YouSaid · the spoken record

David Eichhorn

lines on the record: 72
first: 2024-09-02
most recent: 2024-09-02
sittings or episodes: 1
sources: podcast

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“Who hasn't come across it? I think it's really powerful to help balance you, particularly in our industry, as I said, that can humble you fast.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“I wish I knew more about Stoicism. I'm a modern day Stoic. So if anyone follows another podcaster, an author, Ryan Holliday. So interestingly, I studied Latin and Greek in high school of all things. I almost went off of all things to study the classics instead of finance. And that would have been a twist. I was familiar with the epictetuses of the world Catos and Marcus Aurelius, the philosopher king, but I really came across this much more recently his writings that just make it more modern than Stoicism has a terrible connotation of emotionless as opposed to it's managing your emotions and not letting them control you and particularly in an industry where markets are just bullies all the time and things break the wrong way. And what I love about it is I think I always had a lot of this element. It's just helped codify it for me and helped me remind myself at times you can only control what you can control, everything else that's out of it. Get over it. And in fact, you can control very little. I mean, it comes down to almost just your thoughts.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Surprised because it seems like I love presenting, and I do love presenting, but I used to get really nervous, to be totally honest, and I'd get more nervous probably than I should have. And I read somewhere that presenting is like a present. It's like a gift. What we do, it's like if you're handing out $100 bills, would you be nervous? You'd never be nervous. And even when I'm pitching business, which I love to do, I kind of came around to I believe in what we do. I really believe in that. And so this is a gift and you can choose or not buy into it. Great, but it really got my nervous energy down and allowed me to enjoy. That was really great advice that I read somewhere.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Last thing on Ted Ruse, but somehow that came up earlier your mom doesn't work here was the advice. So what that means in context was I was always a hard worker and a hustler and whatever. And I was new there maybe like third or fourth shift and we ran out of malt powder. And so I run him back and fill something up and run back and I'm happy because I'm hustling. And that was a place you had to hustle. That's why they paid you what they did. And came back and okay, great. And go about. And the manager came up to me and said, Dave, your mom doesn't work here. And he walks me back and he shows me I've made a bit of a mess kind of in the hustling, forgot about it. I felt so little at that moment. So in one level, you'd say, oh, maybe he could have said it better. But I remember it. And what I took away from it is you can't do things half-ass. You've got to do things right and you've got to do it diligently. And the details matter. And I can remember that. I can remember how crappy I felt for so long after that. Last one, professional advice. I read one is people would be.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is boy, did it allow me to put my head down and work and know that Kate's got stuff covered and it allowed me to do my thing and travel a lot and hustle and know she was there. I hope my kids would think I've been very present, particularly for the role I have. I'd like to think I have been. But I know as parents we were present, she was present. And I'm super proud of her about a year ago now. She's open an online fabric store and following a new passion. So she's been great and I wouldn't be where I am in my career without her and I don't tell her that enough.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“So many have. I mentioned Phil sending me to JP Morgan. Mike actually hiring me. But professionally, one is super easy, Jesse, founding CEO of Nissa. It was a true pleasure to apprentice under him. We're still close, close friends. I think when things go from Gen 1 to Gen 2 in our industry, people don't even speak to each other, much less. We have dinner. He still comes in and has lunch frequently. But professionally, just to see him at his craft learn from him, hopefully at times try and improve on things as well, try to be better. But he had a profound, profound impact. I think I've shown the gratitude, but I'm sure I haven't shown it enough. The other, it will sound gratuitous, is my wife. The reason being is she made a decision when our oldest was born, which is almost 21 years ago now. She made the hard decision that she wanted to stay home with the kids. And there's obviously a lot of different pathways, but that was undoubtedly her vocation and calling. She was great at it. I bring that up professionally.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Professionally, it's preambles that get you away from allow you to say something after that that has no consequence. Like really a pet peeve is I'm not a market timer, but that's the same says, don't take offense, but that's certainly something that, particularly the market timing one, bothers me. The other non-adherence to closing times at restaurants or bars, I think this goes back to the Ted Drews had no closing time, triggered a thought when we were talking about Ted Drews before. My wife and I both worked there. Nothing was worse than people coming up at midnight and keeping us open a little longer. So one thing when I'm out with people and you can look around in the restaurant is like, we got to go. These people want to go home. It's like, do you know we're keeping these poor people here? That's a huge pet peeve of mine.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“My best friends in the world, I've known since kindergarten. When it does come up, people are always stunned by it that I have a big group of friends, most of which went to the same little Catholic school on the south side of St. Louis, and we still hang out together. One of the best ideas literally professionally or otherwise ever had is when it got harder with kids and whatever 15 years ago, this maybe the part shouldn't be fit for print. But once a month, we all pick a tiny dive bar somewhere. If the bar runs out of Bush Beer, it is definitely time to go home in a self city bar. So it's a good indicator.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“That is an easy one. It is woodworking. Always loved it. I started it before I had kids and I had less disposable income than I had kids and I literally stopped and everything kind of rusted and then Providence maybe as my kids got to the age where they didn't want me around as much, I started to rebuild my shop. I had a little more disposable income. So I have a pretty nice shop at this point. In Providence was basically built it all out right before COVID hit. So at this point All the furniture in my office I've made, the last thing was I took delivery of a desk that was a unique build. I'm a huge St. Louis fan. All the wood I use is actually from St. Louis City trees that are downed that a company goes out and grabs them and rough mills them. And so I have a huge live edge slab that's the top of my desk that I'm super excited about.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Hopefully, a lot like what we are, which is working closely with clients and having fun working closely with clients. We've had various epoch would be too strong of a word of different times of innovation and then making hay while the sun shines. In the middle there, there's this financial crisis where it was just terrifying, but everything happily worked out. I think we are in a little mini epoch of innovation and working with clients. A couple new products I alluded to. We don't bring out new wildly different products. They're always near adjacencies. I think just a continued measured but maybe slightly accelerated innovation in the environment we're in. A little bit of mental bandwidth freeing up for host of reasons. We've built out a great technology team. Sometimes you have technology debt. We had a huge technology debt from growing as much as we did. And we did some massive projects that have freed some capacity for some innovations. I think it's just going to be listening clients very near adjacencies and continuing to evolve in a pretty measured way.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Massive economic repercussions as opposed to when the pains focused, if it were focused in insurance, that would be terrible. If it's focused on banking, that would be terrible. So that is one great thing. There's been a great disintermediation there that I think is a positive of, quote, the shadow banking of private credit. But main thing is asset allocation ultimately is the salv on everything and making sure there's genuine diversification and the related making sure you don't have sneaky beta. I know you had Cliff Asnison recently. I know he's talked about this. It annoys me a bit that private assets don't get marked at all. And that doesn't make them less risky. In fact, they're probably more risky typically than a public market equivalent. So that's an arena where I think sometimes if clients are getting lulled into that and then they allocate a little more and a little more, that's another Minsky moment. Keep allocating, keep allocating. Like, wait, how did we get that much in private credit? And that's what can happen. We've never seen that environment. That's what worries me is that sneaky beta that shows up at the wrong time.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Comes down to asset allocation. I started going back to my JPMorgan description as working on asset allocation, not the active side, and I'm a fan of the old Brinson studies that are ancient now, but they're still right, which is asset allocation. And I say that as an active manager, it's going to dwarf what we can do for you. The first thing is all things in moderation. There's no such thing as poison. It's the dose that kills you. So if you're an institutional investor, even if I'm concerned about private, and we were just talking to our client today, they're investing in private credit, but it's in a few percent. That's very reasonable. One positive is from what I can tell, most of those assets are held in strong hands and they're dispersed as opposed to the banking sector. So the existence of private credit and its role, including even insurers owning it to an amount, makes a lot of sense and it's spreading it out into strong hands to where if there is, if I'm right and that asset class was far, far too expensive, the pain gets spread around, which means we don't have”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Many insurers issue what are called funding agreement back notes. Those are policy level notes. They're parapasoo with policy holders. So they're really great market measure of what's the risk of an insurer. And you just see it in that data. The private equity backed have a different spread, meaning a much higher spread than what I'll call traditional. The traditionals are using private credit to a degree, just not nearly to the extent. So to me, there is a riskiness. I'm a big Hyman Minsky fan at the end of the day, right? Stability breeds instability. It's working. It has worked until it spectacularly doesn't in somewhere in our economy. I don't know if this is the area, but it certainly has a potential to be.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's referred to as permanent capital, which I always find that it's a little odd term that your policyholders can call permanent capital. I'm not an insurance expert. Far from it, but we, of course, have credit research analysts who spend more time on this. But clearly, there is a very, very different model for the private equity-backed insurers. A lot of insurers are using private credit to be sure, but the private equity backed are using it much more and other products, whether it be CLOs, and using a lot of offshore reinsurance. that concerns me particularly when they're involved in pension risk transfers where they're selling annuities to take pensions off companies' books. That's concerning because they seem to have a little different risk model. That doesn't mean they're risky. It doesn't mean they're going to default. But that's a space where DOL guidance is you have to choose the safest available annuity. And I struggle with that. And I'm sure they're all very smart and they're picking good private credit securities, but they are inherently riskier. You can't have that big of a free lunch. I've written on this.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Look at the growth of private credit. There's a lot of pools of capital going there that you say it's almost a spread. Their cost of capital is less than what they're able to earn. You also see that happening a lot in the insurance side with all these worlds coming together and love to get your perspective on what you're seeing with insurance costs of capital coming into private credit markets.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe hit the private equity side of things if we continue and rates stay high here. I don't see how there's not more pain in private credit. Now, private credits, there's a huge range of what that even means, how levered they are, what types of middle market. I'm sure there are pockets that are wonderful and great, but that's an area of concern for me in the fixed income markets. But again, I would have told you that almost a year ago, and not much terrible has happened.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, private credit's an area of concern for me, undoubtedly. At this point, I'm either early or dead wrong on it being a point of concern. But when you're loaning to companies at Sofar Plus 500 and that meant you're loaning at 500, right? When Sofar is zero and now that's 950, and there's a lot of turns of leverage on a lot of these companies. I'm surprised there hasn't been more pain. There's been some pain, of course, but I would have guessed we would have seen it by now. There's a lot of areas of our economy that have been really insulated from the Fed activity. Consumers have been, right? Mortgage rates are fixed. Most people have a 3% mortgage or whatever. That was an area where I was like, if there's going to be a squeaky wheel, this is it. It hasn't happened. I'll be the first to admit. I would have thought we'd see more of that by now. I think what I didn't appreciate there is it's always funny to say there's distributions aren't coming back. It's a terrible IPO mark. And I said, why is it a terrible when the S&P is at near all-time highs? Is that a bad time? We're not in a recession. I think it's because now all the earnings, all the E are going to the credit managers.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you have a look into the scale and scope of your clients, $400 billion is only what they have with you, imagine you see a lot of things that happen in the fixed income markets that also could be caused for concern at high level. Love to get your sense of what you see as some of the biggest potential risks lurking out there.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so that's been exciting. We recently actually were just in the midst of launching all things for fixed income manager, a high yield product. We've never had. And super excited about it. It's more of a systematic strategy than a deep fundamental credit. We had a client who just really loved the strategy. And seeding a strategy is hard when we haven't run high yield. So I'm endeared to them forever for seeding this strategy. Actually, oddly, we have two clients kind of funding.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“The biggest probably is how we use our derivative platform more broadly. As clients have gotten to know what that is, whether it be how to utilize it in tail risk hedging programs, I think there's a lot of beta in hedge funds. We have as an investment philosophy, don't confuse alpha with beta. We're very regiment on that. We deliver true alpha, not beta, disguised as alpha. I think there's increasingly a view that some component of hedge fund returns are known inefficiencies and could be inefficiencies in the commodity market, et cetera, that are not extractable and you shouldn't pay 2 and 20 or maybe not even one and ten for it. And so our derivative platform, we've built some portfolios that are effectively hedge fund replacements or components of hedge fund replacements. There's always going to be the hedge funds that you got to pay them everything. They're just that good, I guess. Fine. There's a lot that I think our clients are coming around to think there's a cheaper way to do this and one that I shouldn't be giving up that much of the ups.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, get eight on average for 30 years. That's going to be tough. When the Longbond's four and a half, and by the way, plants typically are down more in a six range now, six and a half, seven percent. These are very achievable return assumptions. Funded status for the public plans has improved. Again, there are some that have some risks. But given where interest rates are, particularly if maybe they embark on strategies, invest a little more in bonds, longer bonds, not LDI like, but just take advantage of the fact that they can lock up four and a half percent or six percent in credit securities for years. They're in better shape too. Have little ways to go, but definitely have improved.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“A year one in a very safe, reasonable asset allocation. Well, the company has use for that. They can give benefits. So the single employer is ups in great shape. The multi-employer had a lot of challenges, clearly, and that has been addressed with the SFA program and being addressed as we speak. And there's a lot of history of what went wrong there. And some of it was just less union jobs, amongst other things, and maybe some other decisions that could have been different. So that's in good shape thanks to government assets, to be sure. And then public funds get always a lot of trouble. catch a lot of heat over their funded status and clearly some are not well funded and there's going to have to be hard decisions in various states or cities but i think the sneaky thing about rates going up is i don't think it's as appreciated public funds don't mark their liabilities to market like corporate plans when we were looking in plans would have a seven or eight percent expected return and they had that on their assets but they used that to discount their liabilities well when the long bond's two and a half i can't wrap my head around how are you going to”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll say three main segments in the DB space. I'm taking that as DB because DC is a whole other challenge. Corporate, the union, multi-employer, and then public pension plan. So corporates have gotten wildly well-funded. They're on average over 100% now. PBGC is more than fully funded. The corporate situation has really gotten to a great place, and not just is it so well funded, it's also de-risk so much. The risk of being underfunded is so much lower than it used to be. virtually every client has some version of a glide path where they've de-risked so when you have a client that's 105 110 funded and maybe 20 risk assets 80 fixed it's hard to get below fully funded even if we had a gfc it's in really great shape some of them got a little more funded than they expected maybe over time and that's why there's discussions and a little bit of action on plan reopenings well i can use surplus and i can predictably chip away and my funded status can go up half a”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“The vast majority of our clients, some were fully hedged, but usually if you were fully hedged, it meant you were fully funded and you weren't looking for any upside. So the vast majority of our clients viewed it the right way, which is not all the way there yet. I'm still on my glide path. This is a great opportunity. And we've seen that in the last year and a half, clients have systematically increased either their allocation to fixed income or they've increased their hedge by adding more derivatives to the portfolio. At the end of the day, our clients have seized the opportunity and hedged much more.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“We manage a lot of long bonds, so obviously our AUM is affected when interest rates go up at the pace they did in a year and a half. The fortunate thing is every one of our clients who are using LDI strategies, completion strategies, derivatives, et cetera, from day one, even though rates seem to only go down forever, we made it very clear this is a hedge. This is not to make money. We're always going to compare it to the liability. And when you're partially hedged, you actually want to lose money on the hedge. You want rates to go up because you're partially hedged. That means the other portion, you're picking up ground on your liability. That didn't happen so much for about 10 years. So a key element was the upfront work before the rates sell-off occurred, which is this is a hedge. This is not a money machine. And our clients, even though at times it seemed like it, rates kept falling. And my gosh, in the financial crisis, we had clients where everything was losing money and this hedge is just kicking off billions of dollars. Don't forget, it's a hedge. So I think that's a huge part of it. And so then when the rate sell-off came.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Depending on where they were in their hedging journey, there's times where there's maybe therapy sessions when it comes down to. Maybe for us too.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we've had this big change in rate environment. I'm curious as you're having these conversations with your clients. What are the needs that you and your team have been addressing over the last couple of years?”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Prove it to others if you want to implement that. And so a big reminder of that goes out always each time we launch one of those.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably still learning on that. I think the one is a lot of freedom. The term servant leader gets used a lot these days. But one key element is not putting the most senior people in the micro battle. Because even though I think we have intellectually humble senior folks, can't help but there's going to be deference to that view. Like so I've never been a member of one, but even a group below me wouldn't be a member because the end of it, I can always get their views on things. That's not what I'm looking for. So a big element is making sure it's just a notch below. Not that there aren't senior people involved, but to where it's individuals where there's no one in the room who's going to have immediately some sense of a proxy of a mandate. I think that's critically important. And then the other is just that reminder of best idea wins, and particularly in this arena, this is not winning arguments. It's not trying to get your view across. It is truly the best idea because you're going to have to come in.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I mentioned those completion engagements. So that's an area that's grown depending on how you measure it, 25% a year for the last five plus years. I mean, an asset management, maybe but for things like private credit. You can't say that about anything. And that's clients looking to hire us to complete the hedge of their liability. And we've had huge growth in both the assets, number of clients, et cetera. It's been great. But with that comes scalability issues. One great micro battle that was done was scalability. How can we quickly scale this product better than we're doing it now? And some of the results that came back were just in a short amount of time, almost full revamps of systems, how we ingest data, the robustness of how we ingest data. It was incredible what the team did. They felt empowered to have impact. That was a really fun example of a huge success.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“That product area, that client segment, but we've had enough really successful micro battles that people are excited. It's almost confidence instilling that, hey, we can do something meaningful and impact the firm. And I think it's a great way to re-inject also that owners' mindset. There's no doubt because you almost give an ownership mentality definitionally in what can be explored. Also, there's a responsibility that comes with that. You need to back it up with data. You need to spend time on something that we think is going to be useful. So we've used those quite a bit over the years and they've been really powerful and also fun just because people get to work with folks they haven't worked with as much before create some great dynamics internally.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Tried before, and you pull a team together across the firm, depending on what's needed, client team, portfolio management strategies generally pulls from every area, operations, often technology, I mean, the amount of data that goes into almost anything we do. So you pull a small team, but you give them pretty much carte blanche and a very short amount of time. And the idea, it's kind of the fail fast ideas like here's what we'd love to have, but as opposed to me making the project and give unlimited time, I'd rather what can you accomplish in four weeks, six weeks? And if you can accomplish something meaningful, but even if it's not the full goal, that's usually better than finding out in a year that I don't know this is going to work. What it does is it energizes folks to be very clear. It tires people out. The term is a sprint. It's a serious sprint. And they're not all going to work. Also, we're very clear that that's okay. That's not a failure. That means we've found something that's not working.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, at the client level, it always starts with the client team, and we've always been great about then pulling in, well, who do we think could help solve this for the client internally? And also, importantly, have a lot of conversations with the client. Make sure we understand it, a lot of looping. Is this what you really want or not? A term that comes from Bane that I adopted, there's this idea of the paradox of growth, that as an organization, you start your nimble, you're an insurgent, you're an entrepreneurial firm. I'd like to think we were all those things. We grow, we're having some success. Great. But as you grow, you get bigger. And as you get bigger, inherently there's complexities, bureaucracy can creep in, and you can become sluggish and less nimble. And so the more you grow, the more it stifles growth. And it stifles innovation. And so one of the anecdotes that we've adopted is the idea of microbattles. And so what those are is when you identify an area where you say, huh, this could be interesting, or maybe it's a new product. Or, hey, we want to see if there's other ways to get alpha in this product, things we haven't.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Some of our clients are near the end of their glide path journey, so there's less de risking to do. We've been able to have another little mini shot of innovation in the last several years now.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“We used to always use the term spigot to open the spigot, close the spigot a little bit. I don't know that we always get that right, but what we knew, a big limiter on the growth of NISA is how many clients can we digest in a given year if we have a little over $400 billion in assets, we have just over 200 clients. So they tend to be pretty large, obviously. And it also almost by inference says we couldn't add 50 clients next year. That's an impossibility. The one way we have managed that is being careful about how we roll out adjacent products. So we have innovative. But at different times, particularly, I'll say times after the financial crisis in the mid-10s where people were de-risking and the phone was close, it could ever be to ringing off the hook, make hay while the sun shines. Let's not be really dabbling in new things. Let's pull in some of the other opportunities and focus less on those right now. And then there's times where, and I think we're in a transitional moment now where there's partly because we've built such a great team, partly.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Development plan would be a wild overstatement. So along the way, we've just upgraded and added world-class HR professionals, people development professionals that we've brought in. And we've laid out, here's what we need. How do you partner with us to make sure they're growing the right skills along the way? That's been hugely successful. Maybe we were a little delinquent in doing that. Sometimes the army gets ahead of the supply line a little bit, but that's been hugely helpful. How”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Means you want long tenured clients. We're not a transactional business. So if you're an owner of an asset management firm, you're not thinking about a deal or revenue this quarter or whatever, the value is winning clients that you have for a long time. So if individuals have that owner's mindset and they're thinking of approaching our clients that way in the Wall Street community that way, what have you, that's going to go a long way to certainly maintain it? And then you start growing. One day you're 100 people and then 200 and then nearly 400. And it's trying to look at what we've done that works and maybe that we've gotten lucky on. For example, career development being candidly honest on this. It just happened. We had a lot of smart people. They'd help other people along in their career. But to say we have like a development.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“I guess I was a self appointed culture czar long before I had any of these titles because I believed in it so much. So there are curses of growth and there's things that make you anxious. First is trying to always have that mindset of still being a startup, an insurgent in the industry is critical to our success. I've taken some terminology from Bain Consulting, which is the founder's mentality, the idea of you want every employee to think like an owner and have the mentality of the original founders of the company. And we are 100% employee owned. It's an enormous competitive advantage of ours. And I want 400-ish people to have an owner's mindset. That's a necessary condition, of course, to be an owner, capital O owner. So the first thing is to make sure each individual, and we hire the type of individuals who have that owner's mindset that they're thinking, what would I do if this were my P&L and the right thing to do? And importantly in our industry, owner.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“You can imagine how those arguments went. They were like, no, no, no, we're whomever. Goldman Sachs or JP Morgan or whatever. They were humbled a little after, so we don't have those arguments. So fortunately, with a lot of work, we got those instas set up at that moment to be collateralized fully in each direction. So we'd post, they would post. And that kept us out of a lot of trouble in 08, 09. And still a scary time in a lot of ways, but that was critically important. And it's not just collateral. There are other terms in the ISDS that gave us rights to exit on downgrade and a bunch of things, but huge amount of attention to detail. If there's one part of our business that's not forgiving to an heir, I mean, nothing really is, but you have a lot of zeros behind some of these notional amounts. So it's systems, it's processes, but most importantly, it's people and assigning the right people and building the right people to be able to run these really complicated and large programs.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Swaps? Can we use just simply the futures market? Should we use both markets? Spend a lot of time upfront with clients on that. And then when it comes over the wall to us, okay, now go run it. Could be a tail risk head strategy or a portable alpha strategy. Then that's where our attention to detail maybe kicks into hyperdrive. Going back pre-financial crisis, we spent a lot of time refining. I would argue our isdas are best in class. Who wants to read an is the document? Almost no one. But before 08, so when this business started to take off in 2002 and 3 and 20 and 2004, we were arguing with dealers on making sure both parties were collateralizing all the time. And that was not the standard. And we demanded we collateralize and we'd collateralize them and vice versa. And they would argue we're AA rated or whoever it was, could have been Lehman, could have been anyone. And we said, in most cases, this is a near, if not fully funded pension backed by a whole nother organization. So we're the better credit here.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's something where you better bring risk controlled there because that is capital L leverage in a lot of cases. First, it's working with the client to make sure the derivative strategy makes sense. There's a lot of things pitched often by the dealer side, Wall Street side that we don't really believe in. And we will go in and talk to clients and we've frequently done this. We put some surgeon general's warnings on things. We're like, here's where that doesn't work. And our clients are smart too. So they may want to proceed with various strategies, but we have certainly talked clients out of strategies. So first is make sure the strategy is right, it's designed right, and it has the right gearing. We're very importantly want to make sure we have the right amount of collateral if you're leveraging something up. Better make sure you have collateral and also what's your first source, second source, tertiary source, et cetera, of collateral. So those are huge upfront discussions. That's part of that strategic partnership of spending time. What are you trying to achieve with this? And is this the right instrument? And do we need to use?”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Achieve a goal of a superior return. But the last thing on how we think about what we really do is we provide liquidity to the broker-dealer community when we're doing this. Broker dealers really aren't dealers anymore. Ever since 2008, as Dodd-Frank came in being enacted slowly over time, the dealers balance sheets have just shrunk to be just a shell of what they once wore. So they don't inventory bonds or many bonds anymore. So as a result, when they're trading and they're trying to make money and they're a fixed income trading desk and what have you, they have a little inventory given our style and how we run, we make it very clear our bonds are always available for sale dot dot at the right price. So we provide that inventory both taking down bonds or selling bonds and it's been really wonderful because the dealer's balance sheets have just vanished and I don't really see that changing with the regulatory environment.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've had clients come in saying, Can you dial up the alpha? I can't eat information ratio. We have really high information ratios and meaningful alpha, but we'll be the first to say we're not going to try and beat a benchmark by 100 to over 150. And so then either be leverage or how can you dial things up in fixed income markets? And I think this is what makes them persist. It's not easy to do. The cost to borrow a bond would make that opportunity go away. On one level, I don't like that because we have this machine and we'd love to lever it up a little and make a little more money on it. And for clients, and that's higher alpha and higher fees. But the flip side of it is, I think that's why it's often ignored is because when you're making other large bets like we're going to get way overweight credit or we're going to get short interest rate exposure, this just seems like rounding. And I think a lot of market participants just leave us alone and we trade it. And so we're not against leverage because we do a lot of that in derivatives. Just to be very clear, I wouldn't want to suggest that. It's just leverage in this case wouldn't be able to.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because it's just too good to pass up. So that has a lot of qualitativeness because obviously if the view is that credit's very risky, we shouldn't play with fire. If the view is no, it's fine. It's just not our favorite credit, then it's worth playing in the name a little bit as the new issue concession comes and we kind of work out of the position.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. Those micro inefficiencies at that level, I'd say, are more quantitative than qualitative. There are going to be some qualitative overlays on things like this bond really doesn't trade that much. Maybe that's a little quantitative looking at liquidity. What is that worth? But that's going to be highly quantitative. There'll be other things that are less, there are times when we'll trade between issuers. So of course, now that's not certainly no arbitrage in that. The other beautiful thing about the bond market is people have to come back and issue them because they mature or there's M&A. So you could be looking at two issuers, you know, Verizon and AT&T and maybe our credit research folks have whatever views they have. They like Verizon and dislike AT&T or vice versa. But if one's coming to market, that deal has to clear that day. And so those are times where we may step in and be a liquidity provider to the street, take advantage of new issue concession, and maybe opposite our credit research views on the name for a little while.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sexy. I don't need to go on to CNBC and say, here's what my rate call is because we think those are really, really poorly compensated risks, even if you get it right more than you get it wrong. Whereas this grinding hamburger, as we call it, it is a repeatable style.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“And we can take advantage of those. They're not wildly profitable on a given trade, but there's a lot of them because it's this big universe of bonds out there. Rinse wash and repeat a lot. And you can generate real meaningful alpha. In some cases where you're moving from one bond to another, you've changed no risk factor. And now you own that issuer a little cheaper. That's about as high an information ratio trade as you can get. It may be tiny in the alpha, but do enough of those. It's meaningful. We do other areas of how we enhance, but I think that's one area where you specifically strictly over-to-the-counter market like the fixed income market, we can enhance. We do that in treasuries of all things. We run an active treasury product that has lower alpha expectations, of course, than credit, but we don't use out-of-index securities. We're not betting duration. A big portion of it is taking advantage of little disturbances in the treasury yield curve that exist. That's really, really hard work.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're believers more in market efficiency than not, but it has to be somebody out there that pushes things to market efficiency. So maybe I'll take the fixed income side first. So I guess the academic term would be price discovery. With fixed income markets, it's a strictly over-the-counter market. There's no exchange that tells me what Bond A is worth or bond B. And the other beautiful thing about the fixed income market is virtually every issuer has many, many issues. You can think of the U.S. Treasury. Well, we have too many Treasury issues right now, but whether it be AT&T or Verizon or Ford or whomever, they have lots of bonds outstanding and they all trade at a little different spreads to treasury. Sometimes it makes sense. Sometimes it doesn't. I think one of the secret sauces, if there is one, how we generate alpha.”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've seen an uptick in using various derivative systematic strategies or what the dealers call QIS strategies as a liquid alt-type strategy or hedge fund replacement. So that's a huge range. We could talk forever about we're a custom business across the board. That's really custom. Very, very custom. What do you have to?”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source
“Using derivatives and bonds there in those completion engagements to complete a liability hedge. So again, our clients are pretty large. So they allocate to manager A, B, and C, and NISA in these completion engagements, they are custom bond slash derivative engagements that complete a hedge. So you can leave manager A who their preferred habitat, they just want to run long gov credit or long credit. Straight benchmark. We do that too, but no shame in that. And you have a couple of those managers, maybe us included, and then we run the completion portfolio that then adds to the hedge adjust yield curve exposures to target and match the liability to whatever extent 75% hedge, 100% hedge. So remove whatever portion of the interest rate risk. So about half of our overlay is in that realm. The other half is everything else, ranging from beta overlays, old portable alpha strategies, rebalancing strategies, tail risk hedging strategies, trend-based strategies. More recently,”
2024-09-02 · Capital Allocators · David Eichhorn - Serving Clients and Reducing Risk at NISA (EP.403) · IDENTIFIED FROM THE TRANSCRIPT · source