Capital Allocators – Inside the Institutional Investment Industry

Latest Episodes:

Anthony Scaramucci – It's Called a Mooch (Capital Allocators, EP.60) Jul 09, 2018

Show notes

The name Anthony Scaramucci currently has 55% name recognition in the U.S. according to Politico. Anthony has been an entrepreneur in the hedge fund industry for 23 years, growing to prominence within the industry through his oversight of fund of funds Skybridge Capital, creation of the popular SALT conference, regular television appearances, and rejuvenation of the iconic television show Wall Street Week. He grew to prominence worldwide when his longtime political interests led to a brief tenure as White House Communications Director in 2017.

Our conversation starts off with a bang and turns to the ups and downs in Anthony's career, including getting fired and rehired at Goldman Sachs, starting and selling his first hedge fund, creating Skybridge and watching it almost fail, and thriving after the financial crisis. We discuss Anthony's thoughts on hedge funds, lessons from his stint in Washington, and books he has written about his experiences. Along the way, he shares life lessons about managing people, building relationships, resiliency, laughing at yourself, greed, ego, and fame.

Anyone who has only known Anthony from his recent public profile might be surprised to hear the depth of his insight, self-effacing honesty and caring of others, alongside his irrepressible salesmanship. Those who have known him longer will recognize the same Mooch as always in all his splendor.

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Show Notes

2:48 – Anthony's professional history

8:03 – Time at Oscar Capital/Neuberger Berman

9:25 – Neuberger sells to Lehman

10:13 – Leaving Lehman to start Skybridge

13:13 – Getting through the financial crisis

14:04 – Launching SALT conference

15:35 – Buying Citigroup's fund of funds business

17:34 – Anthony's approach to the hedge fund business

20:28 – How he handles the relationships with managers

22:15 – Environment for the hedge fund space

24:12 – After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead

26:02 – Hedge fund space moving forward

28:03 – What he learned from being fired

31:22 – Handling public adversity

32:40 – Selling the business to serve the country

35:35 – Life lessons learned throughout his career and shared in his books

35:40 – Goodbye Gordon Gekko: How to Find Your Fortune Without Losing Your Soul

38:40 – The Little Book of Hedge Funds

38:44 – Hopping over the Rabbit Hole: How Entrepreneurs Turn Failure into Success

39:20 – The key principles that Anthony tries to impart on his team

41:47 – Lessons in launching a hedge fund business

45:00 – What changed upon his return to Skybridge

46:33 – How does it feel to be famous

48:10 – Closing questions

56:06– The China Mission: George Marshall's Unfinished War, 1945-1947

Peter Troob – Monkey Business in High Yield (Capital Allocators, EP.59) Jul 02, 2018

Show notes

Peter Troob is the co-Founder and CIO of Troob Capital Management, an opportunistic investor and family office with particular expertise in distressed situations. Prior to starting TCM in 2002, Peter spent six years focusing on distressed debt investing at Contrarian Capital and Everest Capital. He started his career as an investment banker, and after his tenure in self-proclaimed purgatory, he co-authored the entertaining book 'Monkey Business: Swinging Through the Wall Street Jungle."

Our conversation begins with life as an investment banking analyst, and turns to competing with large distressed funds, the frothy high yield market, trickery in the CDS market, high yield ETFs, idiosyncratic opportunities, diversifying family assets, managing teams, and learning from the dinner table.

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Show Notes

2:09 – Start of his career

3:02 – Peter's book Monkey Business

3:47 – The life of an investment banker

4:22 – Decision to leave the bank

4:50 – His experience at a hedge fund

5:27 – Some of his early mistakes

6:15 – The dynamics of distressed debt investing

8:05 – The appropriate size for a distressed fund

11:28 – What should your expectations be if you invest in a large fund

13:12 – Short credit thesis

18:00 – Impact of private equity owned companies on defaults

19:49 – Shenanigans we are seeing in the CDS market

24:36 – Concerns about high yield ETFs

26:42 – Investing family capital

29:16 – Sourcing idiosyncratic deals

32:49 – What Peter has learned about managing a team

35:43 – Hiring millennials

36:22 – Lessons from investing mistakes

43:05 – What is it like working with family

45:58 – Closing questions

49:56 - Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts

James Aitken – Macro Strategist Extraordinaire (Capital Allocators, EP.58) Jun 25, 2018

Show notes

Australian James Aitken is the Founder and Managing Partner of Aitken Advisors, a one-man macroeconomic consultancy based in Wimbledon, England that works with approximately one hundred of the most influential pools of capital in the world. James started his career in 1992 as a foreign exchange trader, moved to London in May 1999, and in March 2002 joined the infamous AIG Financial Products team in London.

In August 2006 he joined UBS, where he deployed his knowledge of the inner workings of the financial system to help his institutional investor clients successfully navigate their portfolios through 2007 and 2008. At the urging of his clients, James established his own firm in June 2009.

Our conversation covers James' perspective on the Global Financial Crisis from his seat at its epicenter, the Eurozone crisis in 2011, subsequent process-driven opportunities in Greece, views on Central Banks in the US, China, & Europe, some brief observations on India, positioning for the current environment, and what makes a great macro manager.

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Show Notes

3:03 – The start of his career at AIG Financial Products

7:19 – Move to UBS

9:03 – Influence: The Psychology of Persuasion

10:42 – Sell off of 2006

13:12 – Leaving UBS to go off on his own

24:22 – What makes a great manager

27:55 – What is he seeing in the markets today, especially the US Fed

33:09 – MIDROLL

34:08 – What happens when bond rates normalize

46:36 – China

56:50 - Japan

59:10 – Europe

1:05:28 – Risk in the asset markets

1:08:49 – Advice to allocators

1:11;05 – Why people should be focused on India

1:16:39 – How he spends his time

1:20:56 – Closing Questions

Brian Portnoy – From Complex to Simple (Capital Allocators, EP.57) Jun 18, 2018

Show notes

Brian Portnoy Brian is currently the Director of Investment Education at $100B investment solutions provider Virtus Investment Partners, where he strives to simplify the complex world of money in an effort to help investors make better decisions and lead a joyful life. For the past two decades, he has held senior investment, research, and strategy roles in the hedge fund and mutual fund industries at Chicago Equity Partners, Mesirow Financial, and Morningstar.

Brian is the author of "The Investor's Paradox," a book about manager selection rooted in choice theory. His second book, "The Geometry of Wealth" hits electronic and physical bookstores this week.

Our conversation covers Brian's experience in manager research and lessons learned, choice theory and managing expectations, differences between institutional investment and private wealth management, distinction between seeking wealth and trying to get rich, his terrific new book, and why volatility is risk. Brian's insightful take on investing and his journey from the complex to the simple is full of investment nuggets of gold.

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Show Notes

2:24 – Brian's start in the business

5:18 – The useful skills he developed during his tenure at Morningstar

6:37 – The hard questions he would ask

7:15 – Why he left Morningstar

8:53 – What he learned at Mesirow that made him so detail oriented

10:57 – Leaving Mesirow

12:08 – What led Brian to writing The Investor's Paradox: The Power of Simplicity in a World of Overwhelming Choice

14:51 – The Art of Choosing

16:58 – What is the investors paradox

17:04 – The Paradox of Choice: Why More Is Less

19:29 – Reaction to the book

24:10 – Difference between his views on the asset management side vs the wealth management side

27:11 – The concept behind The Geometry of Wealth: How To Shape A Life Of Money And Meaning

30:58 – The shapes used to take people from confusion to comfort with money and investments, starting with the circle

36:00 – Moving on to the triangle in this formula

41:03 – The second triangle, focused on behavior

43:36 – The big blue square

49:29 – Hopes for the book

52:46 – Closing questions

Tom Lydon – ETF Trends (Capital Allocators, EP.56) Jun 11, 2018

Show notes

Tom Lydon is one of the leading experts in the ETF and mutual fund industries. He is the founder and CEO of ETF Trends, a business he created in 2004 whose website, etftrends.com, is filled with news, analysis, and webcasts about the world of ETFs. Before creating ETF Trends, Tom ran a financial advisory and publication business that followed the mutual fund industry.

Our conversation covers the evolution of mutual funds in the 80s and 90s and the rise of ETFs in the 2000s. We discuss the composition of the ETF marketplace, structure and tax advantages of ETFs, passive, factor and actively managed funds, characteristics of a superior manager, leveraged ETFs, VIX blowup, potential future problems in high yield and emerging market ETFs, and coming trends in the space.

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Show Notes

2:01 – A look at Tom's early career

4:52 – What drove people to buy or sell a mutual fund in those early days

5:33 – How did Tom's sell signal just before Black Monday impact the business

6:21 – What were the right funds to invest with

6:56 – What were the key trends during the 80's and 90's

8:25 – Layers of cost for mutual funds in the early days

9:04 – Average active management fee back then

10:56 – Evolution of ETF's

13:49 – Some numbers on the ETF landscape today

15:40 - Why did the last downturn foster more growth in ETFs

18:08 – The institutional presence in the ETF market

18:55 – Fees in the ETF space

19:50 – Distribution of ETFs

21:29 – Actively managed ETF's

23:35 – Tax efficiency of ETF's

26:42 – Judging ETF managers

31:26 – Do levered ETFs add any value

34:00 – Ted paper against levered ETFs

35:18 – Potential landmines in ETFs

38:49 – Risks in the ETF space today

42:11– How do ETFs impact pricing distortions

46:16 – What's happening in active fixed income ETFs

47:43 – Will fund flows chase hot managers?

48:35 – The big trends on the horizon

49:52 – What happens with liquid alternatives

51:08– What are businesses have thrived in the ETF space

53:56 – A deep dive into Tom's business ETF Trends

55:41 – Closing questions

Tali Sharot – Optimism, Decisions, and Mistakes (Capital Allocators, EP.55) Jun 04, 2018

Show notes

Tali Sharot is a leading expert on human decision-making, optimism and emotion. A neuroscientist by trade, Tali combines research in psychology, behavioral economics and neuroscience to reveal the forces that shape our decisions, beliefs and inaccurate expectations of the future. She is currently a visiting professor at MIT, and is also an associate professor of Cognitive Neuroscience at University College London where she directs the Affective Brain Lab. Tali is the author of The Influential Mind, The Science of Optimism, and The Optimism Bias.

Our conversation tackles many of the issues Tali has studied in her career, including the optimism bias, sense of control, confirmation bias, behavioral change, and overconfidence. We then touch on some of the applications of her work to investing, including the home country bias, making non-economic financial decisions, active management, emotion-driven decisions, team-based decisions, and research heuristics. Lastly, we learn a few parenting tricks from the Influential Mind.

This conversation took place behind closed doors at the Context Leadership Summit in Las Vegas.

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Show Notes

3:18 – Tali's educational path to becoming a cognitive neuroscientist

4:58 – Why people make mistakes, optimism bias

7:24 – Does optimism bias impact our view of others as strongly as ourselves

9:12 – What should we do about our optimism bias

12:37 – How does controlling your environment impact how your brain works

14:47 – How do we work around our problems in decision making?

17:40 – How do you get more people to conform to things that are beneficial

21:11 – The impact of different personality types on these tactics

22:05 – How do we use this information to impact financial decisions

23:53 - Home country bias among investors

25:00 – Is home country familiarity a bad thing?

27:12 – Impact of well-being on investment decisions

28:20 – Picking stocks because of the illusion of control

29:52 – The role of emotion in driving our decisions

32:39 – How do you use this information to help individuals or teams make better decisions

36:23 – New research

40:41 – Raising kids

42:29 – Closing questions

John Pfeffer - Crypto for Institutions (Capital Allocators, EP.54) May 28, 2018

Show notes

John Pfeffer is an entrepreneur, investor and author of "An (Institutional) Investor's Take on Cryptoassets." He is currently Partner of Pfeffer Capital. In the 2000s, John was a Member at private equity firm KKR, and in the 1990s, he was Chairman of the Executive Board of leading French IT company Groupe Allium S.A. Before that, he advised on turnarounds while with McKinsey in Europe and Latin America.

Our conversation jumps in the thought process and structure behind John's family office portfolio, which combines building new businesses alongside fund investments in public equity, private equity and venture capital. We touch on common issues like active vs. passive, access and fees, but from a very different insider's perspective.

We then turn to his work in the crypto world and discuss his framework for incorporating crypto investing in a portfolio, conducting research in the space, defining the proposition for store of value and utility protocols, and valuing tokens and coins.

John was the first investor I've come across that has both done a deep dive into the crypto world and is neither all-in nor all-out. He connects markets and economics with the complex ecosystem just simply enough that a layman like me can follow along.

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Show Notes

2:38 – How John thinks about managing his own capital

2:51 – Process to find a business to build

5:08 – Sizing of thematic deals

5:50 – New project copying a European retail model

7:18 – Core of the portfolio

9:02 – Biases of investment alternatives

11:18 – How will tax changes impact the private equity business

11:49 – What does he know about GP's as an insider that other LP's might not know

13:53 – How do they tackle venture capital investing

16:25 – Fees

17:40 – First involvement in looking at cryptocurrencies

17:46 – Institutional Investors Take on Crypto Assets

19:40 – Where do crypto assets fit in the structure of the portfolio

21:20 – Holding period for an asymmetric option

22:07 – What else did he do in cryptoassets after that first investment

24:54 – Store of value and utility protocols

29:51 – Valuing crypto assets

31:51 – Velocity of crypto exchange

40:12 – Gold replacement value of bitcoin

45:21 – Closing questions

Ross Israel - Stable, Predictable Cash Flows (EP.53) May 21, 2018

Show notes

Ross Israel is the Head of Global Infrastructure Investments for QIC, Queensland, Australia's 82B AUZ ($62B USD) investment fund. The Queensland government formed QIC in 1991 to oversee its Superannuation Fund, and the business has since evolved into a Global Diversified Alternative Asset Manager. Ross joined QIC in 2006 to create the Global Infrastructure effort and also serves as a member of QIC's Executive Committee. He has a quarter century's worth of experience in corporate finance and infrastructure funds management.

Our conversation covers QIC's structure, examples of long duration assets in ports and waterways, crossing knowledge between private and public markets, managing external assets alongside a substantial internal pool, governance structure, compensation and incentives, navigating stakeholders, and opportunities and risks in the space.

The subtle differences in constituents and objectives of sovereign wealth funds from other institutional pools come out in the implementation of QIC's investing. It's a topic we'll continue to explore on future shows.

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Show Notes

3:10 – A look at Ross's background

5:58 – QIC and how is it structured

7:32 – Portfolio composition when Ross arrived

9:08 – What was his strategy for putting money to work

10:03 – What was the thinking behind such a concentrated portfolio

11:28 – Port of Brisbane

15:38 – Local vs. global focus

16:58 – Most challenging deal he's done

18:28 – Lessons learned from their investing strategies

20:01 – Structure of their investment decision meetings

22:43 – Why does QIC take on outside capital?

25:27 – How does being part of a government entity play out in the deal dynamics

27:43 – How does decision making work on the fund?

29:06 – What happens if an internally run fund falters?

30:40 – QIC's approach to incentives and compensation

37:13 – What influence do the large pool of funds have on the way they pursue investments

39:06 – How do they think about their objectives

41:30 – What is the competitive landscape for infrastructure investments

44:38 – What are the concerns as they look out on the horizon

47:32 – How do they view public debt

48:54 – Closing Questions

Kim Lew – The Carnegie Way (Capital Allocators, EP.52) May 14, 2018

Show notes

Kim Lew is the Vice President and CIO of Carnegie Corporation, where she is responsible for the investment and oversight of the Corporation's $3.5 billion Foundation. Kim joined Carnegie in 2007 after spending a dozen years at the Ford Foundation. She is also a Trustee of Ariel Investments, the Board Chair of the Stevens Cooperative Schools, and a member of the investment committees of the Girl Scouts of America and the ACLU, and the steering committee of the Private Equity Women Investor Network. Last year, Institutional Investor awarded her Endowment & Foundation CIO of the year.

Our conversation covers the American dream story of Kim's parents, Kim's path to picking technology stocks and venture capital managers at Ford Foundation, two very different models of successful Foundation investing, blow-by-blow of the creation of an atypical Co-CIO seat at Carnegie, responsibilities that CIOs hate, idiosyncratic investments, committee meetings that foster long-term thinking, evolution of a farm team of managers, risk-taking in investing and life, and what to do when you turn 50 years old.

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Show Notes

1:52 – A look at Kim's background

4:03 – How did her family life impact her schooling

5:26 – Was there anything in her upbringing that drew her to business

6:18 – First job out of college

7:15 – Heading to Harvard Business School

8:42 – The move to Prudential

9:48 – Her time at Ford Foundation

17:35 – Move to venture funds at Ford

18:20 – Comparing the job of sourcing managers then to today

20:27 – Kim's move to Carnegie

22:42 – How the investment thinking was different at Carnegie

26:32 – How did their thinking on investing play out in individual decisions

27:55 – The decision to have Co-CIO's

34:22 – Worst parts of being a CIO

37:13 – An outside responsibility that has been helpful to Kim's career

38:56 – How the thinking on an investment committee for a pension can be different

40:05 – Stepping into the sole CIO role

41:06 – Imparting your influence on investment decisions when you are less in the weeds

41:42 – Carnegie's investment strategy

46:38 – Implementation

56:59 – Taking risks vs being smart with your capital

1:01:36 – 50 things she had never done before

1:05:42 – Closing questions

Paul Black - Gratitude, Fun, and Growth Stocks (Capital Allocators, EP.51) May 07, 2018

Show notes

Paul Black is Co-CEO and portfolio manager at WCM Investment Management, a $26 billion manager of global equities that he joined when it was a $200 million boutique in 1989. With so much of the institutional world, including my own training, focused on value investing, I was pleasantly surprised to learn about a large, high performing growth stock manager located in a non-descript building in Laguna Beach, California.

Our conversation starts with Paul's trial-by-fire entry into the business and turns to growth stock investing, including defining a great growth company, searching for widening moats, assessing a culture tied to competitive advantage, creating a positive culture, learning from mistakes, identifying tailwinds, and protecting the downside.

Paul embodies the principals he preaches and offers some tasty food for thought.

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Show Notes

2:54 – How Paul got started in the business

4:52 – Lessons learned in the early years of his career

5:56 – Common Stocks and Uncommon Profits and Other Writings

6:01 – Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor

6:05 – The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel