YouSaid · the spoken record

Mark Baumgartner

lines on the record: 83
first: 2020-04-02
most recent: 2020-04-02
sittings or episodes: 1
sources: podcast

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“Yeah, I think the role of luck is probably a lesson to be learned. And you really don't have the type of control that you think you have or want to have over your environment. You are in an uncertain environment and that things may not occur just exactly how you plan or want them to occur, but that you need to be resilient and you need to be flexible in the way that you're thinking. You need to be able to pivot. I may not have been in a different place at this point in life, but I probably would have had a little more satisfaction along the way, less disappointment.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Very discreet behaviors, right? And if you go back to what Soros talked about, reflexivity and, and then you think of how we manage risk and how surprised we are when things are nonlinear outside of expectations, that's one way of addressing it with agent-based simulations. You find that when you incorporate behavior and psychology into markets The best description is not something that's volatile, but it's something that's turbulent. And turbulence is different than volatility because it's a nonlinear dynamical system, right? You see phase transitions and laminar to turbulent transitions. These are the types of things that are occurring.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Has to be bridgewater daily observations. You know, that's been something that I've read for 10 years plus like the way they think, like what they've built. Do you want to talk about a manager focused on process? Yeah, fortunate that they share those ideas. Howard Marks, absolutely, Michael Mabison loved everything that he has written, written at Credit Suisse and Beyond his books. Richard Bookstaber interesting. That's probably a little bit off the beaten path there. I would recommend his book The End of Theory. That will be mind expanding. In terms, you want to talk about risk management that others are not thinking of? So the application of agent-based modeling and agent-based processes. Really, really interesting. We're just getting to the point where computers are powerful enough to simulate things with agents by just modeling.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“In this world, I think the information sources are all known. I would say my answer again is in line with everything else. Read broadly. I don't know if there's anything I don't read. Say astrological charts and fortune cookies. I actually read fortune cookies, so they're fun.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I'm lucky because my parents are both educators. My dad was a professor, my mom was a school teacher and a principal, and so they've always stressed the importance of education and continued learning. I never believed them when I was younger my dad would say I'm still learning. How can he be learning? You're so old. Now I'm old, and I'm still learning. And that's the only thing you can do, I think. You have to keep expanding your world. The world is a big place.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“A believer in sure things in this industry? What's the quote from well it's attributed to Mark Twain, but it's not what you know, it's what you don't know that gets you in trouble, and it's actually Josh Billings that that quote should be attributed to. I think it's ironic that everyone thinks it's Mark Twain.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Has to be overconfidence and hubris. So I think it's the role of luck in investing is not well recognized or appreciated. Folks like Michael Mabison have written about it. And when people mix up skill and luck, it annoys me. And so have met a lot of managers over the past 10 years and have met some great, incredibly skillful managers, have met some who I am just shocked that they've been as successful as they have. And there's this focus on outcome versus process. And it's very easy to believe that you knew something was going to happen and come up with a story and a narrative as to why that happened. And when I see that in a manager, that bothers me a great deal. I want to see an acknowledgement of risk. In order to manage risk, you have to know you're taking it.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“I am Jack of All Trades Master at Nun. I enjoy golfing. I enjoy tennis. I enjoy ice skating. I enjoy reading, moving. There's no one extracurricular activity that I focused on that I have decided to become world class as.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's a really terrific place. I encourage anyone to go check it out and come visit. It's 800 acres in Princeton just south of the Princeton campus. It's all open to the public. I see people walking their dogs and riding bikes and walking around. It's a really, really beautiful, serene place to think.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“It pursues knowledge. The director of the institute Robert Digraf just resurrected a book by Alexander Flexner, who was one of the founders with the Bamberger family in the nineteen thirties of the Institute called The Usefulness of Useless Knowledge. And it's the pursuit of quote unquote useless knowledge. We have GPS on our mobile phones these days and we take that for granted. But Robert points out in the book that if Einstein hadn't figured out the theory of general relativity, we wouldn't have GPS. We have to correct for relative motion of satellites when we're coming up with a position located. So that type of thing, I asked one of our other board members, why are you involved? And he said, well, we're building cathedrals. I said, what is that? He said, we're working on stuff that is not going to be done in our lifetime, but is important.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the institute is an amazing place where Einstein was Einstein was the cornerstone faculty there. The place was built around him and its four schools, its physics, math, humanities, social science, and history. And so it's this beautiful blend, actually, of quantitative and qualitative. And by design, the institute's symbol is truth and beauty. The portfolio and the way that we think is highly, highly aligned with the way that the institute is pursuing knowledge. And so”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Risk and return in active space are calibrated and that's one of our first principles. Do we believe that these managers are skillful enough to convert if they get the opportunity to convert active risk into return? And the answer is yes. And so why haven't hedge funds done it then? Well, if you look at the environment and you look at the constraints that are put on portfolios and you look at people who manage risk, right? That's the key here. Risk takers have been rewarded in the last five years. Folks who have had the pedal to the floor have crushed it. And so sure, if you wanted to take risk in the last five years, great. Do you want to keep taking risk, right? Do you think you're going to get rewarded for that? So the people who actually have not done as well, in my view, in the last five years, have been some of the best investors and definitely some of the best risk managers in the world, period. And you're going to see.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Movements, we can extract oil, we can extract alternative betas as well. There's a lot of unknown risk. And so coming up with ways of addressing that noise is part of the art of this portfolio and our job go back to 2004 and my time at Quantal with university finance folks in very quantitative process There's a book by Grinold and Khan, Active Portfolio Management that talks about how”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So that's where it gets complicated. And that's where you have to say, well, this is what we were expecting. This is what occurred. Would this person have been in this risk zone if what we actually had expected to occur had occurred, right? So again, focus on process, not outcome. The outcome has been very, very, very unusual in the last five years. think that that's representative of anyone's outcome. Understand why it happened and what drove that and use it as a clue to what might happen. That's what we're doing. And sometimes, look, in this portfolio, there are a lot of things that we classify as unknown risks or idiosyncratic risks. We can extract equity beta. We can extract volatility as a risk factor. We can extract rates.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Can you talk about some of the actions that you've taken as a result of one of two things either some of these risk metrics that are a little bit different A difference in the expectation. So say the last five years, most of your hedge fund managers probably didn't meet those return expectations.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Contribution. We're defining risk in a whole variety of different ways, not just volatility, not just quote unquote, permanent loss of capital. And we were looking at outcomes. One of the things that we do that is, I think, unusual, but maybe shouldn't be unusual, is we have forward-looking expectations for every single one of our managers. And sometimes it's informed by the manager. Sometimes we have to invent it because we do have managers in the portfolio that says what we're targeting, equity like returns with half the volume, it's a long, short manager. But what are you targeting? What do you expect? We don't put a number on that. Well, what's the range? Well, we don't specify range. Okay, I think if you're going to manage a portfolio, you have to have those ideas in your own mind to correctly size and manage the risks in the portfolio.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is very, very complicated. And I think that's what one thing that we recognize and are comfortable with is that complexity. And I remember being at a conference and describing our portfolio to a group of trustees, it was a Cambridge trustee conference. And I got done describing our portfolio and a guy raised his hand in the back and said, yeah, that sounds really complex. You know, I prefer simple. I said, yeah, I prefer simple too. I just can't get what we need to get done with simple. And so what I think that we do that others don't is we look at risk from a variety of different dimensions, both qualitative and quantitative. And so we're looking at coincident drawdowns in the portfolio. We're looking at stress tightening. And from beta, that's a Marty Lee.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Haven't analyzed it? I think we're pretty content with our manager group. We would give more capital to all of the managers in our portfolio if we could.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Can negotiate with a portfolio company who wants that brand. So there's brand power there, there's relationship and cornered resources. Definitely great sustainability there. But you see emerging firms come in and challenge incumbents. And so there is a little bit of that as well. There's some mobility if you are looking to enter in and you can't get access to one of the great managers. You got to look for who the up-and-comers are and look for the keys that will give them some ability to succeed even if they don't have access to those first tier deals. Is there something there that is going to give them an edge and potentially vault them into that sustainable area?”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that is very, very difficult, right? And that's hard because it appears that skill is persistent. Going back, putting my management consulting hat on, Hamilton always talked about power in business. He's written a book called Seven Powers, which I recommend on business strategy. What you've ended up with, these private equity firms and the ones with persistent good performance and venture as well. They are incredibly powerful businesses. They're franchises. They have access to deals. They have all sorts of levers of power. They control their suppliers and they control their customers, right? Customers are begging to get in to pay incredibly high fees to these managers because they want a piece of that alpha pie. They want a piece of that sustainable power in that business. And it's amazing what a powerful VC firm determines.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“We have managers ranging from $400 million hedge fund to the tens of billions of dollars. And we've seen all the research as well. Smaller managers. And I don't disagree with any of that research, but by and large, we think that you can make money in lots of different ways. And if you're large and you're playing in an illiquid area or you're... Then you're going to make some money, right? So it's all about edge. And yes, I see in general, by and large, smaller managers are making more money than large managers.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think operationally focusing on smaller managers entails risks that you have to be aware of. And we've had the misfortune of investing with groups that we thought had fantastic ideas in IP and failed operationally. And so we're pushed out either from having not the right investor base or not the ability to actually sustain a business long term.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“At that point, I think I was educating me. How do you think about the portfolio? I welcome diversity of thought. Welcome diversity of portfolio management”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“We don't have a lot of time, so let's just get down to it. Why are you different? How do you take risk and how do you manage risk? Institutional quality risk management. And it's a foreign language to a lot of managers. When I joined Ford, I remember one of the first meetings I had with a manager. I had brought in my brand new wrist dashboard and we've taken your returns. We have put them through our risk calculations and we've looked at fit with our portfolio and this and that. And it looks to us like you have a little bit of a value tilt in your portfolio. Can you explain that? This particular manager took it and they put it inside a folder and they closed the folder on top of it. And they said we don't think about the portfolio like that.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, well, peers, other family offices, as well as other endowments and foundations, I think the idea for the institute is one of our other competitive advantages. We're smaller. We're about a billion dollars. We can afford to be in smaller, more esoteric, more unknown things that larger endowments and foundations might not be interested in. We hear there's direct reach outs, there's third-party marketers, there are cap intro groups. I welcome all of the inputs.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“The world is a big place. And so we try to be smart about how the pipeline is put together. And so we've got 15 different places that we're sourcing from. We look to our board. We have a lot of practitioners on the board. We've got people who are deep in private equity. We've got people who are deep in hedge funds. We've got people who are deep in risk management. And so that's a tool for us.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you look at the best private equity managers, even including the fees, they've had fantastic returns. Same thing with hedge funds, right? The dispersion on these private investment vehicles, hedge funds, private equity, private real estate, private energy, the dispersion is massive because the rewards are huge. People will flood in. If you can earn fees without performance, great.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Something and we have an expectation for that risk and we have a conviction in that risk. So if at some point Equity data becomes highly, highly attractive, as it was in March of 2009, not without risk, but I'd like to think that we would have a lot more of equity beta in the portfolio at that point. It just doesn't make sense based on what we are expecting going forward. Hey, we're moving assets into strategies that do have embedded equity beta. Why would you do that at this point? Well, we believe that sometimes those strategies have a lot more potential alpha.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah. Well, I would agree, but if you look at what we are projecting forward, it's right around 8%. We have an expect return of 8% on a volatility of around 5%. That's how we model our overall portfolio. We've achieved 8% on less than 2% volatility. So we're not conditioning the future on the past. What we're saying is, well, let's take a 5% risk budget, which is about half of what we think peers have. And let's move that to six or seven. We're not saying let's become like an endowment, although we would consider that if the board was willing to accept the type of potential adverse outcome, certainly. And people take a look at our portfolio and say, well, you're just all focused on alpha and you hate beta. No, we don't hate beta. We treat beta as we do every other risk in the portfolio.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So on the margin what you laid out was an unusually benign environment for the last five years. And a degree of uncertainty. We don't know what's going to happen going forward. And now you're saying, oh, but we want to take a little bit more risk. How does that come together? Because everything you set up to that point I would have said, well, maybe the portfolio you had in the past is the right one for going forward.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we are migrating slowly toward this new strategy of being able to take more risk. And that's how what the board has said, the board has said, yeah, we're getting more comfortable with the idea of taking more risk because we've got to find more return. And we also believe that you can't find return without risk. And so we're following a strategy of maintaining a lower than peer risk profile, but potentially becoming increasing illiquids. comfortable with leverage, and we would also concentrate if we could. Most of the managers that we are invested with aren't taking more capital. So it's hard to concentrate if you can't rebalance.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“But use it in an intelligent way. Extrapolation is bad learning from the past and doing a course correction based on the past I think is much more useful. A lot of people are sort of one way or the other. Well, if you have this back test, back tests are junk. Other people say we need this back test to be able to invest. What does a backtest tell you? There are terrible backtests that are just statistically ridiculous. Other back tests are legitimate. They like the strategy. They incorporate trading costs. And so there is a spectrum there. It's like flying a plane. Do you want instruments? Do you want data? Yes, you do. Do you also want windows? Sure. That'd be great.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's going to do something else, then you probably need to position differently. If you don't know where the world is headed, then don't position your portfolio like you do. And so that's what we try to do at Ford in our pursuing a more diversified strategy, more geographically diversified, more strategically diversified. Same thing at the Institute. The Institute has even more diversification. I've heard this, right? Especially in an equity market that's compounded to 15% in the last five years. Well, we missed the boat on private equity. Yes, but go back five years and you did not think that was going to happen. And so you always have to just look, what do you expect? That's one of the other first principles is don't look at the past. Use the past to the extent that you can.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've done it with so much less risk. We've achieved it with the maximum drawdown in the portfolio. It's been two percent. That's non-existent risk. This is what I want to caution as we think anyone's complaining about an eight percent return of the last five years with a 2% max drawdown. That won't be achieved again, right? That's phenomenal outperformance from a risk adjusted basis. But obviously we are our target return. I just caution, caution, caution what happens is if you believe that the risk environment that we've had in the last five years is going to be the same as the risk environment in the next five years by all means lever up, concentrate, go for it, get really illiquid, sure. If you think that the environment in the next five years is not going to be similar and you think”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the first principles are are there inefficiencies in the market? Yes, we believe there are, and we believe there are reasons why they exist. Can those inefficiencies be exploited by folks with relationships, folks with differentiated knowledge, folks with differentiated access, folks that are making use of structural inefficiencies, folks that make money from the lack of attention or care being paid by larger groups kind of the remoras of the world? All of the folks who are great at using tools and information in new and different ways, all of those things create the ability to take risk and profit differentially from risk. So yes, we believe all those. And if we look back at the past five years or eight years, we've actually done better. We've had median returns. Some people say, well, that's just junk. No.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“You always have that doubt, right? And so the way you combat that is you go back to first principles. In engineering, it's the law of conservation mass, law of conservation of momentum, and law of conservation of energy. That's it. So if you don't believe those, then you can't believe what comes after that.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Talked about uncertainty, and you've had five years, it's probably longer. It's probably eight years, where that core part of your portfolio hasn't delivered your expectations. Point in time do you sit back and say Well Still uncertain. We still think these principles are fantastic at what they do, but maybe we're wrong.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Alpha not existing in the future. What I'm worried about is alpha becoming more inefficient and more risky and lower risk adjusted return per unit of alpha going forward. I do think that edge goes away and people figure things out and money piles into strategies. And when capital flows in anywhere, it wrecks not just future returns, but the risks go up as well. So getting dinged twice. You're getting a lower expected return and you're getting a higher expected risk. I think much of the focus is always on that former.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's tough when we compare ourselves with peers. We've actually been able to keep up with the median, but we have not kept up with the Ivies, for instance, and the ivies or the yardstick that I think everyone uses. And so you've got to just make those corrections. And so we often show our board performance of the institute portfolio as a function of market returns and where expectations have been. This is not a bear market portfolio that we have. It's very, very alpha focused. And admittedly, alpha has not delivered what we've expected it to deliver over the past five years. Hear a lot of attacks on alpha and alpha's disappearing. Alpha is just created by the environment. It's a function of people taking risk relative to a benchmark. So I am not too worried about”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So you've had this portfolio that's called 80% hedge funds, 20% private equity moving to 65, 35% or something like that. Be a really tough environment these last five years to do that objective of keeping up with your peers who have a lot more equity beta. Is that pressure like?”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Art and science, right? So looking at exposures, looking at risks, listening to the manager, looking at where returns have come from, and then normalizing those results for the past five years and projecting them forward, where do you expect VAL to go? Where do you expect systematic exposures by systematic exposure, I mean not just equities and fixed income spreads and things like that, but some of these alternative risk premium, looking at those types of embedded risks, there's no easy answer to predicting the future.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would be very careful about judging what you've just seen in the last five years. So we'll go full circle to where we started. Engineering and aerospace and uncertainty management quantitative. One of the things we do and did in turbulent studies is to normalize results. So you non-dimensionalize things to make them easier to see patterns. And so we apply those types of techniques. And I think everyone should try to apply those types of techniques. Our business is forecasting the future. We want to invest with people who are going to have a certain likelihood of outcomes in the future. If you want to use a track record, especially a track record in the last five years, to analyze anything, you better correct it for the environment.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“Great managers, really fantastic brand name, terrific, best investor in the world types of managers have okay outcomes in the last five years, certainly relative to the market. And I'm hearing what I have heard in the past that's very dangerous, which is, well, it's a long term five years is a long time. And yes, I agree. Five years is a long time. But we have had a very, very”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so what is that outcome? Is that a better than average outcome or is that a phenomenal outcome? Is that incredible? Is that a one in five-year outcome? Or is that a one in 20 year outcome? I don't know the answer to that. I'm leaning more toward the one in twenty type of year outcome because volatility has been so low and it's been sustained in a very dampened state and returns have been off the charts. I don't think anybody expected earnings on the SP to be above one hundred fifty bucks a share at this point, but buybacks and it's just been a fantastic environment, fantastic outcome. But no one saw it. That is the thing that I have to keep coming back. No one expected this outcome. And so we're in this very dangerous spot now where managers have five years of track record and they're awful.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“The exact opposite has happened. And if you go back, sorry to 2013 again and you look at the forecasts, you've got some folks who are on the lower end, but you've got folks like Goldman and JP Morgan and the folks who publish capital market expectations. And you see equities seven percent annualized return fifteen percent vault. No surprise there. Really. There's no surprise. This is what people believe, and that's what they believed five years ago. Now you fast forward five years and you look at what has actually happened. Double the returns, and two thirds to a half of the vault?”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“They're able to stay funded and financed through very adverse situations. And really, we are taking a very, very long-term perspective, which I think you have to do. The last five years Is really perfect evidence for this. It's amazing what has happened since january twenty fourteen. I've almost been at the Institute for five years. And my views on where the market was headed and where it was going haven't changed at all. What has changed is the outcome five years hence. So back in 2013, 2014, you've got bears projecting low returns. I first heard the term low return environment in 2010.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So concentration, leverage, and illiquidity, right, are the three main risks in any of these portfolios. And then you can argue about whether long or short matters, right? If you have a concentration in a risk factor, that's dangerous. And so leverage just amplifies or deamplifies the characteristics of the portfolio. And then illiquidity obviously has its own issues in terms of risk. So managing those three types of risks are important. So the characteristics of the managers are folks who are great at something have an edge, have the ability to really take a risk and really pursue high returns, but have a strategy for really managing and overseeing that risk, right? There's no squeeze potential on them.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're not looking for 3% fixed income substitute. We're looking for even more than equities and even less equity beta and even more diversification. So searching far afield for Great risk takers and great risk managers, and we believe if you find great risk takers and great risk managers the returns will follow long term.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the strategy by and large was in place and it was 100% alternatives. That portfolio was in place, that strategy. It was 80% hedge funds and 20% private markets funds, mostly venture. And so the changes that we've made have been much more around the margin of the types of managers that we were seeking and the illiquidity profile of the fund. We've decided that we can afford to have more illiquidity in the portfolio. So we've slowly pushed that allocation out toward 25, 30, maybe even 35% in private markets with a very high focus on managing those cash flows and liquidity. At the same time, the hedge fund side, people say, how can you even get close to 8% there? Well, we are targeting very high potential return hedge funds.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've got to target an 8% perhaps higher return just to keep our head above water, but yet we can't afford to have more than a fifteen percent or twenty percent drawdown because we'll never recover. Our spend rate would be too much.”
2020-04-02 · Capital Allocators · [REPLAY] Mark Baumgartner – Luck, Risk and Uncertainty as CIO for the Institute for Advanced Study (Capital Allocators, EP.77) · IDENTIFIED FROM THE TRANSCRIPT · source