YouSaid · the spoken record

Peter Kraus

lines on the record: 100
first: 2020-02-03
most recent: 2020-02-03
sittings or episodes: 1
sources: podcast

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“So, this is a bit of a complex answer, but another thing I found in my career is that allowing managers to be unconstrained is far better than constraining managers. Clients constrain managers all the time. I was talking to a client the other day who said, well, you know, if I give you money, then you can only own a certain number of bonds that look like a certain thing. And I basically said to them, look, I appreciate that you have your constraints and your concerns, but I won't manage money on that basis. Because I'm trying to actually produce a return series that you're looking at to make a decision to hire me, and then you're giving me a set of constraints that makes it virtually impossible for me to actually create that return series. So that may be okay for you, but that's not okay for me.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I've interviewed, as I counted yesterday, actually, as of today, 292 managers over the last 13 months. I had a strategy of hiring managers that was not driven by strategy, but rather driven by human capital. At the end of the day, I always thought the person was the most important thing. And if we go back to me talking about my career a little bit, I've always been fascinated by the people. So at the end of the day, if I found somebody that I thought was really interesting, really good, had a different way of investing than I thought was persistent. That was the person I was going to hire no matter what the strategy was. And so I don't think anybody would launch their first fund in their company being emerging market debt, but Peter Marber, who is the manager I found, I thought was really an interesting manager in that space doing a really interesting thing. We hired him, and he was the first manager.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I thought that that was taking a little too much risk on because you're very path dependent with regard to that fund. Number one, number two is I wanted clients to be able to decide do they want global equity? Do they want emerging market debt? Do they want global loan short credit? What do they want to put their chips, so to speak? And I wanted managers to have a long duration to produce performance because, again, I've been in this business a long time. Managers don't always perform, and you can't expect that they will perform in their first one or two years. And so the capital is allocated for a five-year time period. Now for five years, the manager doesn't perform, then they don't deserve your money. And we think that that's fair time period for the manager and good for the clients that are putting their money in because, again, the manager is not going to be dysfunctional if in year two they're not performing because they have a long period of time for the seed capital. That's another important element.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Today we have five managers, or will by the end of this year, we have a partner generalis our partner, Generalites committed four billion dollars of capital to aperture. One of the things that I wanted to do differently than most launches was number one, I didn't want to launch a single fund. Lots of folks in the hedge fund world run multi-manager portfolios.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“We think that we should be held to beating the index, not the ETF. So we have to actually beat the index. And if we beat the index, then we charge 30% or whatever that excess is. So by definition, you could never pay more than the performance because the performance is the basis points. We only get a third. It can't by definition happen.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, for that manager, we charge what the global MSCI ETF charges, which in the United States is 32 basis points. That's the management fee. And then we only charge if the manager beats the index. One of the interesting things about ETFs is that virtually all ETFs, with the exception of U.S. large cap, actually earn less than the index. There's friction cost. Security lending doesn't overcome all the friction cost. Can't always buy all the securities. For example, in high yield, the high yield ETF owns 100 bonds. The actual index owns over 1,000. And so replicating the index is almost impossible.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Basically, an inefficient index. And people don't think about the fact that each manager is trying to diversify their own business, so they have the manager diversifying its business because it wants to, for its own commercial reasons, and then the client diversifies itself over multiple managers, and it just ends up with goo at the end of the day.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let's just take global equity for a second. So number one, the manager is only paid on performance, so constantly they're concerned about how much capacity can really run, how much money can they really run. Secondly, we run concentrated portfolios, so that manager has 20 to 25 long positions in a global portfolio. That's concentrated. It's not five or ten, but 20 to 25 is concentrated. What you learn about diversification as well is that the benefits of diversification continue as you add more and more positions, but it's asymptotic. It becomes significantly less valuable once you're beyond 12 or 15, and 20 to 25 you've gotten 95% of the first occasion benefit. Plus, nobody owns one manager. Not an institution, not a client. Nobody does. And that is another real problem in the industry because people diversify themselves across managers. And when they diversify across managers, they're creating...”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I need something that controlled risk because you pay people based on performance, then the clients will ultimately feel like, well, I'm giving an option to the portfolio manager to take risk all the time, and that could be bad for me. So we had to have something that controlled risk. And lastly, I felt that we need to separate beta from alpha. So there was a price for beta in the market, and that price changes over time. We had to adopt a strategy that says, okay, we'll meet that price, including adjusting it over time as that price changes. But if we did that, then we could say to clients, look, you're not paying anything more for the index in this active structure than you do in the passive structure, except you have the option of outperformance. And you only pay for that option when it occurs.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Strong incentive that was aligned with the client that was completely absent in the industry and was only applied by some managers who themselves thought that was the case. But the industry itself didn't apply that. So I needed something that controlled capacity.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“That thought process over years, I came to the view that capacity was important, but it had to be managed by the portfolio manager, not the management, because the management didn't really have a good view on capacity. The management wasn't managing the portfolio, the management wasn't buying a stock or buying a bond, it was the manager, and the manager is really the only one that knew what the liquidity of their positions were, and they had to be incentivized through some persistent structure that capacity was limited because if they took on too much and capacity, they would not perform. And at the end of the day, that was the only...”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it was on the basis of that that I started to think that the industry has to change and the industry has to accept the fact that it needs to be smaller. But in order to pay people what they need to be paid because you need smart talented people, you had to change the compensation system and you had to be able to pay performance in a different way than performance was charged before.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“We need to have a level playing field where active managers can compete with passive and get paid for their performance. Because if they don't, I think over time Active is just going to continue to lose money, which has been the case and continues to be. Treasury said to me, he said, well, do you have a model that shows where too much passive is too much? And I said, no. I said, do you have one? And I said, no. I said, there isn't one that exists. We're not going to be able to find one. But you know for a fact that there is a tipping point. And it's not 100%. And we don't know where it is. And we shouldn't take that risk.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“The opposite happens when it's constant outflow. So I went to see the SEC and Treasury and I said, look, At some point, if the markets are large enough, in passive, we could have a discontinuous capital markets function. We need price discovery in order to determine pricings. Passive models do not discover prices. High frequency trading trades around prices, but it doesn't create price discovery. It creates liquidity, but it's not price discovery. It's not determining value.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I became very interested in the market dysfunctions because in the 15, 16 time period, you started to see quantitative models driving trading activity in short time periods. And you could see obviously that there were large companies being built around these quantitative activities, short time horizon trades, insurance companies that built VAR models that actually were triggered by certain levels of volatility. And that those activities were having an impact on the marketplace. And the growth of passive was also having an impact because passive was just a simple rule. Think of passive as one manager. It has one rule. I buy everything in the proportion of its market weight to the total. That's all it does. And if there's constant flow into passive, then it constantly applies that rule.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So for example, equally weighted portfolios better than the weights that managers pick. Oftentimes they're much better. Our concentrator portfolio is better than diversified portfolios. Yes. Is it a panacea? No. But on the whole, concentrated portfolios produce better returns, much more volatile. People didn't like volatility, so they would create the diversification because clients didn't like the drawdowns. But in reality, if you're actually producing results, then you would want a more concentrator portfolio.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is disrupting, and it's disrupting me, and I'm going to disrupt back. And she said, How? I said, I have no idea. I said, But if I don't, it's just going to eat me alive And that was 2016 or 2015 maybe. And that's continued to happen. The third thing was I did a lot of analysis at AB with the information that AB had. AB was a company that's 50 years old in the asset management business. That's a long time. We had a lot of information, a lot of data, and we were able to use that data to really analyze results and to look at various different ways in which portfolios could be constructed.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“The client accepts history as being predictive of the future even though every time you see history it always says history is not predictive of the future, but clients accept that because they have no other basis and they accept the bias of financial incentives that drive asset growth as opposed to performance. So that was one example. I was one epiphany. Second was I was in a board meeting and one of my board members who's a terrifically insightful entrepreneur asked me in the board meeting. She said, if I were a tech entrepreneur in your field, I would regard passive as the perfect product low cost therefore it's cheap, it's easy to deliver, and it's ubiquitous. Why is that not disrupting you? And I had a five minute diatribe on why that wasn't the case. A couple days later, I called her on the phone. I said, you know.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“He said $25 billion, and I looked at him and I knew exactly what he was doing. He was calculating number of assets times the fees that he gets times the payout. And he liked that number. And he said $25 billion. And I said, there's no possible way that you could manage $25 billion with the return stream that you have. You're an active trader. It's just not possible. So we debated back and forth. And ultimately, I lost the debate. We agreed on $15 billion. I was at $5 and was one of those examples where he was in the right place at the right time. And in 18 months, he gathered $12.5 billion. Fabulous financial result. Great for the firm, great for him. Client returns? Not so good. And it just drove home the point that these businesses are not aligned with the client.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Part of the market, you sort of delude yourself into thinking that this is all about product innovation, selling, and a cyclical process. But it wasn't. It wasn't. And it took me a long time to figure that out. And at what point in time did you sort of draw the conclusion that, now, okay, you're sitting at AB, but the drivers of the business model and the incentives are just wrong for long-term success. There are three epiphanies for me, and I wish that I was smart enough to see them without having to have the experience of realizing you're wrong, but I'm not. And the three experiences were as follows. And they happened pretty much within a year. So first was hired a manager who was a terrific manager, had a small amount of assets and a great track record. I asked him what his capacity was.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, they never really thought about capacity constraints. They never really said, well, gee, I really have a capacity constraint. Everybody in the industry said, well, active is better than passive because active you can actually perform. And nobody said, well, I can't manage the $32 trillion or the $50 trillion in the world. They just said, of course I can. And their models, their financial models drove them to do that. And so at AB, because AB was under such stress, it really gave me an opportunity to say, well, if I had a clean sheet of paper, what would I do? And is this cyclical or is this structural? And I didn't answer that question immediately. I struggled with that for a good four years. I kept thinking that this was a cyclical, because then I kept talking to my CEO colleagues in the industry who all said, well, Passive will have its day and it will be in the fourth quartile and Active will come back. And plus, you have innovation in the industry. People change all the time and they produce new products and new products create excitement and new products can gather assets. And if you're in the right”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Managers were really based on performance. They weren't either based on performance because their performance fees are based on total return and total return includes beta or carry and beta and carry are driven by asset growth. And so if you're getting paid 20% on beta and carry, asset growth times beta or carry times 20% becomes a lot bigger than the alpha piece. And so the whole industry has got this structural problem of growing assets. And the industry never because up till call it the mid-80s, maybe the even 1990, the industry didn't really struggle with performance that much.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So call them options, and they would allow the options to be available to the market, and then the market, meaning investors would have a particular desire. They were worried about interest rates rising. They thought the U.S. stock market was going to grow faster than everything else. They thought that emerging markets were on a tear. Whatever their view was at the time. And if you had a manager that was performing well in that environment, you could gather a lot of assets very quickly. So your job is sort of the manager of that business was to create a stable platform and produce returns that were solid, but have enough options that you could take advantage of the asset growth. The whole motivation of the business, the way the fee structure is set up, the way portfolio managers are paid is all based on asset flow and growth. And unfortunately, while we thought that performance-based”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“And having come from a levered world, I knew that was a key issue. And that was not something that I think they really appreciated. And then we set about rebuilding the firm, and it took a lot longer than I thought. I had thought that the business could be stabilized and rebuilt within two to three years. By five years, I had a five-year contract. The business would be back on its feet and growing, and I couldn't have been more wrong. And that's where It really started to dawn on me that there was a disruption in the asset management business, that there was really something going on that was not cyclical structural. And what was that? Historically, these businesses were built on the basis of asset growth. This is simplifying the business, of course, but large organizations would build many different products.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Bit freaked out for two reasons. One is that they had a new CEO that they didn't know and didn't come from their business. And I knew that. I knew that would be an issue. I said to them at the time, I said, look, I'm not going to bring people into this company. I said, my job is to figure out which of you are in the right job and which of you are in the wrong job and to figure out how to promote the best people in the organization because I'm sure that there's enough talent in a bait to actually run it. And then I said to them, I know you feel like you're in a very stressful situation, but the good news is this company is not levered. It's not going to go out of business. Our earnings are going to go down a lot, our assets are going to go down a lot, but we'll survive.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“And then lucky enough, Alliance Bernstein needed a CEO and they asked me to take that job. And that was one of the companies I wanted to run. Because AB was an unusual combination of three businesses. It was an asset management business with a real investment culture. It was a private wealth business with a solid capability in that space. And it was sell-side research business. And I knew all three businesses. And I liked all three businesses. And they were all intellectually interesting to me. And I love dealing with clients on the private client side. So to me, it was like, if you could build a business for Peter Kraus, that would be the business. And so what was it like stepping in, right? You're in the thick of it in 09. A lot of panic. I came even worse. I came December of 2008. So December 15th of 08, I took the job. It was a Friday I signed the contractor. On Friday, I met with the managed team on Saturday. And the manager team was a little...”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I remember the time we had some ninety odd billion dollars of free cash. I tell you that because that ninety went to below ten within a short period of time, just basically from mark to market, not losses. And obviously we had to negotiate an extremely challenging 10 days or so where the world blew up and we sold the firm.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“There were a significant fissures that you could see, and so I thought it was a good time to leave because there would be change and I could take advantage of that. I didn't think the world was going to blow up, but I sort of had the right idea. Yeah. And you landed? Well, so I really wanted to run the asset management business, but there was not a job that I thought that would be interesting to me. And John Thane, who was a great friend and remains a great friend and who I had a tremendous amount of respect for, was running Merrill Lynch. And he asked me to come to Maryland. Ultimately, I said yes. And then we had probably the greatest 10 days of my entire career, which were those 10 days. I arrived at Merrill Lynch, I think, September, either the 4th or the 7th. I don't remember which 08. Yeah, of 08. Oh, boy. And it was a beautiful blue sky day. And Lehman was very volatile at that time. Merrill Lynch's stock price was also moving around pretty significantly.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“intellectually captured both sides, both the behavioral side and the sort of quantitative finance side. So why did I leave Goldman? Because you asked me that question. So by 2008, I had been running the division for eight years, which in Goldman terms is usually a pretty long time. And I really wanted to run a public company that was an asset management business. And that was hard to do at Goldman for obvious reasons. So had a great career and was financially secure. So I decided that I would retire in Goldman Sachs words. So I did retire and I didn't know what I was going to do. And then the world blew up. I thought the world was going to change. I did not think the world was going to blow up. But it was pretty obvious by early 2008 that there were substantial financial strains and there already had been changes in large financial institutions. Citibank had replaced their CEO, Merrill Lynch had replaced her CEO.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“But in fact, it's extraordinary complex. And as I like to say to people, if it was so simple, every manager would outperform. And we know that that's not the case. So it's actually a very complex and challenging business to run. And I was captivated by that. There were two things that drove me. One was the complexity of the human mind and the way humans behave. And going back to my even college years of how do you think about fear and greed and markets and identifying opportunities in markets? And then secondarily, just the fundamentals of investing, like understanding businesses, understanding strategy around businesses, understanding what business is going to succeed, what businesses are going to fail, and then how do you take advantage of that through investing. And those two things have been driving me for my entire career in various different ways. And they came together in the asset management business, and that was a great thing for me personally because I got to do something that intellectual.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Head of the division that comes from outside of the division. It really didn't make any sense that a division wouldn't be run by somebody who came from the division. And the asset managed business looks like a simple business and it doesn't have a balance sheet. It's basically cash in and cash out. But it's basically an extraordinarily complex behavioral driven business because you're humans that are either building machines that are making decisions or humans that are making decisions. And humans are very complex. And not only are they complex, but their reactions to various different scenarios in the world is different each time because nothing is the same. And so human reaction and controlling human reaction, creating processes around human reaction and building a business that's based entirely on human talent, that's a really challenging and complex process. So most people looking at asset management think it's simple.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Went to a long run of market expansion, and the asset management business started to become a significant provider of liquidity. Whereas Wall Street was always an intermediary, but then now you started to see pools of capital that were big enough to actually drive demand and actually drive pricing. And so asset management started to take on a life of its own. And back at that time, Alpha was obviously easier to earn, fewer competitors, much smaller amounts of assets. And a hedge funds in the 80s and early 90s were, some were large, some might have been multiple billions, but most were less than a billion dollars and produced very attractive returns because they were smaller pools with a lot less efficiency in the markets and a lot less competitors out there. So what was the impetus for you even Goldman? So I had a great career Goldman. I was there almost 24 years when I took over the investment management division, which wasn't a division at the time that went there. We formed it basically in 2000, and that's when I went there. I said to the division at the time, look, I'll be the last.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“That group of people that actually serviced financial institutions. That included banks, insurance companies, and asset management organizations. That was a period of about eight years or nine years for me in that environment. And in that nine-year time period, or let's call it 10 because it basically was 1990 to 2000, many things happened in the United States of America as well as the world. The most significant thing of which was the change of the interstate banking laws. It used to be that you literally, a New York bank, couldn't do business in California and vice versa. And you had all of the state banking packs. And all that state banking limitation went away. At the same time that that was happening, the asset management business, which was a small business in the 70s, not a large business, started to grow because savings started to grow and markets starting in the early 80s.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“continues to affect financial markets as well as the asset management market. And that's a key issue. How did your career then progress through Goldman? So as I said, I was very lucky. I started in the mortgage securities business. Goldman early on decided that they would create a business in investment banking and in the fixed income business or what was then called the fixed income business. There was a joint venture that focused on financial institutions. They recognized early on that financial institutions had an unusual nomenclature to it, an unusual regulatory environment. And if you really were going to provide service and advice to that industry, you had to understand it and you had to speak the language and you had to understand the peculiarities of balance sheets, regulation, and issues that surrounded that. You couldn't call on Procter and Gamble and Citibank and assume you could have the same conversation. It just didn't work. And of course, as the world got more sophisticated, that became more obvious. But Goldman was early at that. And I was in that.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Their stock price was doing at that moment because they didn't have the same machine. And today that would be unthinkable. Of course, they know as much information as I would know. So there were information advantages in the finance world at that time that were being driven by technology 35 years ago that is still happening, but at a much, much faster speed. And that's a key theme because if you think about 1973, I think 1974, when commissions got deregulated, because commissions were five cents and they were regulated at five cents. And when that regulation went out, there were thousands of brokers that actually went out of business because they couldn't compete in an unregulated environment. And we have been seeing the cost of transactions drop since that time period. And they're still dropping today. They'll continue to drop. And that theme of information technology, information efficiency, speed of access to information.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“and at the time it was a very interesting time in finance because if you go back in history in the mid eighties interest rate swaps had just been invented and the accounting literature was changing rapidly almost monthly where accounting information would come out about how do you account for interest rate swaps how do you account for trunch securities how do you account for other new financial inventions that were happening in the marketplace and speed and computers were beginning to actually have an impact on wall street if you go back at that time you had things called quotrons that actually showed you prices there was a ticker tape and now there was a quotron but we're talking about information or speed of information that in today's world would be Neanderthal. I mean, it was minutes, if not hours and sometimes days. As a banker, I could actually make an impact on a CEO by calling them on the phone and telling him.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“the fixed income business and the mortgage securities area. In 1986, Goldman literally had one mortgage trader. He traded government securities, basically Jinny's at the time. There wasn't much else, and no hole loans. There was literally nothing else in the firm, and the firm decided to actually start from scratch and build a mortgage securities business, which they did. I hired 100 people. I think I was employee number two. They hired 100 people inside of 18 months, so number two was interesting. 18 months later, it didn't matter. But I learned the basic building blocks of finance at Goldman Sachs, because one thing's about mortgages, they're basically cash flows. And the question is, how do you think about the cash flows and the timing of the cash flows, the optionality of the cash flows?”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“But that was really what you were required to do. What was really curious to me about Goldman Sachs was Goldman Sachs allowed people to specialize and they compensated the different specialties equally. So at the partnership level, I mean, if you became a partner, you could be a corporate finance specialist. You could be a sales specialist. You could be a client specialist. You could be a trader specialist. Basically, the compensation was equal. Again, from a behavioral point of view, it was very interesting because now you let people gravitate to their greatest skill and you didn't incentivize people who maybe were lesser skilled managers or lesser skilled corporate finance people to try to do that because it paid more because it was all equal pay. And I thought that was fascinating and I was really interested in joining that company for that reason. And what ended up being your specialty? Well, listen, I had a really fantastic career at Goldman Sachs because I started.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Like a long time, but Europe was basically devastated in World War II, and it was still rebuilding. So it was in Greece I actually transported myself back and forth from Athens to various islands on army surplus transport boats because that was the only service they actually had. You go through Pete Morowick and work your way from there into asset management. What was that step? So for me, I was always captured by financial markets. And I had an opportunity to work at Goldman Sachs. And the interesting part about Goldman Sachs at the time was the accounting profession, you had to be a jack of all trades. You had to be a technician, you had to be a salesman, you had to be a manager of people, you had to be a manager of the client. And frankly, nobody was good at all those things.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“And they had very interesting program for liberal arts candidates. They sent you to NYU at night, and you could get your MS in accountancy or an MBA if you chose to. I chose to get an MBA. And in two years' time, and I finished in 18 months, you get an MBA and your CPA and get two years of experience at an accounting firm. And that sounded like a good idea. Better, it started in June and I go to Europe for six months. So that was not the Machiavellian part. So that's what I did. What was that travel experience like in Europe right out of college? Well, of course, I had a backpack and I had, I think, $300. And I stayed in the southern part of Europe, which was the cheapest part of Europe. I only spent one night in Geneva because I ran out of money. So I went back to Greece. Europe in 1973 was much less sophisticated, much less than it is today. You think about that, that's 30 years after the war, which seems”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“For thinking about markets and thinking about where returns were and thinking about where Alpha was. When you had that early interest, now you're going through college or finishing college, how does that infiltrate into your job search process? Well, I would say I wish that I had much more planning insight in my job process, but I didn't. I graduated a little bit early from school. didn't have a job. My father said to me, it'd be nice if you had a job. I said, yeah, that'd probably be a good idea.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“when investor behavior changed stock prices. And I was basically talking about fear and greed, and I tried to build a utility curve in a mathematical construct for measuring when fear or greed was going to drive stock prices and drive the market. Of course, I'm not sure I was particularly successful at it, but the professors definitely thought it was interesting. As one professor said to me many, many years later, he said, you know, you were early on in behavioral finance. It didn't exist in 1973. But I was very interested in how humans could affect stock prices beyond the fundamentals of the company. And ultimately, there was mean reversion, either stock prices going up or stock prices coming down to basically get to that fundamental value. And I had been thinking about that really since I was in college. That sort of created an early base.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Significant epiphany in my early life, though, was I think in 11th grade, I convinced the principal of my high school to give me a closet essentially. It had no windows. It did have a door. And in the closet, I basically wrote down or created charts for many different stocks and recorded the daily price movements. And so I had the high and the low and the midpoint and where it closed and volume. And then I created these charts over years and looked at mean reversion and technical analysis to try to determine what stock prices we're going to do. And I was fascinated by that. I was fascinated by the numbers. I was fascinated by the financials. I was fascinated by the behavioral aspects of stocks and bonds and markets. And that behavioral context, that behavioral theme, became something that actually captivated me even in college. And my thesis for my degree was actually trying to identify.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Industry and Peter's attempt to disrupt that structure. We then discuss his process for selecting managers on Aperture's platform, including screening, due diligence, and the nuances in idea generation, track record, value systems, and managing teams. Please enjoy my first meeting with Peter Kraus of Aperture Investors. Peter, great to see you. Good to see you. Thanks for having me. Well, and now you've had a long career in asset management and thought maybe we would start how you first got interested in investing. Well, in part, a little bit the family. My father was a broker in a firm then called Bach and Company, and I had an early interest in stocks and bonds and financial matters. And the most”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“My guest on today's first meeting is Peter Kraus, the chairman and CEO of Aperture Investors, a five billion dollar asset manager he founded after a storied four decade career on Wall Street, including heading the investment management division to Goldman Sachs and serving as chairman and CEO of Alliance Bernstein. Throughout his career, Peter has been a vocal proponent of pay-for-performance compensation models and the need for trust between active managers and their clients. He ultimately decided that a successful culture of performance-linked fees that properly aligns the manager and client could only occur in a new firm built from scratch. He teamed up with Italian bank Generali to launch Aperture in 2018. Our conversation covers Peter's career at Goldman Sachs and Alliance Bernstein, the structural problem of incentives in the asset management.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Hello, I'm Ted Sides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can keep up to date by visiting Capitol Allocators Podcast.com.”
2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
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2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
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2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
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2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
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2020-02-03 · Capital Allocators · Peter Kraus - Widening the Aperture on Alpha (First Meeting, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source