YouSaid · the spoken record

David Barse

lines on the record: 31
first: 2018-10-01
most recent: 2018-10-01
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“A temporary blip, and that over time you'll continue to see deterioration in secular decline unless they're able to transform themselves. And there are businesses that have been able to adjust, and it's those companies that adjust that I think will be the long-term minimum winners.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and I would tell you that the fund and the concept is really about long-term secular decline. But it will be technology that will be the triggering for that long-term secular decline. So maybe department stores are outperforming me because they were so underperforming. But I'd argue that that's a temporary...”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Can beat the market, and we're seeing more and more acid flows into those types of vehicles as well. So the informed judgment that I made was I now believe fully that the market is going to evolve with more and more flows going into these types of entities. If just for fees, right? Just because fees are much less. So if we can participate in capturing some of that flow because we've come up with this intuitive concept and we're thinking about a forward risk. This is about technology disruption, which nobody's talking about. You guys will spend all day talking yesterday about what's going to happen with the Fed and people study it upwards and downwards, but how much time do you spend focusing on Moore's law and how that's impacting decision making and people's rate of change, right?”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, look, I was A student for a long period of time of my mentor and the founder of Third F, in being taught about Concepts like diversification is a surrogate and a very poor surrogate for knowledge and investing, right? Because you should know more about research what you can fundamentally, learn about a business, invest in that business, and over a long time you'll be rewarded for that patience and work, right? Research work, yet consistently from the financial crisis forward, we were unable to outperform indices. And so what asset managers like us did was we changed the benchmark that we ended up getting compared to because we looked better against another benchmark than the original benchmark we chose, right? We were an S&P 500 originally measured fund and we changed, right? So what I was informed about there is you cannot, I think you cannot beat the market. And if you can, then you're going to be in a hedge fund charging $2.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“We look at the SP as a diversified portfolio where people, if they want a diversified exposure to the market and we think all investors They've shown us that they want to have a diversified exposure to the general market and in fact institutional investors really need to have it as most of their investment policy statements require them to have exposure. If they can get that exposure in the same diversified way, like our beta is almost 1.0, even though we excluded 150 names. If they can get that and outperform by the kind of margin that we've been able to generate in a very short period of time, and we think we can consistently do that over time, and consistency is a key word in the asset management industry, they have to pay attention to that. I think on the overall market. But there is no one that we've seen who's approached it as we have. That is flipping the...”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, look, we're in the moment right now, right, where you have probably the most significant change to the S&P in terms of GIT classification, right? You have a single person, David Blitzer, CEO of the S&P, who has the ability to make these changes, and now all of a sudden we have something called communication services because telecom had only 2% of the index when in 1962 as we started this thing, I think telecom was a significant percentage of the S&P, right? So certainly was even 10 years ago as compared to today. So they had to make adjustments to maintain the broad diversification of the index from a sector standpoint. That to us is sort of a statement of support for what we're trying to do because we.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Looking to technology, whether it's through robotics or otherwise, to improve efficiencies in what they do. So long term, we see that as an advantaged industry group, but the model kicked GE out, and primarily the one particular signal for that company was revenue growth rate. And so you had a situation where it's declining revenue growth. And it's very hard for companies in publicly reported financials to fudge revenue. They can make all kinds of adjustments to EBITDA and other earnings metrics. But in the case of revenue, it's pretty tough to fudge it. So they triggered the model and got kicked out of the portfolio not long after we launched our fund.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and indeed in the case of GE, it was our model that kicked the company out because we actually view industrials, which is the industry group that GE falls into as an advantage sector. I mean, industrials are clearly”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Example of that retail would clearly be a industry group that is likely to be disadvantaged by technology. I don't think many people would debate me on that. There are companies within that industry group Like Home Depot that we view our quant screen as having certain advantages and therefore got kicked back in.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“And if it's advantaged by default, that industry group and the securities in it will be in the portfolio, and if it's disadvantaged, those securities and industry groups will be outvested from the portfolio or eliminated. So that's step one. It's a qualitative determination. It's an active approach, but it's merely making industry decisions, not company-specific decisions. We then apply a quantitative model that we built to take that advantage group and make a decision whether to own it or not own it. So if it meets the quant screens and the quant screens are a lower bar for advantaged industries, then they offer disadvantaged. And similarly, if a company is in a disadvantaged industry, the quant screen will either keep it out or kick it back into the portfolio so you can avoid situations where there are certain companies within an industry group. And I'll give you an example.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Simply dividing the index into industry groups through a technology taxonomy. In other words, we're not using the global industry classification codes to divide the index. We're using our own industry group determinations. And we've divided the S&P into 34 industry groups, and that may change depending upon how the S&P evolves over time because there are new entrants and companies that leave the S&P from time to time. We look at industry groups through our own lens and then we make a simple determination. Is that industry advantaged or disadvantaged by technology?”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“So, yes, it is. And a number of folks who we've talked to about that say, why aren't you just doing a long short portfolio? Because really the short selling mentality is to do that, to fundamentally select a security you think is going to not perform or underperform. But we're really trying to make this a scalable business and short selling by definition has been non-scalable. You have, I think, only one fund in the marketplace that's over a billion in AUM. So, what our process entails is it's really two prong.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Now I'll blow a hundred billion. Okay, so and that's happened in such a short period of time and I think in May of 2017 the Wall Street Journal wrote an article about how Jeff Immel was one of Great technology innovators in the way in which he'd taken and transformed GE. Well, that clearly hasn't happened. So think about that if you own the S&P, you were buying that stock at its weight. If you simply eliminated what kind of outperformance just from one security. Now we do this, we ended up outvesting through our process about 150, close to 25% of the market cap. And we have been able in 18 months of live performance out performed the SP by close to 500 basis points. So, we're just trying to prove this out, but that's what we're doing.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“And again, technology disruption being a forward facing risk. And there's no better example for me to share, and I think you guys have talked about this in the past, is General Electric. General Electric was. The top five company in the SP from a market cap weighted basis. And now it's market cap is close to $100 billion.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Really flipped the investment process, and it's more important what you leave out than what you put in because the market has evolved. Index funds are the market today. They are continuing to grasp more and more of what's happening, where flows are going. And we decided to launch this concept after simulating backtesting it for a little while. But we have chosen the S&P 500, the most broadest-based domestic US market where more flows are going than in any other index. And simply by excluding, as you call them, the losers, we look at it as we're trying to eliminate from the portfolio those companies that are or likely will be disrupted by technology.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“So there isn't that we could identify we wrote our own white paper which talks to this concept because if you really think about when you go to business school, you're given Harry Markowitz's book on modern portfolio theory, and it is pick concentrated portfolios of best ideas, and over time you will beat the market, right? That's the basis for the way most people are educated today and still today. We take issue with that and actually say that.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“So Alfest is really an intuitive, simple, scalable idea for how to do two things. One, Take advantage of what we think is the most forward facing risk for all investors which is the rate of technological change and how tech is disrupting all industries, and secondarily the wave of flows into the passive index investing marketplace, which I personally witnessed in my prior role and is something that I think is going to continue. Infinitum and so what simply one should think about is it may be more important what you leave out of your portfolio than what you put in, and thus the name and branding of our enterprise called Outvest Capital”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and if you had asked Hyilda Mesters what their biggest concerns were maybe a year ago, they'd say healthcare was going to be the next energy sector and what happened, right? We haven't read or heard much about that sector getting disrupted in any kind of material way. So I just think people keep trying to look for problems just for the sake of looking for problems and the market seems to have worked itself out pretty efficiently, which tends to happen.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I haven't seen it manifest itself in any way that would. Cause me to be concerned about it. I think you had a point a little less than a year ago, maybe in January of this year, where Hyield was almost trading at perfection, maybe unprecedented in terms of where it was from a yield basis and the spread as thin as I think it's ever been, and you didn't really have any issues. And we weathered through what was a pretty challenging energy market a couple years ago that we're now seeing, I think there were articles about it today that energy is now maybe the largest percentage of the high yield index right now, and you're seeing sort of a robust demand for securities in that sector. So the market has seemed to evolve itself into a pretty stable place, notwithstanding all of these traditional metrics that might cause concern for folks, but it hasn't done”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think if you're The learning is twofold work harder to try and raise a private fund. That's an easy one. And secondarily, if you're going to do something in a public format where investors can access you daily and redeem you daily, then the only way to properly manage risk is to massively diversify the portfolio. So it's sort of what has ended up really transforming into the high-yield marketplace. You have most high-yield funds are basically benchmark trackers. They own wildly diversified portfolios of securities that track the high-yield index.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“And that helped create. Liquidity for investors if they chose, and they were points of time, especially as you think about what happened in 2011 with the downgrade of U.S. Treasuries, right? You know, you had issues over time where markets were volatile and people wanted to take capital off the table. So we had to be able to manage that through that period The ultimate demise here was the fact that I had a portfolio manager in charge of the fund who made some bad investments. And at the end of the day, in any construct, whether it's a mutual fund or a private fund, you have to be making good investments. That's what you're charged with doing. And when you have investments that turn out to be non-performers, that's what ultimately led to the challenges with the fund. It wasn't a market issue as much as it was. Individual investments”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, of course. And so the goal was to get to a critical mass so that you can have and enable yourself to have a diversified portfolio, not have any heavily concentrated positions where liquidity constraints would mismatch investors' needs or desires because investors in mutual funds have the right to redeem daily. There are certain redemption fee features that you can put on funds, but that's the nature of the vehicle. So, of course, we're very conscious of that, and we wanted to get the size. And we did quite, I think my recollection is that the fund got to about $700 million in AUM within three or four months, which was sort of an unprecedented at the time raise, especially given the timeframe we're in, right? It's the fall winter of 2009, right? Still not a time when people were thinking about getting back into the market. We hadn't even had the Green Choots conversations yet. So it was a very successful launch, if you will.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“And even though we had that kind of AUM, we were in a private fund, what you call a first-time fund manager, right? Because most of our funds, in fact all of our funds were in public format, right, in mutual funds or separately managed accounts. So when you launch a private fund, private fund investors like to see track records, and this is why you have many of the successful private equity firms out there launching Fund 17 right now, because they've got track records for the 16 prior funds that investors make their decisions on. Unfortunately, we are a backward-looking industry, right? So that was the challenge for us, and it became really almost the only way we could get the money was to do it through this public format.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Not just thought about it, attempted it in different derivations. Especially since we had going into the financial, I think, 2007, our assets under management peaked at close to $31 billion, so we had a pretty broad client base. But those clients in two thousand eight were more interested in getting their money back than allocating capital. And so raising funds in a private format.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Because you could buy very plentiful supply of securities out there that you could buy and diversify the portfolio, even though it was a focus fund, but diversify the portfolio across industry. And that was an easy opportunity for us. The challenge was there weren't many funds being launched in that format. In fact, I believe we were the only one. And most people, if they were trying to access these securities, were doing it in private funds and hedge funds. So we were very unique. In fact, I remember going on CNBC to announce the launch of the fund, and a lot of folks took interest in what we were Trying to do at that time. So that was the spirit for the launch, the idea and the opportunity was clearly there.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“The problem is, how do you raise money going into a financial crisis when most people are taking money off the table? And we were experiencing that with our open-end mutual funds, the equity funds. So, the only solution that I could come up with at the time, because I was out pitching investors literally the week before and after Lehman Brothers went into bankruptcy, was to launch an open Mutual Fund because that's what we had successfully done historically. And it took about nine months to get that done. So it's August 2009. And we file our third Avenue Focus Credit Fund. And the opportunity was pretty clear, right? You had high yield trading at 1200 over as a spread. And so you could pretty much pick your litter. It was like shooting fish in a barrel, quite frankly.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Before Okay, so 2008, the financial crisis is coming upon us. We were deep value investors pretty much most of our assets under management were in publicly listed equity securities. We had had a historical participation in debt and distress debt, both in public and private vehicles, but had really not had much exposure to that asset class leading up until the Obviously, being higher up in the capital structure of a business is a safer way to invest. And our idea was to try and gather assets into that wave, if you will, and do that in a way in which we can participate because we were, like any other opportunistic value investor, that's where we saw the value really and really were excited about the opportunity.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“This was a fun that was the focus credit fund was set up to offer investors really an alternative to a hedge fund, to a private vehicle. And we were doing it in a public format. So what happened with that one fund really was not representative of what was going on in the market because there weren't any other funds like that fund. So how did you...”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, look, the name of the fund was the third avenue focused credit fund, focused being emphasized here for making the point that we were a concentrated portfolio of high-iled and distressed securities that you could not get in that format in a liquid mutual fund format pretty much anywhere else. We were unique in what we had created for the marketplace. But the fact that people thought of that fund as some representation for an overall market is sort of a misnomer because if you think back to the financial crisis where you had many, many funds gate themselves in effect, right? Put up the gates, which we're permitted to do. You really didn't have much of a different story here.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“Recollection of the Kennedy crash of 1966. No, I do not. But I do have a pretty good recollection of what happened in 2015.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source
“It's great to be here. I thought when you mentioned 1962, you were going to talk about that was the year I was born. And this was the significance of that. And you came up with this very interesting story that I didn't know about myself.”
2018-10-01 · Odd Lots · What David Barse Learned From Watching A Credit Fund Blow Up · IDENTIFIED FROM THE TRANSCRIPT · source