YouSaid · the spoken record

Kristof Gleich

lines on the record: 56
first: 2023-03-17
most recent: 2023-03-17
sittings or episodes: 1
sources: podcast

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“Thanks. Yeah, thank you, Trey. It's a real pleasure to join you. Thank you so much for inviting me. I hope your listeners enjoyed most of what they heard or at least learned a nugget or two, something that's going to be helpful for them. If people want to find out more, they're probably the best thing to do is just go to our website, which is harborcapital.com. And that's harbor with no you, spelled the American way, which my English friends always tease me about as a you in England. HarborCapital.com. You can also follow us on LinkedIn. I'm on Twitter with the handle is at Gleish Christoph. And look, I hope people go and have a click and explore and like what they see.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Going on at PENCO, what Bell had said, what was happening in the markets, what journalists were saying, and really just having that kind of bus front row seat to that moment in time was, yeah, it was really special.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Of PIMCO, and he was justn't able to appreciate it or make the most of it. And yeah, so I just sort of made a promise to myself, then I wouldn't want to fall into that mistake myself, even a really successful, you know, multi-billionaire investor like that can kind of end up with deep regrets and end up alone. And then obviously Janice Henderson, it didn't work out and he ended up leaving a few years later and Pimco have still gone on and done very, very well. But it was probably the highlight day of my career because it was the story, the thing that was happening in the markets around the world. And I don't know if you remember, but people thought, was this going to bring down fixed income markets? This is the liquidity event that we've all been fearful of. And it was just really unique. And then I was able to go and see Pimco for two or three hours straight after that. So I came out of that morning. It was a long day, but that sort of triangulation between all.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“At PEMCO, brilliant thinkers and investors in fixed income, but he never leveraged them. He'd never used them. He'd never create this network with them. And he'd never built meaningful relationships with them. And he'd always been a bit of a loner there. And he said it was only really in his last six months where he began to get to know some of these people. And here he was talking to us in this office building, 200 yards or so away from Pimco's office. He was there on his own. There was some wires hanging from the ceiling. There was a box of donuts and the coffee box on the desk. And there was a guy in the background setting up his Bloomberg terminal. And he was all alone. And I just felt really sorry for him that despite everything he had done in his job, it kind of ended up with like nothing. He was surrounded by no one. And actually what happened in time was those people, that team he had around him was a big part of the fuel of the success.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Later after he'd left Penco. And he was in a very reflective mood. And we got to spend, it was me and a colleague, my former colleague, Ted Dimick, at the time. We got to spend two hours unplugged with him talking to him about what happened at Pimco, what he's looking to do now. And he was in a very lucid, philosophical, kind of clear-minded framework. And talked openly and I won't go into all of the kind of the ink that's been spilled at PIMCO, but my biggest takeaway was a funny one. It was like, at the end of the day, we're all just people, like even Bill Gross and Bill, I left that meeting feeling sorry for him because what he told us shocked me. What he told us was all the years he was at Pimco, surrounded by these amazing colleagues. And there's some brilliant people.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“There's so many lessons in this. So I lived in London at the time. And I remember coming out of a manager meeting in London. And it was a Friday afternoon. And someone said, Bill Rosas has left PIMCO. And I thought, I looked at my watch to see if it was April to see if it was April 1st and April Fool's joke, but it wasn't. It was September. And so my initial reaction to that was I was dumbfounded like the world. And then they said, and he's joining Janice Henderson. And I was like, what? And so it was a big shock at the time. It was Friday afternoon in London and a busy weekend later with many strings pulled on Tuesday morning at 7 a.m. I was meeting Bill in his new office, stepping out of the elevator and he, you know, his tie was draped around. And his first meeting on his first day as newer employer. And so it was, you know, business wise, really just day.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“An ETF that tracks these human capital indices, and we have two, and we filed for a third that's doing this in small cap. That will be out in April. And we think it's a new investment factor. The most simplified definition or description I'd give is imagine.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“It's not the level of compensation that matters, it's the perception of fairness with compensation. If people feel like they're being compensated fairly, that is the more motivating factor that actually the level that people are being paid. And so you can take that, if you like, little nugget and with data, you can kind of create a sub factor. And then you can identify there's about 30 to 40 of these. And then you can aggregate them together to create human capital factor score. One more example, because we talked about it earlier, psychological safety. There's a reason that we look for that in managers because we know through the data through Dan, but that's really important to producing outcomes. Generally, businesses that have employee bases with a high degree of psychological safety do better over the long run. And so we partnered with a rational capital who, if you like, do the measuring. And then what we've done is we've launched.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“From Glassdoor on the public data, they're able to measure, if you like, the sentiment and engagement and motivation for employees at publicly listed companies, which is really important because you need to kind of have an idea of what actually matters from a motivation perspective. And so designing the factors, actually designing the things that you want to measure that you think are important to then aggregate into a factor that represents the human capital factor, you know, businesses with great corporate cultures that ultimately we think are going to help perform over the future. Like there's a lot of work that goes into that. And I'll give you a good example. You know, if I said to you, does compensation matter in motivation? The answer is that you would normally get would be like, well, yeah, of course it does. That's a stupid question. But it matters in a different way than you might think. And what they've actually found out is...”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“To Fortune 500 companies that have come to him and said, How do we improve the efficiency or the output of our workers? And then he'll run various tests of, you know, here's the A group, here's the B group, here's the C group. Actually, what things improved motivation and improved output. And now about six years ago, he set up a firm called Irrational Capital, one of my favorite research firms, Irrational Capital, in terms of the names that I've come across. And he set out to empirically measure this statistically in aggregate for public companies. And so what he's done with, you know, again, comes down to data. And I think data is some technology has been kind of a bit recurring theme today. And there's things that you can just measure now today that you couldn't have measured 10 years ago. And this is definitely a good example of that. So through a combination of proprietary data and public data and think kind of sentiment,”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“That's going to be valuable to potentially generating strong returns. So a 30,000 foot level, that's kind of what you have to believe. And if listeners don't believe it, it's absolutely fine. But I believe that very, very strongly. And then it's like, well, how do you measure it? And the old adage of like measure what matters, not what's easy comes to mind. And I think that's why there's been so little work done on this. So I wouldn't have a hope of being able to measure this myself. But we found and partnered with Dan Arielli at Duke University. He mentioned him. He's the James B. Duke professor of psychology and behavioral economics. And he has spent his life studying and experimenting on people, why we make decisions the way that we do, why we're all a little bit less rational and would care to admit. And he's done that with a focus on understanding what motivates us and the workplace. And he's consulted.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Done on the valuable of intangible assets as investors, right? There's been so much ink spill on value doesn't work anymore because price the book has underperformed. Well, yeah, price to book isn't value. That's the problem with that approach. But if you started to take a value factor and adjust for some of the more intangibles, that's really important for businesses like brand, like R&D, or human capital, you're going to get a fuller picture of value. And there's been, again, a lot of work done on R&D and the value of brands. So I won't go into that. But what there hasn't been much research around yet, because it's so hard to measure, is human capital, the value of human capital. But my hypothesis would be if you think human capital is important and you don't think it's recorded as an asset on a balance sheet and it should be, and you can figure out a way to quantify it, as an investor, that's going to give you incremental information.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, this is a really been a fascinating project for a couple of years that we've been working on with Dan Arielli. Very, very interesting author, researcher, thinker of our times. The ESG has become a bit of a buzzphrase and now more likely got a bad reputation. So let me describe what the factor is and what the hypothesis is behind it and why we backed it and why we've invested in it and why clients are investing in it. So business leaders across the world in different industries, different cultures will say the following statement. Our most important asset is what it's our people. And I think they say it generally because they believe it. And I think it's because it's true. And if you look at investing and you look at accounting, people are not recorded on the balance sheet as an asset, right? They go through the income statement as a cost every single year. There's been a lot of academic work.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Replacing them And so we like to work with firms that have clear succession plans in place or an idea for a succession plan. And we want firms that will implement the succession plan not over months or years, but over decades. You know, we have one of our managers at the moment. I won't say which one, but they've had a 20-year succession plan in place that's effectively been successfully implemented. Think about that for a second. They've been focused on a succession plan as long as I've had a career pretty much to date. And if you do those things and then you reward people for their work and you wash, rinse and repeat that year after year after year, those are some of the ingredients. What I will say, everything I just rattled off there is extraordinarily hard to find and very few people do any most of that. But those are the key ingredients.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Have teams of experts, but they have cultures of debate. One of the cultural traits that we look for is the phrase culture of psychological safety. What does that mean? It essentially means creating a working environment where people are comfortable speaking up their mind, what they think about something, suggesting a radically different idea, you know, going back to your point, we're all linear thinkers. Well, if you encourage a culture of psychological safety, you're going to engender a culture when non-linear thinking can kind of come into it as well, where you can really question the status quo and convention. And I think that's really, really important. And then really for that long-term, durable success and edge permanent right wing, managers have got to have a succession plan. You know, no one's figured out how to live forever. I guess Elon Musk's probably about the best person that's got a good chance of that with everything he's got going on. But until he figures out a way to live forever, portfolio managers are going to have to figure out a way of”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“What we look for from a culture perspective is our tagline that we look for a culture of continuous improvement. We write it down, we look for evidence, we ask the managers about it. And we, as I said, we demand that of ourselves. Can we find a manager that's going to continue to improve, is going to continue to compound their own learnings and their knowledge over time? If the answer is no, you probably don't want to invest with that manager because whatever it is that they're doing now, if it's working, it's probably going to erode away competition, competitive capital is ultimately going to erode that edge away. And so, yeah, we spent a lot of time thinking about that as well. Other things from a culture perspective, I think are really important. We would prefer a team-based culture than an individual sort of star PM approach. There are some star PMs. We've quoted quite a few of them throughout this recording, but what they'll probably all say is they've got a great team behind them as well. And so we want to see cultures that generate.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Exploit, and there has to be some kind of moat around that hedge that is just not going to be like eyeshed or vanguarded away eventually. And so just spend time on asking. And as an investor, if you're an individual investor or a professional investor, I challenge you all for your investments to write down what that edge is. And if you can't, it probably means the manager doesn't have one. So that would be the first thing I would say. The second thing is, again, it comes down to this culture. So we look at, you know, I talked about the tangibles, performance, and breaking apart factors and idiosyncratic returns, all really, really important. I also talked about intangibles. I think what gives a manager the permanent right to win is world-class intangibles. What does that mean? Culture, I think. Culture is ultimately a function of the people. But I think culture can pass down from generation to generation. So I'd say culture is even more important than people, even though I'd say byproduct of it. If that makes sense.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“So, yeah, I think it was his phrase originally. I certainly haven't seen it before, his permanent right to win. And you're right. When you think about it as businesses and investing in equities, brand and pricing power, sustainable growth kind of really shine through as those have got to be some of the characteristics. So how do you translate that to managers? First thing I would say is if a manager thinks they have a permanent right to win, by definition they don't. It's those managers that have that innate paranoia, I think stand the best chance of having a permanent right to win. So I'll go through a few of the things that we would look for that I think would be suggestive of, you know, superior longer term performance over the long run. And we talked about some of these along the way, but let's just hit them. So number one is, you know, an edge. A manager has to have a discernible edge, but they can do better than the market. And that edge needs to be repeatable. That doesn't mean every year in terms of performance, but a repeatable edge that they're trying to.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Something to kind of confirm your own behavioral bias that you may have. And so when I invest with managers and when I ask my team to make recommendations about investing or divesting from managers, it has to be done from a place of conviction. And I think there's that bridge between looking at all of the numbers, the analysis, and being as rigorous as possible and as scientific as possible. But there is definitely, I don't shy about saying this as a gut feel to it. And that gut feel is based on, it's not guesswork. It's, I think it's almost like an algorithm happening in your mind where you pattern recognition, where you've seen certain things before. You mentioned human beings are really linear thinkers. Some of that pattern recognition is nonlinear thinking. And it's like, okay, where have I seen something similar? And ultimately, you have to make a decision and you have to invest with conviction, whether you're buying individuals.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“So it's a great quote, and I've heard that as well, the back pain, the portfolio is not set up right. There's very few investors that can do what he does very, very well. I think Stan Drucken-Miller is another one that has this amazing ability to synthesize the moment or the fears of the day and position around that and kind of cool the markets. There's another one who I invested with in the past, Alistair Hibbert at BlackRock, who I believe is still there running hugely successful hedge fund franchise now. And they have this ability that can feel like gut feel. And it is, I think, a little bit having a feel for the markets. But most investors are better.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“We learn about the world. We learn about ourselves. We learn about the markets every day. And the art of a great manager is not to reject that, to compound that knowledge into improvement. And for us as allocators and investors, it's us almost from a governance perspective as a fiduciary to hold managers accountable to that. And so I couldn't disagree with the kind of the industry convention more strongly on this point. That's why when we're looking at our managers, we are always asking them, like, how have you improved your process in the last 12 months? And some of them, when you ask this question, will, you know, they'll grab their kind of shirt of their neck and they'll squirm uncomfortably because they're not sure what they're supposed to say. Well, A, just always tell the truth. And then B, you should be striving to improve every year. And so that's what we spend a lot of time on when we're working with our managers.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Use it in ways to improve their investment process. I'm a real big believer in this continuous improvement. It is critical to do. One of my bugbears of our industry is this notion of consistency through time and that consistency equals no innovation, no improvement. And in what other industry is that okay? So like atypical consultant, so I've heard, I've never been one, I've got nothing against them. I'm repeating this, you know, some more secondhand. But what I've heard is the kind of the archetype consultant kind of may go through a checklist. And one of those things will be, have you made any changes in the last year and changes generally thought of as bad? And I'm like, well, imagine if I pulled out an iPhone from 15 years ago and held it up and said, you know, that technology you had like it hasn't changed for the last 15 years.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“With those musicians, you've destroyed 35 basis points of alpha, or you've created 20 basis. And you can start to quantify those behaviors. And then managers can understand what they're good at, where they're adding value and where they're destroying value. And you see some, you know, in general, managers are bad at exit timing in our industry. But what a lot of them do is they start to sell the position early and then the stock can kind of unravel a little bit and then they kind of exit the position and they're ultimately late with their exit position. But when you can see that they've started to reduce a position earlier, there was obviously a signal that they looked at that was meaningful enough for them to start to reduce the position size. But for whatever reason, they didn't go the whole way and start to sell it. And so you can start to present this information back to them. They can reflect upon it.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Stocks did you buy obviously matters, but you can use, for instance, attribution, stuff like that. That's not the most helpful. But then, okay, when did you buy that? What was your position size? How did you build that position size? How did you exit? When did you exit? And did you sell all at once or did you gradually kind of sell? There's tons of different decisions going into this portfolio. And some managers do a better job of making these consciously and some of them do it subconsciously and they have a bit of a feel for it. And so what Accensure has allowed us to do is just be a bit more scientific with understanding some of those biases. And so then what we can do is we can go back to our managers because we, again, we have all of this data on them and we can say to them, you know how you'll often tweak a position size or tinker with a position size. We've looked at every stock you've held on every day over the last 10 years. And if you know by tweaking.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“That impacted their performance through a different lens, through a different dimension. I'll give an example of where this has really helpful. So if you speak to your listeners have heard this and investing in the past, well do quarterly calls with all of our investors and we'll speak to our investors and they might say something along the lines of, oh, I added to stock X, Y, Z on weakness because there was no news and we're still convinced and in the stock the thesis long-term thesis intact and for whatever reason you know Mr. or Mrs. Market decided to sell it off and we wanted to add to our position okay you know sounds credible okay how do I like test it if you hear those type of things frequently what Accenture Analytics allows us to do is to look at in a portfolio level like what stocks did a manager buy so let's just say it's a 30 stock portfolio what”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Be a 30 year period, we've gone from looking at just returns, like naked returns. If they're high, the skill, if they're low, there's stupidity. I suppose that's kind of like the most rudimentary scale. And then as our developing of markets has changed, attribution came along and we started to disaggregate returns into things like allocation decisions and stock selection decisions. And it was the next step, the next rung on the ladder of our understanding. And then came along and what I spent about 10 years ago developing was this factor framework that we talked about earlier. I was like, okay, there's something more than just stock selection and allocation, understanding factor biases stripping those out, what's left over at alpha. And then I think the continuation of this are now, I'm really excited about is behavior or decision analytics. And it's looking at what decisions the managers have made and how”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“We partnered with a fintech firm called Accenture Analytics, run by Claire Finn Levy. He's a former portfolio manager herself. And this is newer for us. And if you think about some of the things that I've said about focusing on managers that have an edge, one of the traits that we look for above all else is continuous improvement. And if we look for managers, we think managers.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Prudence with better balance sheets, with higher quality are going to benefit in that type of environment. And I would say that's more where active managers spend more of their time. So I definitely think that is a really important factor to watch how that impacts individual stock returns over the coming few years.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“On their return, and that bleeds through to equities, it distorts the whole incentive structure of the market as well. Because if you're not having to earn a strong cash flow, if it's everything's maniana, mannana, maniana, then incentive structures reinforce behaviors. So you're going to get people and market participants chasing projects that necessarily they wouldn't do. And I think that's something that you need to think about as well, that signal those markets then send back to those kind of corporate behaviors. And so that's all going to take time to unravel. You know, I mentioned how surprised I've been about the resilience of the economy in the face of higher interest rates and how they've managed to absorb that. I wouldn't declare that as a final victory yet. I think it's an ongoing process. And I think that's happening at the company level as well. But ultimately, companies that are run with more discipline, with more fiscal.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“And if you think about being a CFO in a company and a company's thinking about a new growth project or an investment and their cost of capital is effectively zero, quite zero because there's always a credit spread that you've got to pay on that, but just nearer zero. Or if you suddenly looking at like seven or eight percent, which it probably would do today with where interest rates are, it creates a real cost for that company, but it also creates an opportunity cost. that company as well. So that gets to get factored in. You know, obviously a company's way it's financing itself, margins can disappear and turn to losses when you start to have to fund yourself, but that much, much higher rate. And so that's, if you like, the real economy effect. And then if you look at the market, the secondary market, all the primary market, you look at investors, if they're demanding less.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. What is capitalism without a discount rate? It's fundamental to the system on which it operates. And I'm not going to criticize the Fed for what they did. I think they did a great job coming out of the Depression. And so it's less of a judgment call, but it's so fundamental to the system as we reverse out of that era, there's going to be all sorts of secondary and tercery effects and consequences from that. I read another quote, and this one was from Seth Clarman, Bow Post, and he said, zero interest rates is like sand at the beach, gets everywhere. You know, when you come back from the beach, you're like, how's sand getting there? It wasn't even at the beach. And I think there's a degree of truth to that in investing in with interest rates. And I guess there's a lot of sand to clean up, right? And you can never get it all. And so that cost of capital just works its way down the entire...”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Interest rates, again, I think for the first time that I can remember in the US here, the Treasury curve is above 4% wherever you look, which would have seen absurd to have said that just a year ago. And you have this notion of two-way risk again and you have more idiosyncratic risk as well. It's less of a sort of an asset allocation or what's happening in certain factors. I was going to happen to the companies as they're dealing with the cost of capital again. is not going to treat all companies equally or fairly. And so what that has meant in markets and in active management, particularly that's my area of expertise, is more managers have outperformed. And if you look at the industry stats as well, they're much, much higher than they have been in 10 or 15 years now, which I think is an interesting trend to keep an eye on. But I would just say on that is, you know, ultimately active management, I think.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“To active managers, if you look at the post financial crisis era, we had a decade plus of zero interest rates, quantitative easing, debt deleveraging, and you had central banks across the world just flooding the system with liquidity to prop it up and create the wealth effect through the wealth channel. And that was a very, it almost didn't matter what you bought just buy risk assets, own them, you know, buy bonds, you know, going to make money from the duration from the fall in interest rates, buy equities, you're going to make money from the same thing, from a falling equity risk premium from stable and sort of growing earnings as well. And really what the 2020s have reminded us of and brought back is volatility and uncertainty. It's really shattered that paradigm that we were in before. So we've got a return of volatility. We've got the return of inflation. We've got the return of”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“I think the one behavior in our industry that is really hard to fight against is overreacting to the short term because it gets emotional. Like when you underperform or when you pick a manager underperforms or invest one, you get angry when they're not doing well in the short run. But often, more often than not, basing an investment process on some kind of short-term performance indicator is a disaster. The 2020s as well are proving to be a very different decade. The post-financial crisis period, the 2010s, was really tough for fundamentally oriented active managers. And so one more point I'd like to make is just quite how different the 2020 is proving to be versus the post-financial crisis era of really the 2010s and how that's presenting itself and manifesting itself to investors and to market.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Overcharges for what it provides, and it really has been overcharging for factor based exposures and charging as if it's been kind of skill. And so we really geek out on that as a research team and try and use all of the techniques that we can to measure that stuff as precisely as we can. And we just think by doing so, it skews your probability for success towards the right, which is what we're trying to do.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“In a model sends the unexplained bit, or what we would describe it is the idiosyncratic bit or what our industry would describe that as the alpha bit. So when we are looking at a prospective manager, we try and take that historical performance and we try and break it down into its component parts. We try and look what's factor-based. We build expectations over those factors and we try and look what idiosyncratic. And often or not, more than 100% of the returns of managers in general is factor-based. That actually the skill bit is actually negative. It's kind of a bit depressing. But in our view, if you could find a manager that has a positive idiosyncratic alpha, that's the bit that's more due to skill. That's the more valuable piece that you should pay for. And I think one of the reasons that active management, the industry is in not great shape at the moment is because”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“You buy an ETF or you buy a mutual fund actively or passively is going to be a basket and aggregation of those stocks, there's going to be certain factor characteristics that they have. They might be more leaning into value. They might be more leaning into quality. They might be more leaning into growth. They might be high beta, low beta. And what you find is you can use statistical techniques to disaggregate a manager's portfolio into different factors. And there's normally about three or four that kind of explain the majority of their risk and return, frankly. And so what we try and do is create a factor framework to understand almost kind of like what's the manager's DNA through factors and what are their exposures to them through time? What are the expected returns on those factors over time? Do they mean revert? Do they persist? And then what's left over at the end is called the...”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“What we also have is we have an excellent data team. Our industry, one thing our industry is not short of is data. And there's some really valuable information inside of our data. And you just need to have the right kind of tools to break it apart and see kind of what's the information in there. So let me be a bit more specific is we apply what we call our alpha edge framework. And one of the things that we look for and that we write down before we make any investment is what is the edge of the managers that we think we have. I'm surprised how few people do that, by the way. And I would advise everybody in investing. What is the edge that you think you have and what is the edge that you think the manager has that you're going to invest in? And then quantitatively, what we do is we have what we refer to as a factor framework. And what do I mean by factors? So whenever you make an investment, let's just keep it more sort of more simple in equities. If you buy a company, you buy a stock or”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Period, almost one out of four of them is negative. That surprised me. I had assumed it would have been a lower level of underperformance because you've got a crisp bull. And then the last thing is the longest period of underperformance it had versus the index was almost five years. So a really interesting exercise to go through and for us it helps kind of like set expectations at the beginning and set realistic expectations at the beginning. And so we have realistic expectations and in terms of like how do we systematize our process, yes, there's a heavy degree of quantitative rigor that goes into it, but it's really marrying quantitative rigor and quantitative rigor. So I'm lucky we have a team here of professional researchers that all they do day in and day out is research managers. They interview managers, they go looking around the world for managers. They stay on top of the managers that were invested. And it's their calling. It's what they live and breed every single day.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“So, you even get the benefit of picking the rice style, which is pretty hard to do. And this portfolio over the long run outperformed the S&P 500. Well, duh, it should. It should outperform it by a lot. You've got a crystal ball and it outperforms the S&P 500 by about 400 basis points. It was 396 or 397 basis points per year. I can't remember the exact number, but let's just say 400 basis points per year, which is good. So if you can find a manager that you think can do 400 basis points a year, like buy that manager and hold it for the long run. But what was really interesting about this as well is what about, did it underperform? You've got a crystal ball here. Does it underperform? And the answer is yes. And probably more than you'd think, it underperforms almost one year in four. So if you look at all the rolling 12-month windows over a 30 year”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Over the next five years, and we held them hypothetically, right? We held a basket at least 20% best performing managers. You held them for five years and you know at the end of that five-year period, they're going to be the best performing ones because that's why you picked them. And then you reallocate your portfolio for the next five years and repeat and repeat and repeat and then create a chain link for those returns over a 30 year period. So it's the 30 year crystal ball portfolio reconstituted every five years knowing ahead of time what the best managers are going to be. Okay, like I said, an impossible portfolio to achieve. What on earth is the point of doing that? Well, you couldn't look at it as if you like a very upper bound of what really good managers can do. So if you look at that portfolio over a 30 year time period, we did this in US, so US core growth and value. We mixed them all together.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Focus in or zoom in or amplify that signal. So that's sort of at a high level what we're dealing with, that very, very high noise to signal ratio. Let me give you an example of a study that we did, which I think illustrates this point really, really well. And I'll explain it in detail because it had some pretty cool conclusions. So we created something called the Crystal Ball portfolio. Okay, this is a hypothetical portfolio. The results of this portfolio are impossible to achieve. So just from my compliance hat on, this is a thought experiment, but you can learn some practical tips from a thought experiment. So we created the crystal ball portfolio where for a period of 30 years, three zero, we hit with full hindsight as if we had a crystal ball, one of the 20% best performing managers going to do.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“For sure. So I'll start at the top with e-investing, the noise-to-signal ratio is very high. There's a lot of randomness. There's a lot of short-term noise. And what we try and do is focus on what is ultimately signal and what is noise. And for that, I studied science background. You can figure out what are some apparatus that you can look at that can help you.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“And you know, if an international manager, despite optically cheap valuations, is still buying US stocks, it's hard to make a compelling argument that you've got to be leaning into international diversification when that's happening or vice versa.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, exactly. I mean, he's a hard-won daliator to argue with in terms of the believability. But I think that's right. Another indicator is we can look what the managers are doing. We have an incredible amount of data. And as well as listening to them, we can see what they're doing. And on the margins, that can be a really strong signal. So if you have a manager that is normally higher in quality, but on the margin, they're buying cyclicality. You know the bar for that manager to buy cyclicality is really, really high. And if they're going to be deviating towards that, you can use that data. Well, why is that? What are you finding cheap about cyclicality? And you can sort of start to uncover a thesis there. Another one would be market cap going up and down in market cap. You can get a good read on what's happening there. And the other one is irregions. You know, occasionally you get US managers that can buy some international stocks and vice versa.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Shorter time investments as well, where people can come and they can be pounding the table and lay out in their background experience set. They haven't seen something like this in pick a number 10 years, 20 years. And you've really got to like listen into those little nuggets and realize when they mean something, versus when a manager is trying to talk their own book. And it can be a really valuable input.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“So fastly, everybody talks our own book to a certain degree. So if you're building a multi asset portfolio, we're in a fortunate position here at Harbor Capital. We work with managers from all over the world across public markets, equity to fixed income and commodities. So you hear a range of views. And I would say over time, you begin to get a sense of when a manager is particularly bullish or bearish versus his or her own style. And what they're seeing. And I think it's a really helpful input into our overall process. You know, we have our own proprietary models where we look at where we are in the market cycle, what's going on, what's the strength of the economy, where valuations are. But I think where it can be really helpful is around some of those more kind of opportunistic ideas or trades or”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“When a lot of revisions happening two, three, four months after the effect. And there's clearly an echo, I think, left over from COVID in this respect. There's an echo left over from the supply chain dynamics. And what was ultimately transitory inflation, because let's be clear, some of the inflation that we've had is transitory. And so trying to figure out and read through the noise of the data is really, really critical. And it makes it even harder. So I think at the moment, the markets are very hard to read. They're always hard to forecast, but they're incredibly hard to read at the moment. And so sort of any predictions your listeners here should be taken with a decent dose of humility at the moment.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Indicator. It's that because we haven't been the last cycle wasn't a typical kind of binge credit cycle, generally balance sheets, certainly household balance sheet post-the financial crisis are in a much better shape that are coming out of the GFC was all about deleveraging the household balance sheet. That's effectively done. We haven't now had that releveraging. And so it seems to be making the economy, the consumer more resilient to interest rates. And so I think that's the thing that surprised me and why we're watching the incoming data very, very carefully. So there's a phrase I heard recently, which I think really rings true today, is that we all, we hear it, like you've got to be data dependent. And that's generally true always, but I think especially so now, but in an era where we need to be data dependent, we don't have data that's very dependable. And you see this.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT
“Yes, there have been some things that have surprised me, and if I was going to pinpoint one, I would say it's the economy's ability so far to absorb this interest rate shock that we've had and actually the economy appears more resilient to interest rates than I think I thought and probably what a lot of other people thought. I think if we had sat down a year ago and said, okay, over the next 12 months base rates are going to effectively go, let's round up, you know, go from zero to five. Okay, we're at 475. What's going to happen 12 months out to the non-farm payroll number? You'd say it's going to be in the gutter, but it hasn't. We had one of the strongest monthly payrolls in recent history. So there's an underlying resilience here still and what sort of caution me a little bit is how much of this is just allowed.”
2023-03-17 · We Study Billionaires · TIP535: Insights from the World's Top Money Managers w/ Kristof Gleich · IDENTIFIED FROM THE TRANSCRIPT