YouSaid · the spoken record

Julia Bonafede

lines on the record: 73
first: 2021-07-29
most recent: 2021-07-29
sittings or episodes: 1
sources: podcast

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“Thank you, Jimin. We obviously wouldn't be here except for you, so we thank you and we thank you the entire Verger team. You have an extremely talented group of people working with you. So you are a great leader.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's interesting because learning the difference between joy and happiness, there's a huge movement of always being happy, but you don't get to always be happy in every circumstance. Can you find joy in every circumstance? And can you help others find joy? Because truly you only find it by helping others. You never find it when it's about yourself.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I had the great fortune to be born from two entrepreneurs who I always called it babies raising babies because, you know, they were young, I was young, and it was being along with them for their journey. And it was always pretty basic with my brother and I. Don't hold a grudge, always leave something better than you found it. Never judge a book by its cover because there were always people as people, as individuals matter. And if you judge them, you could miss out on a huge opportunity. A fool in his money soon part. That was a big one growing up. So work hard. Work hard and love what you do and great things will follow. So that might sound like platitudes or aphorisms, but I heard a lot of that growing up.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Giving thanks Pray, I think that understanding that again, I can't say it again that life is precious and every minute counts and being joyful in every circumstance. Important. Not always easy.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are today, so to me, it's really paying attention to everyone in an organization and not just the higher. And it's hard because when you're in a leadership role, you have so many commitments on your time, but slowing down. And then I think the other key trait is always being thankful. You have to be thankful. This is such a great business and the great leaders that I've seen truly understand that it could have been anyone else at any given time for any given circumstance and I never ever feel that a great leader has gotten there on their own. There's a circumstance and there's a lifting up and appraising that needs to happen in your circumstance that can go away in a second.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“The best leaders are the ones that really take time to understand who is supporting their ability to be a great leader. There's so many people in an organization that are working together for the greater good. And if you're a great leader, you've most likely you've built an organization where everybody has buy-in, the rowing in the same direction. when inevitably the business goes through whatever cycles it goes through, everybody feels engaged and has the ownership to want to see it through because there isn't a single great leader out there that hasn't been formed by either an adverse circumstance or just an army of people and mentors that got them where they were.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because the return profile is unique and it does diversify a portfolio. So there are investors out there. I know there are, but we have to keep telling our story.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's difficult to onboard a manager in general, so I think probably the biggest hurdle to overcome is when we're an emerging women led manager, so there's a lot of assets that are looking for opportunities to be able to help firms like us grow. However, the cost to doing so is pretty large. And so if you think about these investment programs and the number of managers they have and what it takes to switch something out, it's better if what they have is doing the job for them because all that research has gone into that already. So we were talking about what's the most interesting client for us and it's those that really have the time and the bandwidth to get to know what this technology is and what we've built so that it can work for them.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a correction that you're going to lose whatever percentage or value and have to start over. It's this ability to compound better because first there's no entry point. You can start gaining the experience of the model in your portfolio from a rebalancing standpoint. It's a great place to rebalance into because it's not correlated to bonds. It's got lower correlation to equities and it's got a little in most cases half the risk.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's interesting because one of my former colleagues who they're working on a pretty revolutionary asset allocation model, they analyzed our strategies and they said, oh, you're an equity replacement, you're an equity diversifier. And I said, yeah, but our product's short. So I don't think we can be an equity replacement. And she says, well, okay. So absolute return then. And I think that's exactly where it is. Think about it from your chart. When you rebalance, it's a terrible place to be in right now. What is the least worse rebalancing decision that I have right now? And from the really interesting attribute of our products is there's no entry point because the models are trading in the environment they're in using all of the past experiences, but you can still earn the return without worrying that you came in at the highest level of assets and that when”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Everybody, but at the same time getting to see the other seat, understanding how difficult it is to make these decisions. So I've been blessed to be in multiple seats, and so I've enjoyed every minute of the industry. And so I know that managers are really trying to do their best and clients are trying to do their best. And somehow we'll all get there. But at the end of the day, we've got to be there for the beneficiaries of all of these funds.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“For sure, humbling. I hope I didn't make anybody feel too uncomfortable. I think it was because of all of my time spent in analytics in investor portfolios that I had maybe a little different view in terms of how clients were looking for strategies. You know, sometimes the marketing engine can be very strong. And remember from a fiduciary standpoint, that role is the primary role. You're there for your client. And if you're not fighting on behalf of your client, you're not doing your job. And so I completely get it when talking to allocators or doing the best in their seat that they're trying to do. And I expect it. In fact, when we finally get to where we want to be, it's going to make it that much better because we've been able to not only promote a technology that's going to transform asset management and it eventually help.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“One thing that struck me was that the markets aren't moving linear anymore. It seems like they are going only up and to the right, but there's so many different variables involved in the market processes that we're dealing with from fixed income to real assets to liquidity to interest rates. All those things are linear. So for us, it seemed like a no-brainer to have artificial intelligence kind of think about can we take our hands off the wheel a little bit and let the car with all this computing technology on the portfolio run a little more efficiently and we're not going to turn the entire portfolio over, but I do think there's definitely a way to get there faster with some technology given all the computing power that's come to bear. And you see it everywhere. So we're very excited about Rosetta and its future. Maybe we'll shift a little bit. You were well known for being pretty tough on managers during your career as a consultant. What's it like being one now and raising capital?”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“As it learns to maximize the war, the model I don't mean to give it human characteristics, but it will moderate risk because it can see that taking full advantage of the underlying patterns may not lead to the best reward. There's no other optimization process in the world that can do that. I mean, think about autonomous driving. The speed of information that has to go from the bumper sensors and from the surrounding cameras and to be able to understand stop when you stop, turn left, turn right, don't run into a tree, don't run into a truck. Think about processing all of that in real time to make those decisions. We don't manage a real-time strategies, but ingesting daily data into our processes gives a whole new outlook on what that new decision is going to be. And the model can take all of that into account.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is truly looking at not the different inputs, it's looking at the probability of the combination of those inputs maximizing the best set of those constantly with each new data that it receives. It's truly multi-period, not just most multi-period optimizations use the same framework to build that decision. Optimization process itself with reinforcement learning is the state is changing, the reward is changing, the probability of those relationships is changing. It's performing a multiple set of optimizations in a dynamic way to give the best prediction and the best timing of that prediction, which is why we see the moderated decision making.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“But I don't look at them really as a competitor because if you see how they performed during March and April 2020, they faltered with all of the other quant managers and the products that they were selling to clients. So I think that's a good indication of what happened in March and April, that that ability, and had the Fed not stepped in, you probably would have seen the true aftermath of what can happen with concentrated investments in the same kind of relationships and the same kind of data. So the power of what we're doing from a technology standpoint is”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we decided to focus on the technology when we started. So could we build machine learning, but we're using the very frontier of it with deep reinforcement learning typically it's interesting the term machine learning has been adopted and it does actually apply to traditional processes so you have to be careful when someone says machine learning they could just be using a traditional statistical framework to identify a relationship and so firms that have been on the forefront using this they've gotten comfortable with the data sets that they use, the relationships they identify the one that you mentioned is always referred to as not allowing their clients to invest. So they only invest it for themselves and they have to clear it every day because they don't want to move the market with the size of the funds. So I admire that they've been doing that for so long.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“We can to educate investors so that they can become more comfortable with it. Because really, if you think about how rudimentary the other processes are that literally trillions of assets are invested in at this point in this seat, I'm not quite sure why everybody feels so comfortable with their current frameworks because again you could index and pay a lot less.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a difficult from your seat to watch an investment manager struggle through a market cycle that really they should be outperforming and always the biggest sin was we changed our process. And so in the case of these types of models, they are changing their processes, but you really can't say this is why they're making this decision. You have to spend all your time in the back end understanding that you have designed and created a very robust model with the best scientific principles and controls so that you can allow the model to make decisions without interfering from a human standpoint. You can see where from your seat that would be difficult. But the fact that they perform and they perform with lower risk is really how you have to make the decision. And we try to be as transparent as possible.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I'm constantly thinking about what kind of client is going to truly be able to see the power of a neural network or a deep reinforcement learning to be more specific to take that chance because I compare against other managers in the absolute return space. Really it's come down to can we just not lose money? And so being able to actually earn a return at a lower level of risk is the unicorn, but that's really what a deep reinforcement learning model does. is important. You've watched it now for three years.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Learn one thing, two things with you, Julie. The first thing I learned with you when we started this journey a couple years ago was that I had to forget everything I learned about monoportfolio theory. I'm still learning that lesson, but I think the other thing I learned was humility, right? I think that the emotions that go into managing assets are a big driver of your success, your mental well-being, your portfolios, your clients, how they feel about you. When you think about the humility that goes into asset management and you go into thinking about the emotions and all the behavioral stuff that goes into it, what role does neural networks or machine learning have in that conversation with clients?”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's going to have to stay in places like absolute return because really what these models are capable of, there's going to take a lot of research, but they're shorter term right now eventually the research will change to longer term, but the amount of alpha that can be captured in this dynamic decision making and reward maximization that it learns. That's the really interesting part is these relationships change in the optimization function is changing because the underlying relationships are changing and it's all in one process. I think it'll get there. And thanks to you, Jim, for being forward thinking and to understanding what these future themes are and how it's going to change the industry, you know, it'll take pioneers like you.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you think about just how an established asset management firm, the level of verse, they're under a great regulatory scrutiny, so their processes tend to be a little bit or a lot structured. And so getting a new idea through to a new investment strategy into a client's is all going to be driven by, well, what are the economics? So greenfield asset management projects that require a certain skill set that typically you really have to spend a lot of time to understand, that's difficult to get through. I mean, there's been some very notable examples where the attempt is being made, but the actual application hasn't made it through into the investment process. And how do you go tell clients that, well, we're completely changing our transparent process into a model where we can't interpret.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“A focus, but all of the skills that are being taught are based on modern portfolio theory which all of those nearly all of those equations are in an APT framework or a linear regression framework and even traditional optimization methods used for portfolio construction their single process they use the same inputs to be able to maximize return for a given level of risk or if it's a trading algorithm it's really all about building complexity or distribution around that return but the relationships underlying that return expectations don't change because the underlying data or relationships that they're used to optimize are the same so I think it will get there we have to evangelize quite a bit more but”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think part of it is that I was sitting in a conference last week where a large asset management insurance firm has been investing in a pilot project trying advanced AI methods. But when he described what they were doing, it was really an add-on to their process, like because the whole theme of it was humans will put biases into it and you need humans to be able to better manage these portfolios. So it'll be humans with AI, which of course you do need humans to actually build the models. And you need skilled humans. And a lot of the skill is outside of asset management because for the first time, think about how B schools have operated. First, it was asset management wasn't really a focus in the MBA programs. Then it became a focus. And then you”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, yeah, obviously things changed, and seatbelts became the norm, and everyone now has a seatbelt, and most cars, you have to have the seatbelt on. You have to hear that ding every time you drive. So that seems like an obvious improvement. But one of the strongest forces in our asset management world is it hasn't changed much since my portfolio theory. So what's the pushback? Why are people not adopting machine learning neural networks AI in a much larger fashion? It's because we're afraid to be replaced by the dangerous robots? What's the pushback?”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“at sometimes a third of the risk of the SP, which gives you a very efficient return. Now, there are times also where you'll have long-only exposure to the market, which you're going to get the volatility in the market when you have long exposure. But it's those time periods when it successfully makes its decisions and those decisions can be longer term, even though it's taking a view every day of where the portfolio should be. And so you can see how it builds on that decision. And we've been exceedingly pleased at the performance because while you can't point to value growth momentum, you can certainly see a compilation of behavior when you take the lens back and analyze the portfolio historically. And it's intuitive when you see the results.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“The pricing movement based on all the underlying inputs that you submit to the model and it's determining that volatility measure, although you can't look back and say it's because of volatility, but the way it trades, it will typically, as it sequentially adding value, trying to win at each change in allocation of the portfolio and in this case US equities it's building on that successful decision, it's taking a risk posture so to hedge when it's seeing market volatility on the downside and when it has the model has a true view of where it thinks risk is it will short but what you end up seeing in terms of the overall behavior of the portfolio is this very methodical capture of return”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Typically trying to diversify risk with that allocation, but you end up sacrificing return in the process. So the deep reinforcement learning model can trade US equity. It is capturing that elusive timing component that when you look at what can be explained through beta and what is typically put as alpha, it's when do you capture the relationship that you've identified if you have a fulsome relationship. Now we all know that factors or spurious, but that's because they appear and they disappear at certain times and you don't know exactly when to make that bet. You just identify this historical relationship and then try to predict it. The deep reinforcement learning model is doing this all at the same time and it detects the underlying behavior of what's happening with”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the potential is vast. You can solve many different problems. What we chose to do is the most difficult of all trade U.S. equities. It's the most liquid, deepest market in the world. And it's the market that's the most efficient, if you think about it from an efficient market hypothesis in terms of the level of information that investors have. But it also has a vast amount of data behind it. So we built our models to see if we could more effectively provide exposure or more efficiently. And when I mean efficient, be able to produce a return that could diversify U.S. equity and other asset classes and do it at a much lower risk than equity. So if you think about where you could place this in a portfolio, there are many allocators who have an absolute return component of their portfolio.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if you think of a traditional model as one that is describing a relationship or think about common factor risk that is a series of betas that explain a relationship or the sensitivity to data inputs in those variables and then together they describe return. A neural network is actually able to look at millions of parameters, but it is looking at data and it is actually creating those relationships. So rather than starting with a framework where you say something like momentum or growth or value or size is determining what is generating the return, the relationships behind the return. A neural network is a framework that through a series of layers and everyone's seen the pictures of the nodes and the connectors to those. nodes and it goes back and forth in a framework called back”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“And is changing. That's why they're using robotics to do dangerous jobs in manufacturing now because the dynamic decision making and the way that you identify relationships and then act on those relationships, that's the power of deep reinforcement learning and in portfolio management to be able to look at a data set and then to be able to optimize that decision making to maximize that reward is completely different than what's being done in portfolio management and in asset management today. And we've only been able to research because we're a small firm in public markets, but the ability to predict and to allocate, it's truly there and we see it in our strategies performance.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Process of backpropagation to determine what's the best relationship to describe what you're trying to describe, so be it return or whether you're trying to identify an image or whether you're looking for cancer. The power is truly remarkable. And so bringing that into asset management was really exciting because the traditional way of measuring relationships really leaves a lot of information on the table. You're either describing a small portion of that return or you're just building portfolios that don't have, aren't dynamic in terms of how those relationships changed. And we went straight from research on deep neural networks using deep reinforcement learning. And that to me is the game changer. That's what's going to deliver autonomous driving. That is what will”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Diagnostics and self driving car, in image recognition, speech recognition. We use it in our daily lives. But really, we don't use it. It's starting in the fringe in asset management. And so if you think about a factor model where you have from an academic standpoint said these five factors are what are going to be the basis for describing risk and return of a particular security or asset, then that's the only framework you can use. And when it doesn't work, it's either out of favor or you have to go back to the drawing board and respecify what that relationship is. Well, neural networks are designed to do that automatically, but they just don't tell you these are factors. They look for the hidden function. They search for millions of parameters and it's a dynamic change through its”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“That really becomes an index. So, Rosetta, we wanted to look at was there a better way and with the advent of compute power, I mean, Wilshire, we started with big rooms of mainframes and then we went to personal computers and it still took days and days and days to build a variance covariance matrix. So now that as of 2014, you can go into the cloud and you can rent essentially as much time and as much power as you want and build your platforms. This is really changed the way that you can process data. And of course with that then investors started to look not investors outside of the investment industry looking at neural networks to try to see patterns in data. And so now you see it in industries. It's prolific obviously in search engines, in diagnostics.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“the rise in dollars that are behind these assets. And if I've seen some of the literature call it a factor zoo, but how if those factors are really you boil them down to six or five or three or however many you want to measure that have really persistent relationships Where is the information edge except for in how you time them? If we're using these really linear factors that don't change that only change because you're building them off of new time periods then”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Manage the risk in their portfolios. And so all of that enhanced indexing, it's called that, and then it became smart beta. And now it's factor-based. All of that was really what was being measured by Wilshire and others from the 90s forward to try to determine those relationships. At first it was unique because not everybody was looking at their portfolios and through that kind of lens, but now everybody is looking through that portfolio and that kind of lens. And the 2007 quant quake in August was a big wake-up call to everybody in terms of what happens when those factors are leveraged and how portfolio construction can all come together to really impact the market. It can happen again.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll put two hats in here because obviously I'm co-founded Rosetta Analytics and one of the main train principles of Rosetta that attracted me to want to spend time on this is really coming from the analytics side where I've seen and personally used factor-based quantitative investing for my entire career. It used to be that you would look at First it was bottom up strategies where you were picking stocks and you had armies of analysts that were researching and providing best ideas and then that portfolio would evolve into how much to allocate to those best ideas you had concentrated and then the whole concept of managing to a tracking error as sponsors wanted to really”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“I must sure if Ted has trigger warnings on this, but we have to warn people who are allocators or managers in fixed income. This is not a great story so far. But how do we, people like us who are allocators that have to provide excess returns, how do we find better performance and better alignment? What's the path forward?”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, realize the value of what you've created unless you've been able to either merge or you've been able, there's one manager who sort of figured it out. She made a foundation and all of the employees know that that foundation won't sell the funds so they can participate as a transition from her generation into her firm, which gives longevity the firm. That's unique. And from what I've seen in terms of how you evolve in this business outside of changing your investment lineup to higher feeing strategies.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“My view right now equities are pressed perfection, fixed income is priced to perfection, so where do you rebalance? And everybody is sending assets into private asset classes, so private equity has gained, hedge fund flows are gaining private real estate, it's finding high quality properties. You're just adding more leverage into the system to try to meet return objectives. And you look at everybody's asset class assumptions and everybody's backed into a corner right now. So in my view, portfolio, the asset management industry is really has to go through a big correction before any of this will shake out. But you've seen unprecedented mergers and acquisitions. You see boutique managers who have founders that are trying to transition, but how do you”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“How they're going to diversify to keep their fees in a place where they can actually survive the economics of the business. Wilshire was a big proponent of performance fees that has been popular in pockets throughout, but it's very much a feature of illiquid assets. And so there's two problems, right? If your two biggest liquid asset classes are equities and fixed income, and now you've gone through a yield curve that is still incredibly low levels. So how to fixed income managers actually charge active fees on top of duration risk and low yields where investors are going to be looking at most of their portfolios and you're earning close to zero and on a real basis you're earning negative so that whole business model is in trouble.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, really, and this has been coming for a while, and everybody has seen, I mean, think about at Wilshire, we at one point we were always efficient market theorists. So if everybody has access to the same information, who has the information edge? And for many, many years we didn't see value to active management really in US equity. So more and more, if you looked at the core portfolio, that started to be more passive and more passive. And so, but that trend across the board has really accelerated, I believe, over the last, and you can see it where depending on your market, everybody knows that the fees are in illiquid assets. So any asset management firm that doesn't have enormous scale has had to determine.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's talk about that a little bit. So, you've been through modern portfolio theory, and then you live through greed is good and junk bonds and dent of thieves, and then you went through the great financial crisis and you had too big to fail, and now you've got MMT and you've got ZERP and the New Green Deal. What does asset management look like in the next generation? What's coming?”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“The business how much can you scale a person? And so there's many creative ways to do that, but really it's how can you get the economics of the business back to where you can actually afford the services you're giving. And consultants are the loved and hated of the industry, right? They generally give good, strong, well-researched advice and can act as a mediator between the investment management industry and the dollars, the assets, but at the end of the day, because they look for some uniform solutions to help build scale, it's easy for them to be the hated of the industry because they're close to the top of the food chain.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“From the consulting business's standpoint, the first thing that comes is all of your clients say we need you to cut your fees, first thing. Okay, and then of course you do because all your other competitors will say, okay, I will. So you cut your fees and it's not a very scalable business anyway. It just does not have the margins of asset management. And so you found consultants just having to do more and more and more to be able to help clients build the protections and that they were trying to build so that they could be long-term investors rather than short-term investors. It's always the same story. So consulting today, that's why you've seen a lot of consultants go into the OCIO business because they need to find a business that has asset management margins because you really can't scale.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“And how long you can withstand not having it because benefits have to be paid, buildings have to be funded, people have actual obligations that they need to use those dollars for. And when liquidity dried up, it really caused some permanent loss of capital across portfolios. And so the reaction to that was, okay, we have to do this better. We can't afford these large losses. And now we have to fund them. And so we spent the next decade really trying to understand how to structure portfolios, but essentially we just made everything more complex. And so.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, it really changed dramatically after the great financial crisis that really shook everybody to the core. I mean, you can look at past and evaluate, okay, this is how everybody should have behaved through it. But any veteran who had did go through it knows that during those months when really it was all hands on deck and everybody was trying to figure out were we going to be able to get assets flowing and dollars flowing through the system again, was there a way to avoid it? And really sure there was, but it would have taken a lot of people calling certain behaviors out to have that happen. And for those investors that had portfolios that were structured a certain way, the big lesson learned was you really do have to understand liquidity.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fun and putting a there are some general observations that work across portfolios, but really you're investing for your particular circumstances. And probably the biggest disservice that consultants have ever done is putting everybody in peer groups so that they compete against each other, even though their liabilities are completely different and their circumstances are very different. It's just everybody likes to measure something. And it's a new way to compete.”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source
“more short term than longer term because you can't withstand the periods that you have to go through when you take risk where you're going to underperform either the market benchmark and in active management it's very likely that you're going to underperform on average anyway so based on a lot of the measurements and studies that are done on active management it really depends again on what your information edge is Jack Bogle had a view of really you should index everything and over the long term you'll get there at much lower fees and everything will compound but the reality is that most institutions can't invest that way for just by their very structure or by what they're trying to fund and so the consultant's job is really to find the best solution that can work on average for that particular”
2021-07-29 · Capital Allocators · Julia Bonafede – Rosetta Analytics (Manager Meetings, EP.04) · IDENTIFIED FROM THE TRANSCRIPT · source