called Thema, which is a UK-based business that started using AI several years ago to…

AI assessment note: “We started this coaching business this year. We also started doing a few strategic investments.”

Q You have this joke about hedge funds. You ask a room of LPs, do you like hedge funds? They all say no. But then you ask them, do you like your hedge fund managers? They all say yes. Is that what the middle market has become?

A Well, not yet. That's a classic exercise in base rates. The base rate of a hedge fund return, nobody likes that, but of course we like ours. Private equity still has shown returns that meet investor expectations on average. Middle market's been better than large. Small has been better than middle market. Median has outperformed the S&P. Bottom quartile, definitely not. Top quartile by a lot. The question becomes, as prices go up, as exits aren't there, if the returns compress to the point where you can only pencil out the magic eight percent, If you get below eight percent net, then you're going to be in a situation where people don't like the market. They still will love their managers. I've asked at every AGM I've spoken to this year, please raise your hand if you think your private equity portfolio is median or below. And there isn't a single hand that's ever gone up. Everyone playing is playing for the top quartile.

AI assessment note: “Well, not yet. That's a classic exercise in base rates.”

Q How about public markets? How do all of the dynamics that you've just described ultimately impact public markets for both the allocators and GPs?

A Public markets have been quiet for a couple years other than big move to passive, a lot of activity in pod shops, but it's been a sneaky year because active performance is back. Mag seven hasn't really rolled over. S and P's done well, and yet you've got active performance. You have really good long, short equity performance. So people are starting to pay attention, but there's still no dollars flowing because of the bottleneck in the private markets. The biggest impact of that over the next couple of years is that when private markets unlock for liquidity, the first wave of that money from the institutional market is going to go back to the public markets. It's not going to get recycled in the private markets.

AI assessment note: “when private markets unlock for liquidity, the first wave... is going to go back”

Q What book is in your queue that you are most excited for?

A There are two coming out next year that I'm excited to tell people about in the fortunate position that I've read both of them ahead of time, and they are amazing. The first, Jonathan Tepper, who's been a guest on the show in the past, who runs a long-only firm called Bravat Capital. He was a best-selling author of The Myth of Capitalism, wrote a memoir called Shooting Up. And it's his story growing up in a heroin addict community. His parents were missionaries in Madrid. It is heartfelt. It is heart-wrenching. It is deeply personal, and it's one of the best memoirs I've ever read. The other, John Kim, who until recently was the head of capital formation at General Catalyst, wrote a book called The Dow of Fundraising. It is the best book I've ever read describing the capital formation processes. I think that'll come out in March. John's going to come on the podcast.

AI assessment note: “There are two coming out next year that I'm excited to tell people about”

Q If you had to take one side of the bet, which side would you take?

A I wrote in this piece that I think the chances of private equity average, so the median private equity outperforming S&P's 40%. You can measure out based on today's interest rates, today's credit spreads, how much you think you'd benefit from leverage based on some return. You can look at the historical small cap effect, and those together will make up about 80% of the gap of fees. So that means the average private equity manager has to deliver a hundred or 200 basis points a year to break even. That's not what people sign up for. What people are signing up for is top quartile. And if you get to top quartile, I would definitely bet on the top quartile private equity manager over the S&P, but the median is a tougher comparison.

AI assessment note: “I would definitely bet on the top quartile private equity manager over the S&P”

Q Have you made any more investments this year?

A My investment portfolio for context is really a best ideas. It's almost a total portfolio approach, much more than an endowment model. And it's fairly mature at this point, have a lot of great manager relationships that I love leaning into. So the new investments I made this year tended to be co-invest. I invested everything from a sports betting app to an AI company alongside a Gavin Baker at Atreides. To a European snacks business with Scott Spielvogel at One Rock Capital, to a blind pool with Chaz Cock at LB Partners, who just does an unbelievable job when he finds best ideas. And I made two investments in things related to the industry. So one, I'm an advisor at 10 East, which is a platform for alternative investments. They did a round for their operating company. And I also made an investment in Oldwell Labs run by Campbell Wilson, Which is the very best software I've seen to help allocators find and monitor managers. So that's most of where my activity is. Now, probably the most interesting one for next year, and it might sound crazy and certainly will sound contrarian, is a SPAC, a new SPAC. So I was involved in a SPAC in the heyday three years ago. We have a great team of people. Some of that team decided to do another one. When we did the first SPAC in 2021, there were something like 650 SPACs in the market that completely disappeared for a lot of good reasons. And in …

AI assessment note: “So the new investments I made this year tended to be co-invest.”

Q One of the things I'm always attuned to is folks in the institutional community care about what you're thinking, what you're hearing. And so when you think about the topics institutional community want to hear about next year, What are those topics?

A What's top of mind for allocators are first, let's call it the private equity cycle. So there's some discussion of what's going to happen with liquidity. When you talk to allocators, they're not actually worried about liquidity. This is nothing like 2008, but they are wondering when will distributions come back and how will they address continuing to invest in the private markets? The obvious big one now is this potential for a new economic regime in the US. Between the new president, Scott, alongside Kevin Hessard at the Economic Council, and Doge, there's some chance that you have a significant realignment of the U.S. both in the world and some rationalization of the budget in the U.S. economy. So what are the implications of that are important? And then AI is present of how is this going to change industries and investments. On the manager side, all of that always ties into performance, and that's first and foremost top of mind. I've yet to have a day in my career Where people thought it was just going to be easy to make money. Even when the opportunities in retrospect are easy, there are lots of reasons why it's hard in the moment. On the capital side, fundraising has been really hard. You've had this bottleneck in the private markets that's also affected public market fundraising. And so that capital on the margin, is it going to come from private wealth? Is it going to co…

AI assessment note: “What's top of mind for allocators are first, let's call it the private equity cycle.”

Q an unbelievable amount, but the odds suggest that the, this as a group, our allocation as a group is just not going to be able to out earn the fees relative to the S and P 500 from Vanguard. Um, so what do you think from an allocator's perspective? Is it the same answer? Is it getting, is it getting too hard? How do, how should we think about this?

A That is very reasonable comparison. And you have seen certain institutions abandon hedge funds. And if I looked at those institutions, they tend to be large pension funds with challenging governance bodies where the hedge fund allocation was fairly material anyway, but the noise around fees was high. I think that the default to have an allocation of hedge funds in a portfolio probably doesn't make any sense. Uh, in the same way that, you know, we could say the default to have, to buying a bunch of growth stocks doesn't make any sense. But hedge funds structurally have done two things over time, only one of which we've seen in almost the last decade that you don't get access to in the long-only world. And so the, the first is managed risk. So a well-managed hedge fund, even a long short equity hedge fund, The way that returns have generated equity like returns over time is by underperforming in the up markets and protecting capital in the down markets, but with a positive skew. We've had such strong equity markets that you would expect hedge funds to underperform. But we haven't seen that period of time. And there have been pockets. There have been months where hedge funds look like they're crowding over each other and, you know, the downside returns aren't what people expect, and so that might be the case. But the other piece is this notion of innovation in the capital markets.…

AI assessment note: “hedge funds structurally have done two things over time... that you don't get access to”

Q So with all that said, what happens with returns in private credit?

A So you have the beginning of some defaults. No surprise. There's lots of businesses. Businesses do default And Jamie Dimon says something about cockroaches and people freak out. I do not think there's going to be some calamity. The structure that the asset managers are using is just much better than what the banks used to use. You know, borrow short, lend long. So these are very long dated structures, which is great. You can work through problems. Where I think there is a challenge is when all this money comes in, the one thing it does for sure is compress spreads. I don't think the people buying in the wealth channel have the right understanding of what returns they should expect. There was a pocket of time coming out of 2022 where these corporate unlevered loans could yield 12 or 13%. I think people are anchored to that when the actual return is probably half that. That's just what happens when all this money comes into the space.

AI assessment note: “these corporate unlevered loans could yield 12 or 13%... actual return is probably half”

Q our business, give a rundown of what happened on the podcast over the year, what we're excited about next year. One of the things you mentioned on last year's conversation related to the podcast is that your favorite conversations are with folks you don't know and are doing interesting things. Who did you speak to this year on the podcast that you didn't know previously that is doing interesting things?

A That's one of several buckets of my favorite guests. It's very rare that I meet them that year and then have them on the podcast, but there were a couple examples this year. Adrian Mellie from Eagle, Herb Wagner at Fine Point, KK Rowland from JP Morgan who runs Alternatives, who I have met in the last few years and gotten to know, are all total superstars at what they do. Then there's a bucket of well-known managers that for whatever reason through my career, I've never met. Having Jeff Aronson from Centerbridge on, or Robin Mason at Value Act. Managers I've known of for a long time, but had a chance to spend some time with and have them on the show. So those are always fun. The biggest bucket is the old friends bucket. People I've known for a long time, and it's the right time for them. So Alex Astrodote, who I went to business school with from Whale Rock, Dave Lyon, another business school classmate who's hysterical and incredibly savvy investor. Ed Refenstedt at the Dietrich Foundation, who I first asked seven years ago, and after asking and asking, finally had him on.

AI assessment note: “there were a couple examples this year. Adrian Mellie from Eagle, Herb Wagner at Fine Point”

Q What did you learn from the Private Wealth miniseries?

A The first thing was the structure of how all this is working. This is very much a game today, at least, for the megas. It won't always be that way. I've seen this in different asset class adoption over time, where there's a new pool of capital that comes in for a new area, and they need the comfort of a brand. When I started Protege Partners, they needed the comfort of a fund of funds because people couldn't spell hedge fund. Over time, That pool of allocators will say, I've got my core allocations there and they'll start to look at satellites, but we're not there yet. So that's the first piece was how much this accrues to the biggest asset managers and the incredible amount of resources they have to put in to make it work. So KKR went from no one in private wealth to a team of 250 reps. The other thing you realize in talking to the allocator side is there are different types of private wealth organizations. You have a private bank like JP Morgan, and they run like an institution does. There's a small focused decision-making unit. They've been investing in alternatives for a long time. John Matthews, the head of UBS's private wealth channel, and he's running 230 teams that manage north of a billion dollars. There's next to no alternate, and that's a huge education process. So there's a very wide dispersion even within that of the types of players and where that money might come…

AI assessment note: “The first thing was the structure of how all this is working.”

Q you bring up a really important point around content being so core to managers being able to tell a story. It's connected to the capital raising process. It's a chance for them to share who they are and for people to hear that in long form, which is really impactful for both sides. When you started Capital Allocators, what was your reason for starting it and what was your goal?

A This podcast found me. I didn't find the podcast. There was no reason to think That you're going to have a conversation, share it for free, that that could turn into anything like a business. It just doesn't make any sense. At the time I had left Protege, hadn't figured out what my next big thing was going to be. I was on Invest Like the Best, one of the early guests from having written my first book on hedge funds, and it demystified the experience. It's like, oh, two people talking in front of a microphone. Patrick's amazing. I was like, oh, that was fun. And I woke up one day and said, oh, it'd be fun to run around and talk to my old friends that I haven't had a chance to catch up with. And that was it. There wasn't a thought process of where it's going. Most of my friends are like, are you kidding me? You can't possibly do this. You're going to have to do this every week. I was like, well, I used to have four or 500 manager interviews a year, and now I have one a week. I actually think it's pretty easy. So there was no plan. It was just, hey, this is a fun way to use some of my time while I was figuring out what I was going to do next. And there were times where I thought to myself, if this were the thing I was doing, that would be really fun, because I loved every bit of it. And over the years, it became that.

AI assessment note: “So there was no plan. It was just, hey, this is a fun way”

Q So you talk about better than the average. You talk about private equity. You've done a bet before. Hedge funds versus the S&P when you're an allocator in the hedge fund world. You're now thinking about a similar bet, but with private equity. Talk us through that, and what is your thought process behind that bet?

A So we'll leave aside the old one that I made with Warren Buffett a long time ago that was hedge funds against the market. And I had a dog in the fight then. I was managing hedge fund portfolios. I don't have a dog in this fight. Ever since that Buffett bet, no surprise, people have said, oh, you should do this, or what about this bet? And none of them really were an important of enough issue to have in public to say, oh yeah, that's something great to do. But this one's super interesting, particularly as the Wealth Channel starts to embrace these alternative assets. It's not a perfect comparison, but will private equity over time beat the market? And there's a pretty simple trade-off at a high level, which is you can access the market at much lower cost. So private equity has to make up for the fees. If you constructed it similarly, so let's say it's US buyouts, and private equity could be venture capital, it could be a lot of things, but if it's US buyouts, you actually have roughly similar economic exposures. Largest sector of us bias is software. Mag seven is software and so on. So it's not anywhere near identical, but similar economic drivers, similar return drivers. So it's actually a reasonable comparison of the underlying businesses. And then the real question is, can you make up for the fees? So how would you do that? One is leverage. There's more leverage in private eq…

AI assessment note: “there's a pretty simple trade-off at a high level, which is you can access the market”

Q Yes. Ok, so tell us about Warren Buffett. How did you enter this bet with him, and what was at stake?

A So Warren's a gentleman in Omaha. So in the summer of 2000, Warren always met with students, and he had said something a year or two before. It was the first time he was talking about fees in investment management, and he referred to the had rocks and the got rocks, meaning if the clients are the people who had the rocks and the money managers who got the rocks and that the rocks transferred over. And so he was on his pulpit talking about fees, and I had seen a transcript Of him talking to a group of students who apparently he had said something about hedge funds could never beat the market. And a student asked him about that, and he said, no one took me up on it, I must have been right. And so meanwhile, we had been doing very well in our fund, and I thought what he said was a little just too simple to be right. And so I sent him a one-page letter in the mail that was a little cheeky, I reprinted it in my first book to just show how you capture someone's attention, and then he responded. I had heard he was legendary in how he responded to things, so I was curious about that, but that was about it. We went back and forth, and it turned into this nonprofit that effectively hedged funds against the market. So he picked the Vanguard S&P, 500 index fund. We picked five fund of funds for 10 years for a million dollars for charity. The bet started in January one of 2008. Big part of …

AI assessment note: “We picked five fund of funds for 10 years for a million dollars for charity.”

Q Any other tips on interviewing before we shift to the public speaking side?

A Yeah. There's one that's incredibly important that I think will come up both in public speaking and interviewing, and that's the value of feedback. When I did this interviewing managers for twenty-something years, if you think about what happens, you go into a room, you have the meeting, however well you've structured it, and you come out and you and your team sit there and say, what do we think? Is this someone we want to pursue? If we have money with them, do we want to keep our money? It's an evaluative conversation. In twenty-something years of doing this, I never once came out of one of those meetings and said, how did I perform as an interviewer? Now I start doing the podcast, and at first I'm on my own. I record the interview. I then have to go through a transcript, send it to my producer. He edits it. I then listen to it again to make sure his edits are right. Then it comes out, and of course it's live. I want to listen like everybody else. So I have to listen to conversation I had three more times. And the reason why I understood, hey, I missed the question when I was talking to Andre Perald was because I was forced to create my own feedback loop. I was forced to listen to myself do this interview. And I did that hundreds of times. So one of the things that I coach the allocators and the Capital Allocators University to try to help them improve is create that feedback …

AI assessment note: “There's one that's incredibly important... and that's the value of feedback.”

Q How did you prepare when you first got it started? Because when you make that shift into, I'm now going to move from informal to formal, I'm now going to really focus on this. How did you approach the preparation for diving into this?

A Well, to take a quick step back to that, my frame of reference was interviewing managers, and I had done that who knows how many times. I'm sure it was thousands over the years. And when I thought about this style of interview, my first instinct was it was the same thing. So I would prepare by reading information, having a sense of what I wanted to ask. My first couple interviews, I said, I know how to interview people. I'm going to lay out a list of questions that are the best questions you could possibly imagine. And then I'm going to go in, and I'm going to ask, and it's going to be great. And I remember one of my first couple interviews with Andre Perrault. I was listening back to it as I was doing the editing, and at some point in time, he said something, and there was a completely obvious next question to ask that I totally missed. I remember thinking to myself, why did I miss that question? And the truth was, I knew exactly why, because I had this long sheet of questions that I was trying to read and figure out what was going to come next, and I wasn't able to hear what he was saying while I was looking at my question list. So I went from a preparation that was map out all the questions to what works best for me to allow me to frame out what the arc of this conversation might be, while at the same time not being wedded to what's on the page. And that didn't take that lon…

AI assessment note: “I would prepare by reading information, having a sense of what I wanted to ask.”

Q aware of your work and your current sort of career history today as well. Um, I did some research before the call and I read that you began your career in 1992 under the tutelage of David Swenson at the Yale University Investments Office. So, I mean, it, it strikes me that that would be Almost a perfect education and grounding for a future investment career. Was that the case?

A Absolutely. I wouldn't say I knew it at the time. You know, you could look back and say, wow, that was early days for that style of investing. But there are very few true goats in the investing world in the style. And there's no doubt that, that this style of multi-manager investing across asset classes, David is the goat. And not only was he the goat for many, many years himself and his team, he also was the goat in terms of training talent. And the people I worked with Ostensibly all have had just tremendous investment careers. So taking Andy Golden at Princeton University's endowment, or Paul Valente, who had incredible returns at Bowdoin for a long time, is now at Rockefeller University. Galen Schumann, who I worked with, who ran Carnegie Corp for years and trained Kim Liu, who's now at Columbia University and Meredith Jenkins at Trinity Wall Street. And then the list goes on, Seth Alexander at MIT and Ann Martin at Wesleyan and Randy Kim, who's now at Rainwater, and Rob Wallace at Stanford. We all were trained in the same discipline, and there are literally no examples of someone who was trained by David, who stayed in the business, who didn't succeed. So there was an incredible training ground that came out of that, and it was, on top of that, just a really fun environment. He was a wonderful, a culture carrier, and he was just an incredible couple of years. I spent five …

AI assessment note: “Absolutely. I wouldn't say I knew it at the time.”

Q That's great advice. Something you mentioned is your book launch, and I want to make sure to talk about that. So your book Capital Allocators is coming up very shortly. I can't wait to read it. What inspired you to write it?

A First, let's start with the anti-inspiration. The anti-inspiration is previously writing a book, because once I did that, I was pretty sure that I always say that the only thing writing a book does, it takes up time and resources, which are the two precious assets that we have. What happened with this was, I knew there was a book in the podcast if I ever chose to write it. I wasn't sure if I would. I didn't know what that book would be, and after 50, a hundred conversations on the podcast. I had gotten to the point where I couldn't remember the great nuggets from Jenny, like you were probably the fourth guest, if I remember right. I remember you talked a little bit about design thinking, but I barely remember that conversation. I just know that there were some great gems in there. And so I decided to try to figure out a way to go back and curate that. And it started with I had a couple interns last summer who helped me outline every single episode in quotes. And so I could quickly go through, read the quotes. And that was the idea was, okay, maybe we'll do like a quote volume. And by the way, I've done that. It's not the book, but I am making it available once the book comes out to every single person who joins our free mailing list, because it's kind of cool. And it started that way. And through that, there were some other things that I really wanted to curate for myself. The …

AI assessment note: “I had gotten to the point where I couldn't remember the great nuggets”

Q founders, whatever it might be. A common denominator here is just often that it's about people, that investing is very much a people business. What have you learned that stands out most about effective leadership, whether that be at the allocator level, at the manager level, at the operating level? What things would you hang your hat on now as key leadership principles from your, your journey with the podcast?

A Yeah. I mean, I don't think the principles are that much different. And frankly, when you hear them, they just sound so obvious and simple. Although I would say that in my 20 whatever years investing, I'm not sure I ever heard anyone articulate it in this way. And so really from some of the episodes of leaders outside of the podcast, one of my early episodes was with a decorated longtime Marine named Bull Gerfine, who happened to be a classmate at business school. And people would only know him because he was one of the two people that withheld Jack Nicholson in the courtroom scene of the movie, A Few Good Men, back when he was a young guy. And we know that in the military, they really train leaders. And so I was kind of curious to learn, like, what is it that real leaders are trained in ways we don't learn in the investment industry? And I'd say there's sort of four parts of the basic core tenets of leadership. The first is vision. The second is standards. The third communication, and then the last kind of inspiration and motivation, and so pretty simple. It starts with having a vision, and I really got a lot out of interviewing Shundran Thomas, who's the head of Northern Trust Asset Management, and ostensibly I was interviewing him as part of a diversity series, but everything he talked about in terms of how they engender diversity started with a vision and a notion of princi…

AI assessment note: “there's sort of four parts of the basic core tenets of leadership.”

Q What do you think is the most valuable aspect of the show from your perspective? What about it? Why did you do 200 and not stop at 10? Like what has kept you going almost four years now?

A Well, there are plenty of times I thought about, this is getting to be too much. I want to go do other things. I think what's kept me going, 60, 70% of how I'm spending my time now is exactly how I have throughout my career. It's having conversations with smart investors. And I just love that. And so one of the things about the podcast that's different from just sitting in an investment seat is, you know, in the investment seat, you're just meeting money managers talking about investments all the time. In these seats, you can get exposed to all kinds of interesting people. And I've always used the frame of reference. If I do a show on the podcast that's not directly about investing, am I going to learn something that I can share that will make a CIO better in their seat? So I've done a couple things in sports, and that's kind of a personal passion, but interviewing Ben Ryder, who wrote the book Astro Ball, twice now, but the first time before the Astros blew up, it was like startling to me that what he was describing was the movement into quantitative finance, and that baseball was ahead of investing, and that baseball had gone full on to quantitative moneyball analytics, and then realized you can't go that far and shifted back into that, call it quantum mental. But at the time that book came out in 2017, it really felt like the world was going to be run over by quants and inve…

AI assessment note: “I think what's kept me going... It's having conversations with smart investors.”

Q what's been hard, what's been fun. So I want to do all that to begin our conversation. We'll also talk a lot about investing. You've got a new book coming out. We'll talk about that, but let's begin at the beginning. What was the impetus to get into this experiment in the first place, given that it's now one of the de facto leading podcasts for the institutional investing crowd?

A Well, it started here. It started sitting down with you when we first met, which had to be, I guess four years ago or something like that after my first book came out. So I was in this period of transition and I was doing a couple of projects here and there, and we had sat down and done the podcast and it demystified it for me. It felt like we were just sitting down having a chat. And not too long after that, I had the idea of just running around and talking to some of my old friends in the endowment world, mostly. Because I had spent so much time just focused on hedge funds. I didn't really have time to see what was going on. And I figured let's try it like this and share the conversations and see what happened. I had absolutely no objectives, no goals with it. It was just something I was going to do on the side and scheduled a couple recordings. The first one with my buddy, Steve Galbraith, who just had a remarkable career and super interesting. And I recorded it with him and it was just awesome. And then I lost the recording. I could not, I could not find it for the life of me anywhere, so I kind of thought the whole thing was doomed to start if you were listening to the, what the universe was telling me, but just kept going, and I was doing some other work. I was helping a buddy get started running a family office, and that was waiting for a sale of a business, so there was…

AI assessment note: “It started sitting down with you when we first met”

Q the big name CIOs in the endowment world, sort of all the big names in the endowment world, and it does seem to have gotten much more mixed. Is that because you're just curious and you're browsing around? Do you find yourself getting sort of tired of the CIO conversations, given that they're all kind of doing the same rough thing? What's behind the switch in composure of the guests?

A So I think it's a bit of a mix. I would start with There are a bunch of endowment foundation CIOs that I know that I asked on, and eventually I asked all the people I knew. And then it becomes the same, which is people will refer others to me, and sometimes those people are great, and sometimes I'm not sure. And I do think that because the type of capital that an endowment runs or a foundation runs is similar compared to a pension fund or compared to a wealth advisor, they do tend to have a similar way of looking at the world. Because of the nature of the capital. And so I just got curious about different models for managing capital, and it started when Ashby Monk introduced me to a bunch of the big sovereign wealth funds really in Australia, did some of the pension funds in the US, and increasingly interested in things like the investment driven RIAs, because that's a growing and interesting pool of capital. And so I think it's more been my curiosity in trying to constantly figure out If there's something incremental, you can learn about the process and different ways of thinking about, call it a similar challenge of managing a big pool of capital.

AI assessment note: “I just got curious about different models for managing capital”

Q versus the NASDAQ, and they're crushing the NASDAQ. For the last almost a year now to an insane tune. It kind of goes against all the Swenson training, all the Buffett training, all the things that I think a lot of professional allocators came up on are being violated in front of us. How would you recommend people out there, especially at the allocators, think about that challenge in twenty-twenty-one?

A Yeah. Well, I would start by saying, look, that is a, for the most part, a US public market phenomenon. Maybe global equity phenomenon. And that's just a small part of the investable universe. And so within that, this is an interesting time, right? There've been very interesting pieces recently by, in succession, Jeremy Grantham, Cliff Asness, and Howard Marks on this value versus growth spectrum. And if you listen to Jeremy, the world's going to end as soon as value comes back. And Cliff still deeply believes in value, but it's a different lens. And then Howard, after talking to his son, who's a venture capitalist, Kind of said, well, there's, maybe there's a different definition of value that just the simple factors don't pay attention to. My take on it has always been a little different from what I learned in my early years working with David at Yale. He was academically based, dye in the wool, small cap, and value, and one of the things that I've learned over the years, but especially the last couple of years on the podcast, is this idea that The long term that we all aspire to be, long term investors, doesn't really exist unless every part of the capital through the governance structure to the individual making the decision is perfectly aligned, and unless you're Dave Swenson and a few other select people, it's just not the case. So the long term for most people in the bus…

AI assessment note: “You're probably better off being balanced between the two.”

Q about hedge funds or alternatives, maybe in general, you can't really do that. So do you think that it's, is it something where if you don't have the ability to go through a process like you just explained or have your own process that you think is better, if you don't have something like that, is it, is it worth pursuing the risk premiums and alternative asset classes at all?

A So generally speaking, I think the answer to that is no. And there's, there's a lot of subtle currents that you mentioned, right? So if you compare 10 or 15 years ago to today, you now have a proliferation of products that you can invest in that comprise risk factors. So there's the basic risk factors. That we know about in quality and yield and size. Those things didn't actually really exist, you know, 15 or 20 years ago. So if you wanted to get exposure to small cap value and you didn't like growth, the only way to do that was in a hedge fund if you could short growth. And there are a lot of other ways you can just get the exposures today. So the, where that has taken the industry is people's definition of what adding value means has changed. Because there are more alternatives is that are alternative betas. So, so take a firm like AQR, which was probably the first to sort of mass proliferate different types of products. And I'd had a, a ongoing conversation over, over time with Cliff Asnis about, you know, once you know that there's a alternative beta in a strategy, Is that strategy likely to be attractive going forward? So we could think of like a merger arb as a great example. You now can buy a mutual fund. You can buy an AQR product that give you exposure to all the mergers. But when Merger Arb was really interesting was when not that many people understood it and knew ab…

AI assessment note: “So generally speaking, I think the answer to that is no.”

Q I just want to shift gears for a bit. We share with you the same podcast producer and Matt Passy, and you told us earlier that that is thanks to you making the introduction to our common contacts. So shout out to Matt. Can you talk about the impact that your podcast, The Capital Allocators has had? Is it been a surprising experience? What has come of it?

A Sure. Well, it's been really terrific. And again, big shout out to Matthew Many of the investment podcasts that people listen to are produced by him, and he really does an extraordinary job, makes all of us seem much better at this than we actually are. So I started the podcast as a way to kind of connect more broadly with people I knew in the investment community in a way that I was able to when I was only focused on hedge fund strategies. And it's been, that's been a lot of fun, and I just have a great passion for connecting with both people and ideas. And those two can go together, but are also quite separate. So it's been, you know, personally, that's been very rewarding. I think there's been a pleasant surprise, and you sort of mentioned it in Google searching my name. I assumed that no matter what, the bet and having lost the bet to Warren would be sort of part of my public legacy, and I wasn't gonna be able to do anything about that. I was not expecting that doing a podcast would Broaden, you know, people's at least knowledge of me and what I've done. And in particular, like I mentioned, when you write something that you think is thoughtful and you put it out in public, as I did a few times relating to the bet, people mostly still would see me as an arrogant hedge fund guy. They'd make the same assumptions that Ben talked about earlier about, oh, you must love hedge fund…

AI assessment note: “I was not expecting that doing a podcast would Broaden, you know, people's at least knowledge”

Q So a lot of our listeners are retail investors. Do you think the average retail investor saving for retirement should consider an allocation to hedge funds?

A Mostly no. Mostly they should not. And I say mostly because there are some interesting changes in dynamics in what's happening in the hedge fund landscape. That might allow retail investors with, with the right kind of access to access some good funds. So let me, let me put a little more color on that. What's happened particularly in the last 10 years Is a significant concentration in the hedge fund industry. Means the large firms are getting bigger and bigger and are effectively hoovering up talent that wasn't able to sustain itself at a small firm. And the reason that that's relevant is that some of these large firms, and you could, you may know, you know, some of the brand names are places like Citadel and Millennium and D.E. Shaw and Two Sigma. Uh, and Lone Pine. Lone Pine is not quite the right example. Viking is a good example. These large firms have continued to perform to their investors' expectations, and they are now, you know, mostly 30 to fifty billion dollars in assets. So if a retail investor has access to a large manager and believes that the market for talent is, is efficient, or is increasingly efficient in the hedge fund Space, which I believe it is. They may be able to get an allocation that's quite different from what they'd be able to get anywhere in the public markets, and understand they're not necessarily going to know a lot about what's going on, but th…

AI assessment note: “Mostly no. Mostly they should not.”

Q Did you ask any of your questions on the list when you prepared for your first meeting with him?

A Oh, I did. Yeah. I don't remember what they were. I know one of them was asking him about A-Rod, Alex Rodriguez, because at the time he was involved in A-Rod re-signing with the Yankees, which as a big Yankee fan, you know, in retrospect, I'd say maybe that wasn't the best thing in the world for the team. So I was very interested in his sports relationships and sort of what his life is like, how much travel does he do? Does he really eat as badly as he, you know, claims he does? And, and then a whole bunch of interesting stuff about Uh, about business and investing, and so, yeah, we weaved our way through that, but I don't think it was this sort of linear process of, I'm gonna ask this question, and then the next question.

AI assessment note: “Oh, I did. Yeah. I don't remember what they were. I know one of them”

Q Let's turn to the podcast. You wrote a brilliant blog about how you started with the podcast. How did your work as an investor prepare you for being a podcast host?

A Yeah. So I think it was incredibly important in two ways. The first is I just knew a lot of terrific people in the industry. So it was not hard for me. I think in my first 50 episodes, 45 of them were people I had already known. So that's helpful. The other thing that was inordinately helpful was that I wasn't actively engaged in all that much work at the time. I was looking. I was trying to find what I was going to do next, and I just hadn't found it. And as a result of that, I didn't feel like I had a lot to say. And the reason that ended up being important was it didn't take me too long. It'd be hard for me to count that single digit number of episodes before I realized that it was going to be a lot more interesting for me and the listeners if I took myself out of the conversation as much as possible and let the guests tell their story. And so the irony is I started down that path in part because I was feeling a little insecure because I didn't have anything to say. Because I wasn't actively engaged. The truth is, after doing this work for 20 or 25 years, I'm very familiar with the subject matter, and I think that's allowed me to ask the next question in a little bit more depth than someone who is outside the industry would understand. If you're talking about how you're interacting and making a decision with your investment team, I've conducted those meetings, I've been in t…

AI assessment note: “I think it was incredibly important in two ways. The first is I just knew”

Q And how many episodes did it take you to have that confidence and to just go in there with, with a couple words on a sheet of paper?

A Yeah, I mean, to be fair, it depends on who I'm interviewing. So if it's a chief investment officer, it probably took me half a dozen to realize, you know what, let me just go at this. But almost everyone else that's not a chief investment officer of a big pool of capital, I do have more prep involved because I feel like I need to get into the subject matter and understand it as well as I can to be prepared. I still will go into most of those conversations With a fairly limited notes. But the flow of conversation will be planned out in advance. And I think that's a key thing. I happen to go to Harvard Business School, which is taught with a case study method. The way that the classes are conducted, about 80 or 90% of the class of the spoken word in a class session is done by the students. And the teacher is really an orchestrator of that. I was shocked one day. I went down to ask a professor a question, and I saw his notes on his desk, and they were an exact match for the notes that were on the blackboards, and yet he had said next to nothing. So there is an important part of these conversations where you are, as the interviewer, you are that conductor, and I spend probably more time thinking about what might the flow of conversation look like than Just what questions am I going to ask?

AI assessment note: “if it's a chief investment officer, it probably took me half a dozen”

Q book. And I think the tone is both directness and playfulness. I would say it's at least how I took it. How did you decide which tone to strike? It was a very successful. Letter, because, you know, you got in touch with him, and most people pay a lot of money to even, you know, have a drink with him, or whatever, so, but you did something right there.

A Yeah. I think what I did in the letter was a few things. The first is I made reference to the challenge that he had posed, and I assumed that that was something that interested him, and then I made reference to a few kind of famous investment aphorisms that related to his thesis about fees being high, and then I had known about him enough to know where he liked to eat, and I didn't know At the time, there was no monetary amount tied to the wager, so I made reference to both his, well, I think at that point in time, I made reference to his favorite restaurant and said, you know, maybe loser buys steak at Gorat's, or his salary is like a 100,000 dollars, so I proposed, or how about one year of your salary? So I think there was a little bit of familiarity of knowing a few things about him, which I think anyone who pays even a little bit of attention could have known those things, and I mean, to the extent that the letter was Playful. That's just more reflection of me and my writing. So it's just sort of putting yourself out there as yourself and not trying to say, oh, I'm going to be playful. So Warren responds to that. I was like, oh, no, this is me. So here you have it.

AI assessment note: “That's just more reflection of me and my writing. So it's just sort of putting yourself out there”