YouSaid · the spoken record

David F. Swensen

lines on the record: 95
first: 2017-12-18
most recent: 2017-12-18
sittings or episodes: 1
sources: podcast

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“We were talking about this paradox of skill. That what matters is not absolute skill, but how the competitive landscape, how talented are these managers relative to one another, because it's in some ways a zero-sum game. So we've got lower and lower relative skill that costs more and more because of these industry dynamics. That seems to me like if you were just an alien landing on the planet like a recipe for disaster, that this environment could crash in a way that markets crash where like everyone wakes up and realizes this is insane. We're paying more for a lower probability of achieving the thing that we think of hedge funds as delivering. Do you think that that's possible? Is there a scenario where this whole kind of hedge fund world just comes crashing down? Maybe it started already.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things that we talk about a lot is this idea of active share on the long only side and adjusting fees for active share. So if you're running a closet index fund and you're 30% or 70% overlapped with the S&P, the fee that's being charged on the active portion is a lot higher than it looks at the stated management fee level. And we see this with this whole phenomenon of smart beta where smart beta might be the industry's way of capturing a little bit more rent on the world's invested assets. But effectively what a lot of those things are is 70 or 80% S&P, 20% something unique for 30 basis points, which sounds low, but when you do the math on the active portion, it's approaching a percent. It's always important to dive into what are you really, what are you really paying for? One of the goofy things about all this, and I hadn't really thought about it until you just described it that way, is when Michael Mobison was on the podcast,”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“And 80 or 90 percent, probably 90 of the return investor gets is really just the market return. So there's a 10% active risk and maybe a heroic long-only manager used to make 1% a year. Well, you're actually paying, you know, let's say Vanguard charges 15 basis points. That's probably generous. It's less than that. You're paying 70 basis points to get 1%. And so the active equity world that people are still comfortable with charges egregiously high fees relative to true value add. And it makes the 20% hedge fund fee if it's appropriately calculated actually a fair deal.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're growing at a fixed management fee, the cost of acquiring talent went up because larger and larger hedge funds could pay more and more people. So then you could ask the question, wait a minute, as wage inflation something that is driven by the cost of doing business? And it has been. It's just been a reality. I don't know that that changes. So it's a difficult question because the founder doesn't have to get rich. But in fact, they have to pay their people so much that it looks like the people that are working there get rich. And then the other comparison I think a lot about is let's talk about a traditional long-only mutual fund, a big shop, active manager that data has shown is really indexed.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Happening on the fee side. Let's start with the baseline. And I think the appropriate baseline for hedge funds strategy is a management fee that roughly covers the cost of doing the business. It's a tough definition, but it covers the cost of doing the business, including salaries, but not get rich salaries, sort of stay in the business salaries. And then an incentive fee that rewards those people for taking risks that can't be achieved cheaply in the marketplace. For a long short equity fund, that might mean that a management fee, again, we'll come back to that number because there's some interesting dynamics in what the cost of running the business is. And an incentive fee that might be tied to the return excluding the beta sort of in the strategy itself. It could be 20% of that's a fair number. Let's talk about two pieces of that. The management fee, one of the things that's happened in the last 15 years that I don't think anyone anticipated was as assets came into hedge funds and hedge funds.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“I've thought a lot about this about what from the perspective of the investor, what would be a truly fair fee, right, for an active strategy. And there's all sorts of things that could be, it could be the lowest overall management fee, and that's it. It could be, I've seen 0% management fees with higher incentive fees, maybe managed over a longer term cycle. The problem with those kind of arguably innovative structures like that where there's a cleaner alignment of long-term incentives is you got to run the business and you need to attract talent. So what if any unique fee structures have you seen either implemented successfully or at least in the discussion phase that you think are intriguing beyond, say, low management fee or the traditional one and a half and twenty? Is there any innovation happening on the fee side?”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“High yield, but the underlying activity is so much different. Almost impossible in macro and CTA type investing to say, what's that other than a trader's edge? And maybe that is worth 20%. But as the fees of what's truly excess return come in, I think you'll see more and more of the fees come in. The challenge is today there's two or three trillion dollars invested at an embedded fee structure. And it's going to take a long time for that to evolve. So to give you an example, I had a conversation last week with a very dear friend of mine who runs a multifamily office, and we were talking about a mid-market distress fund. And he gave me all of the reasons why it wouldn't make sense to pay a 20% cent fee for the activities that they had. But at the same time, he had two 15-year-old relationships with very large distressed firms where he's paying all that and probably getting much less value added. And this is one of the smartest guys I know in the business. And so what you see, I don't know if that's a big.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so that's where we stand today. If I had to guess and look 10 years out, because I think that's looking at the long game of this is what's most relevant, it always baffled me that a hedge fund, let's just simplify it, let's call it a long short equity fund, because that's the easiest for comparison. A longshort equity fund that's charging $1.5 and $20 a day in some senses competing with a long-only fund where fees have also come down in active management, and maybe that's an 85 basis point or an 80 basis point fee. And the only difference is there's a pile of shorts that have added very little value over the last couple of years. So I think what you're likely to see is 10 years from now, there'll be an active management fee on the long side, and the hedge funds that are charging a 20% incentive fee, they're really going to be charging a fee on what's truly value added. And that will get measured in lots of different ways, in an equity world that might be alpha. It's a little bit harder in a strategy like, say, distressed debt where maybe there's some correlation.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Just getting there was okay. Clearly that's changed and people understand more and more what it is they're buying. You have firms like AQR who have made it a business to try to educate investors and show them the components of a hedge fund and then give them a cheaper alternative to get access to some of those components. So as those things have happened, you have more scrutiny over fees. Some of the scrutiny is simple and is backwards return looking and saying, you know, let's say the number's one and a half and twenty, that's probably about right today. That's too high if a hedge fund can only make 6%. And that's fair because some percentage of what you're paying out. And that's not reflective to what's that 6%. Is it 6% alpha? Hey, that's pretty good. We're in a 0% interest rate environment. Hedge funds actually have to pay to play as opposed to in a 4% or 5% interest rate environment like in years past.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's just start by calling fees what they are, which is a clearing price for supply and demand. And what's happened over the last 10 or 15 years is that the investors have gotten more sophisticated about what they were buying. So part of the reason, if you looked pre-crisis, the fund-to-fund investments in hedge funds constituted something like 50 or 60 percent of all the industry's investments in hedge funds. And that was probably higher, certainly higher than the long-term natural audience for fund of funds. But the reason was that hedge funds had this sort of opaque quality and the governance boards of pension funds were afraid of hedge funds, and so they thought having a blocker would help them. And so just that simple part of what's a hedge fund, or that's something we want, in part thanks to Dave Swenson's book and sort of the stamp of approval that he and CalPurs when they invest in hedge funds for the first time in 2000 gave hedge funds. So you had this period of time where”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's amazing how sales ability and narrative building ability can really affect the outcomes. I guess this is true in every business, right? But certainly in this one as well. Tell me what you think about the state of fees. This is probably the most important question. One of the things that really struck me in your book was, well, two sides of the same coin. One, that every single thing has been tried. You know, there's nothing new under the sun, so to speak, that every combination of incentives and deals and strategies, someone's trying it. And they may have failed and it might still work in the future, but you don't probably have a novel idea. And then the second thing is that from an allocator's perspective, they've seen it all. And yet the fees in aggregate charged by hedge funds, I don't know exactly they are. Maybe you have a better idea, but they're high, obviously, relative to an S&P 500 index fund.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Great question, great adjective. It's essential. The people who do raise money are the ones that not only have some proven experience or pedigree that show that they're likely to generate returns in the future, but also have charisma. They are able to connect with people. They are able to understand other people's needs and have a product that sort of fits into those needs. And more and more, they tend to be likable. I think that allocators would like to sleep well with the partners they have, knowing that everyone's investment.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so it seems as though launching into this environment and this trends toward the trend toward, we'll call either passive or low cost, I guess you could similar outcomes here, is secular, right? In 20 years, it's going to be a lot higher than it is today. So maybe touch on the role of charisma in raising money and in having a successful hedge fund launch and ultimately successful hedge fund business.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“What you see is that fewer and fewer funds each year are able to get traction and grow. And the ones that do have everything right. So they have the right pedigree. They might have the right track record. They might have the right initial investors. They might have the right strategy, which doesn't mean it's their particular strategy. It means that in the last two years, the investment area and the strategy they're pursuing happens to have done well. And those tend to be the funds that grow. But again, there are fewer and fewer of them. And I think that's probably more of a secular change than just a cyclical one for the hedge fund industry.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think you laid it out well in how much more difficult it's gotten over the last couple of years. To give a broader, a little broader perspective so people understand, one of the things that always shocked me in seeding hedge fund managers, specifically to talk about long short equity, these people are in the business of analyzing other businesses and industries. And yet almost never would turn and say, what's happening in this industry? And unfortunately for people who want to start, if you did that, what you would see is a mature industry where the demand for the marginal hedge fund is much lower than it used to be. And one of the things that's been sobering in the year after I left protege is the number of people that reach out to talk about some aspect of their business or strategy. And underlying all of it is this desperation for how can I raise money. And I really wish I had a silver bullet, but nobody has a silver bullet because this is a question of supply and demand.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“So now this is obviously a huge issue. There's 7,500 hedge funds and everyone wants capital. It's hard enough to get in front of one of these cedars, the small handful that there are, who probably don't do that many deals in a given year. So a lot more demand for capital from these people than maybe supply. Can we talk a little bit about raising money? Being in this business, having done that aspect of this for a long time, it's harder and harder, a lot harder maybe than even five years ago because of pressures from just going passive, right? So I was at Vanguard on Friday, which is an incredibly incredible place and their frugality is inspiring. And I want to get into fees after this. But what do you think the current state is of fundraising? If you're one of the 32 to 38 year olds that you kind of describe as the archetype in your book of people looking to start their own fund, how should they think about it?”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, you know, I was fortunate at the beginning of Projay that I had a business partner who had managed money for some wealthy families and had some terrific relationships. And through those relationships, there were some initial capital that came in and the family he had managed money for and a couple other families. And then early on, we took on a seed investment from a large, I think it's public, University of Texas, back in 2002. So the combination of that got us off to a flying start. Just went from there.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“On operation, something in operations could go wrong, but more likely they spent a little bit less time investing. The results aren't as they seem, and then they blame it on the operations. I think operations are similar to going to the dentist in that when you go to the dentist's office, you have expectations. And the very best a dentist will ever do is meet your expectations. But if the dental hygienist tweaks your gum or something like that, people hate their dentist because of that. Hedge fund operations are the same thing. The investors have no patience, especially in this day and age, of anything going wrong. And so it's incumbent on someone to make sure the operations are done properly, if not best in class. And that, again, just takes some time and attention away from what would be sort of full-time investing.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“The business side is always an issue. It's a question of what type of issue it is. I think that there's really, you could probably break it down into two components. One is operations and the successful running of operations. And the second is the time allocation it takes to build a business. And on the former, there was a study that said 50% of all hedge funds fail because of an operational, something in the operations that went wrong. I always thought that was a bit of a simplification of something that was actually happening. So what tends to happen is that someone who's used to dedicating all their time to investing now has to take a significant percentage of their time and either build or oversee operations, build, manage people, spend a piece of their time talking to clients or trying to raise money from new prospects. And that diverts some of their necessarily diverts some of their time and attention from investing if they don't spend the time”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let's get into the business part a little bit because obviously you need someone with investing skill if they're going to ultimately be successful. And we could, of course, debate whether that skill exists at all. But assuming investment skill and let's say even a repeatable process, which is kind of seems to be on everyone's checklist these days that it can't be a shoot from the hip instinct sources' back is hurting kind of manager. How often was the business side of things an issue in early days?”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Hedge funds for one reason or another gave back the capital and want to get back in business and getting back in business capital is so scarce they look for cedars. So there's all kinds of now you tend to have experienced portfolio managers. In some instances you even have people who have built successful businesses in the past looking to do that again.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's a people business, so ultimately you're making an assessment of the individual typically that's about to lead this organization. I think if you're simplifying it, you would look at, is this person a talented analyst? If they are, are they going to be a talented portfolio manager? If they are, are they going to be able to build a business out of it? There are many, many things you can imagine that go into the assessment of each of those. And there's also a function of the environment. So again, when protege started, you didn't really have a lot of people that had experience as hedge fund portfolio managers. So oftentimes you'd have someone spinning out of a big hedge fund in quotes, then big, probably the largest were probably $1 billion in assets. And that analyst typically never had real training as a portfolio manager. Today, you see not only people who have maybe managed a sleeve at a big fund, some people who have started their own. At times you have people that have run successful.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let's get into the particulars of what you looked for, checklist items of your own, if you will, commonalities across the managers with whom you've made investments. If you had to kind of start maybe for most important and we'll work our way down, what were the most important attributes of a potential?”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. It's been an interesting development over the years because in the early nots when we seeded we might put 25 million into a fund and today those tickets are probably $7,500, $150, but the economic, which would tend to be revenue share, didn't change much at all. So in a broad range, I would say that it's probably 15 to 25% of the top line that a cedar takes in exchange for providing that initial capital tend to pay full fees, but then receive that revenue share as sort of a discount on their capital and that those economics might stay the same or they might change with the growth and success of a firm sunset. There's all kinds of different clauses that go into those arrangements.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“More of what, and this may be changing now after my time there, but more of the investing we did was predicated on a little bit of what I experienced at Yale. So more fundamentally driven strategies tend to be equity and credit focused.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would define it quite differently because protege's investment model was one of trying to achieve a certain rate of return relative to the risks that the investors were taking and in a diversified hedge fund portfolio that was relatively modest risk. So we used to define success based on the rate of return of the fund we ceded, not whether they achieved great commercial success and therefore added extra returns. The seeding was a way of defraying the extra layer of fees that Protege charged their investors. And to that end, it was very successful. The easiest way I could measure it was comparing the funds that the returns on the funds Protege ceded to the returns on the funds that Protej invested in that weren't seeds. Because if those returns, if there was no real cost to those returns, then you're achieving this potential upside for free. And that fact is what happened over the years, that more or less, it was very hard always to create apples to apples comparisons. But for the most part,”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's a really interesting question because when new hedge funds look to get into business, they think of seeding as a great avenue to start their initial distribution strategy. In fact, there are no more than a handful. And you can effectively name them. It's Blackstone Reservoir Protege, Julian Robertson, Groverner, the Fun Fund, Chicago, is doing some of it now. And there are families here and there that hear about family offices that do that around the world. But for the most part, there are very few cedars. There's a fair amount of capital there. Blackstone has a lot of capital. Reservoir has a lot of capital. Proge has a lot of capital. But there are very few entities who seed hedge funds, which makes it difficult because there are so, so many hedge funds that are trying to get into business. It makes it very competitive landscape, even to attract the seed capital.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let's define seating. And many people would say Yale was a cedar, but in fact they didn't take economics. Economics. Protege did take economics, does take economics in the funds they ceded. In my 14 years at Protege, we ceded about 40 different hedge funds.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Called beta, whatever you can get exposure to in the markets. But that was one of the things that Yale did very early on, very successfully. And the combination of being early and important allows you to set terms. And that's something that I worked with in the seeding business for a long time. If you want to go invest in the two, three, five, ten billion dollar hedge fund today and be the next marginal investor, you're always a price taker. But when you invest early on, you have the opportunity to be a price maker.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it doesn't make a whole lot of sense to pay 20% on the four. And so in the early 90s, Yale systematically went out and imposed cost of capital hurdles on their managers, and managers who understood those economics, most of which did, they were the beneficiary of it, would do something reasonable because the supply and demand wasn't stuff that they couldn't then just say, well, if you're not interested, someone else will be. In fact, there really was excess supply of quality hedge funds compared to today where there's clearly excess demand. And so that doesn't matter that much today when rates are zero, but at some point in time, it may not be for 100 or 200 years, but at some point in time, we'll see four or five percent interest rates again. And it'll be interesting to see how the allocators respond, because the notion of lower fees and the notion that we're paying too much out relative to the return is a little too simplistic because it's not really considering cost of capital. It's not really considering what's value add versus.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's start with the fact I'm very dated. Fair enough. I left Yel about 20 years ago. But some of the things, some of the examples that I think are very relevant today and not particularly talked about. So let's just start with hedge funds. In the early 90s, short-term rates were mid single digits. Seems anathema today. And a hedge fund structure, back then it was one in 20. So let's forget about what the media says today about 20. At a 5% short-term interest rate, someone goes along the S&P and short the S&P and they make about 4%.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. I mean, Yale did not ever take economics in businesses. However, they often were very early, I'm not sure about first or very early meaningful in the success of many of the funds that people know of today. And I think that's consistent with how David views the world, which is he doesn't want to invest in an investment organization that has outside ownership and therefore he would rather just negotiate a better discount for Yale than to impinge on what he thinks is the optimal structure of an investment organization. It's clearly worked very, very well for them.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“duration to actually pull that off. And so in this day and age where it's very, very hard to get a new investment business off the ground, people have to be a little bit more flexible about how they're going to access capital. And so they can't necessarily just do exactly what they would ideally want because very few of those people end up succeeding.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that being out of that environment gives you a little bit more of a sense of what happens in the real world. And so Yale has the benefit of having a tremendous amount of capital, tremendous credibility with their board and their governance structure that allows them to invest early on. And so many of their investments are with relatively nascent funds. They can be so large and so important that they can effectively make the success of a firm and then structure that firm so it can best succeed. Long duration capital only really letting in certain types of investors. And that is no doubt one component of Yale's success and something that works really, really well. The problem is if that were the case and that were the only way to get into business and have a successful business, you'd probably only have 20 or 30 investment funds in the world because very few people have the alignment of, they have the capital, they have the governance structure, and the patience.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“For any Circle back on one that is talked about very broadly today, but nobody talked about 25, 30 years ago, which is creating a fair deal with managers. So in the hedge fund space for sure, you hear a lot about fees. You don't hear a lot about what should be an appropriate fee structure between a manager investors. You just hear the fees are too high. That was something that David and the team thought about back then. And in fact, almost all, if not all, I'm not current, but presumably all their hedge fund investments have a structure to them that make a lot of sense and any investor would love to be a part of. But they were able to do it by having a first mover advantage and being there. So that was certainly one of David's big ones is independent ownership. I have my own views on that, which have evolved being in the seating business doesn't have this. The notion of independent ownership is as an investor, you want all of the money that you're paying to go to the management team of that fund.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Relative to the liabilities of an endowment, which were next to none. And then the implementation was a lot about sort of how do you understand who's in your network and what your competitive advantage is. And then how do you decide to go about who you partner with and how do you do it? And what Yale did really brilliantly was create a set of rules that they thought, generally speaking, are conducive to success and investment management and with very few exceptions stuck very rigorously to those rules.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there are a few things that are probably undercurrents in his book but that are broadly applicable to any form of investing. So the first is having a structure and a discipline to understand philosophically what you're doing and then what strategy you're implementing to execute on that. And so for Yale, that was a certain asset class structure and a very rigorous rebalancing methodology, which was something back in the early 90s that endowments and foundations around the world didn't have really if there was an asset allocation, it was a 60-40 mix. And what you would see was that there'd be this theoretical 60-40 mix, and two years later you'd look and the assets would be 70% equities and 30% bonds, depending on what happened in the markets. And that rebalancing strategy is really a disciplined form of buying low and selling high in assets relative to each other. So there was the overall structure. And for them, it was an equity orientation and the importance of diversification. And that was really...”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“To kind of go back to that particular style of investing and have an ownership stake in a business where all these people wanted to talk to me about hiring me to join a fund of funds or join another endowment or foundation because of my background, I figured it was an opportunity to try to monetize what everyone else was looking at. So I did that back in 2001, 2002, formed what became Prot ⁇ g ⁇ Partners, which still is a hedge fund of funds focused on investing in smaller funds and then blending regular kind of fund to funds investment with seeding of new hedge funds.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“I graduated from Yale back in'92. And it was a time where we were coming out of a recession. I remember interviewing at Wall Street and Goldman Sachs Investment Banking Program had 18 global analysts. I think that's changed a lot over the years. I got lucky enough to be the one person that Dave Swenson kind of hired from my class to go work with him at the Yale Endowment. I did that for five years. And that was really my formative learning experience in investing. It was a certain style of investing. It was really investing in managers, cross-asset classes. And thought I'd stay for two or three years and go to business school. I ended up two, became three, became five. And eventually I felt the call to go to business school. I went to Harvard and then did some direct investing for the couple of years after that. And during that time, David had written his book and this obscure background I had now became sort of famous. And I had an opportunity.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things that always struck me about Campbell, so basically what he did was study mythology stories through history and across cultures and found a very common, he called it the monomyth, like the same exact storyline that kind of is the undercurrent of all these.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, the aphorism that Michael used for the hero's journey, he calls it Be the Hero of Your Own Life. So it's really an experienced designed around trying to get a deeper understanding of what it is you want and how to live your life really fully and be truly alive kind of every day. The experiences they create are there are some elements of nature and being there and some elements of just processing where you are in your life. And the one that I've gone to, they have them for men and women, but it's just a group of men come from all over the world with no rhyme or reason to why they're coming at that point in time together. But it's an experience unlike anything I've done before.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fantastic. Thanks for asking. A couple of years ago, I went through a period in my life with a lot of change and a lot of challenge. And a good friend of mine had once mentioned something to me called The Hero's Journey. I didn't know what it was. It just registered my brain as something that sounded cool and I wanted to do. And so when that was happening, I reached out to him and said, what was that thing you were telling me about? And he told me next to nothing. And I ended up going on a retreat to the mountains in West Virginia, which was a week-long, completely disconnected no phone, no email experience set up by a psychologist in Pittsburgh named Michael Mervos based on the work of Joseph and an experience based on the hero's journey itself. And so I don't like to say a lot about it because it's really something everyone should do if they get a chance and they feel the calling to do that. It's a really a transformative experience for me.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Since that day, Patrick and I have had a chance to spend a lot of time together, and he's become a great friend and confidant. I've said more than once that meeting Patrick was the single best thing that came out of my writing the book. He encouraged me to start capital allocators and promoted the first episode to his massive audience. We subsequently recorded two other conversations. For the first, I asked him to interview me about the Buffet Bet. If you haven't listened to that already, you can find it either on my feed or on his. In the second, Patrick interviewed me alongside our friend and star microprivate equity investor Brent B. Shore. You can find that entertaining conversation on an early episode of Invest Like the Best. If you haven't already subscribed to Patrick's podcast, I strongly recommend you do so. It's the only podcast that I listen to every single week. Please enjoy Patrick's Conversation with me.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Everyone hope you're gearing up for the holidays and are ready for an exciting leap into the new year. I've received several emails over the last bunch of months asking for my take on the investing world and the topics we cover on the show. Fortunately, I've had a chance to appear as a guest on a few other podcasts, and I thought I would share some of those conversations here from time to time. So to close out the year, the following conversation about hedge funds doubled as my introduction into the world of podcasting. About a year and a half ago, Patrick O'Shaughnessy interviewed me to discuss the book that I wrote on his amazing podcast, Invest Like the Best. The discussion quickly turned to a deep dive on hedge funds, past, present, and future.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source
“Hello, I'm Ted Sides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can keep up to date by visiting capital allocators podcast.com.”
2017-12-18 · Capital Allocators · Deep Dive into Hedge Funds (Capital Allocators, EP.34) · IDENTIFIED FROM THE TRANSCRIPT · source