Speaker 1: This is Master's in Business with Barry rid Holds on
Speaker 1: Bloomberg Radio.
Speaker 2: This week on the podcast, I have another extra special guest. A. C.
Speaker 2: Shaw is COHED and CIO of Public Investing at Goldman
Speaker 2: Sachs's asset Management. He helps to oversee two point three
Speaker 2: trillion dollars of assets at g SAM. He has a
Speaker 2: fascinating background both in technology and innovation, in equity, and
Speaker 2: perhaps most importantly, in credit and fixed income. He just
Speaker 2: has a unique set of experiences that have placed him
Speaker 2: in the right place at the right time, doing the
Speaker 2: exact right job. There aren't a lot of people in
Speaker 2: the world of asset management who have such a broad
Speaker 2: and round set of skills and experiences that have led
Speaker 2: him to this position. Fascinating bund Aliance Barnstein and Lehman Brothers,
Speaker 2: as well as a couple of Silicon Valley tech startups.
Speaker 2: I found his discussion about what went on during the
Speaker 2: financial crisis at Lehman Brothers and the sort of leadership
Speaker 2: that you didn't really hear about at the time. You
Speaker 2: only saw the criticism of the c suite executives who
Speaker 2: at various companies had kind of run into problems, but
Speaker 2: underneath that, it's just a whole layer of people doing
Speaker 2: their jobs for themselves, their clients, their staff. And I
Speaker 2: just found that conversation to be fascinating and I think
Speaker 2: you will also, So, with no further ado, my discussion
Speaker 2: with Goldman Sachs asset manager's CIO a cease shot.
Speaker 1: Thanks so much for having me.
Speaker 2: So let's talk a little bit about your background. You
Speaker 2: come out of the Wharton School at University of Pennsylvania
Speaker 2: with a BS in economics. What was the career plan?
Speaker 1: Look, I had no plan. This whole world was completely
Speaker 1: new to me, but I knew two things. First, I
Speaker 1: knew I loved markets. You know, I'd worked for Jeremy
Speaker 1: Siegel as a research assistant when I was at Wharton,
Speaker 1: and that really kind of embedded in me this love
Speaker 1: of macro and love of markets. And the second thing
Speaker 1: was I knew I didn't want to go into an
Speaker 1: investment banking track. I wanted something where I could work
Speaker 1: on interesting problems that would allow me to cast the
Speaker 1: career that I wanted without being kind of showed into
Speaker 1: like this, you know, analyst associate kind of fixed career track.
Speaker 2: And you have some really interesting and unusual experience, both
Speaker 2: both as a trader and working as an entrepreneur, innovator
Speaker 2: and start up. Let's talk about some of that. First,
Speaker 2: you were a trader at a hedge fund that was
Speaker 2: funded by Soros. Is it Blue Border? What's the name
Speaker 2: of the funds, Blue Border Partners?
Speaker 1: Uh huh?
Speaker 2: And what was it like being a trader in that space?
Speaker 1: Yeah, So I had joined that organization right after nine
Speaker 1: to eleven and right after I had come back to
Speaker 1: New York City, and you know, it was a fantastic experience.
Speaker 1: The markets were all over the place, but it was
Speaker 1: a very small organization. There were five or six of us,
Speaker 1: and we were spread all across the world. It was
Speaker 1: nice because I got to work with Greg Coffee, who
Speaker 1: was one of the partners there and obviously has gone
Speaker 1: on to fantastic things. But I basically sat in a
Speaker 1: cubicle by myself, trying to come up with investment ideas
Speaker 1: and realize that that is not my best best place.
Speaker 1: My performance wasn't the best. But I learned a lot
Speaker 1: from that experience and knowing that I'm very much a
Speaker 1: team player and I work well in kind of mid
Speaker 1: to larger size organizations.
Speaker 2: And you said, you came back to New York. I
Speaker 2: know you were on the West coast working in a
Speaker 2: few startups. Tell us a little bit about Level three
Speaker 2: and some of the other work you did out west.
Speaker 1: Yeah. So, you know, go back to the late nineties
Speaker 1: and the Internet was all the rage. I had a
Speaker 1: brother in law that had joined a company called Level
Speaker 1: three Communications that was literally building out the internet. Calls
Speaker 1: me one day he's like, Hey, we're looking for people.
Speaker 1: They have the following profile. I think you meet it.
Speaker 1: Come visit and meet with our folks. And I was like,
Speaker 1: this is my opportunity to really build out my skill sets.
Speaker 2: Right.
Speaker 1: I was a head of a prop trading desk at
Speaker 1: Banker's Trust. I had a series of skill sets. But
Speaker 1: I was really interesting in kind of going to business school.
Speaker 1: But without going to business school. I saw this as
Speaker 1: a fantastic opportunity to do that. So I go out.
Speaker 1: I learned the telecom industry at work one hundred and
Speaker 1: twenty hour weeks helping Level three raise money, build out
Speaker 1: its business plan, and I learned a tremendous amount of
Speaker 1: about business, about startups, about innovation in that period of time.
Speaker 2: And what was the other startup that you helped to
Speaker 2: co found.
Speaker 1: Yeah, so once I left there, you know, I left
Speaker 1: there because I saw that the industry needed a greater
Speaker 1: level of transparency and financial discipline. So I went on
Speaker 1: to found Sage Logics, which was really meant to be.
Speaker 1: It was a software ASP in the telecom space, focused
Speaker 1: on telecom providers, and my thesis was, Hey, if these
Speaker 1: organizations don't get their head around their cost structure, that
Speaker 1: they're all going to go bankrupt. Reality is I should
Speaker 1: have come back to Wall Street and expressed that view
Speaker 1: in two thousand and one, because that's essentially what ended
Speaker 1: up happening.
Speaker 2: Right, betting against docks instead of trying to advise people, Hey,
Speaker 2: you better get your act together or else there's going
Speaker 2: to be trouble exactly. So you come back to New York.
Speaker 2: Eventually you get into credit and asset management at Alliance Bernstein.
Speaker 2: I'm going to hold off your Lehman experience for a
Speaker 2: few moments, just I know we can spend a lot
Speaker 2: of time talking about that. So eventually you go to Leman,
Speaker 2: then to Alliance Bernstein. Tell us what you did at
Speaker 2: Alliance where you were CFO and portfolio manager.
Speaker 1: Yes, so I was brought in by Doug People's and
Speaker 1: Peter Krause to lead the credit organization. And I think
Speaker 1: that when I think back to that period of time,
Speaker 1: what they were trying to accomplish is that they had
Speaker 1: really strong credit capabilities, but they needed to unify a
Speaker 1: team and they needed to build an investment process that
Speaker 1: was going to be scalable. They had some of the
Speaker 1: most talented portfolio managers and kind of investors the world.
Speaker 1: They really understood how to construct portfolios, which were things
Speaker 1: that I learned from those portfolio managers, portfolio managers like
Speaker 1: Grishaun Distenfeld that leads income at AB today. What I
Speaker 1: brought to the table was an ability to kind of
Speaker 1: bring the team together or to operate to singular set
Speaker 1: of incentives, ie. Delivering performance right, not being distracted by things,
Speaker 1: and to be able to do that at scale. I
Speaker 1: brought the hedge fund skills, the derivative skills that you
Speaker 1: kind of learn in operating in hedge fund and prop
Speaker 1: desks to that traditional asset management. And what I learned
Speaker 1: was how do you construct portfolios in a way where
Speaker 1: you can stick with your bets over long haul but
Speaker 1: at size right where you are the market and so
Speaker 1: you don't have the ability to kind of increase risks
Speaker 1: decrease risk, but rather that you are building your portfolio
Speaker 1: so you can stick with the risks that you think
Speaker 1: makes sense over time.
Speaker 2: What you're describing sounds like a set of challenges that
Speaker 2: faces any large asset manager. The ability to scale, the
Speaker 2: ability to make sure all members of the team are
Speaker 2: pulling in the same direction, to make sure the incentives
Speaker 2: are aligned properly. How universal are the things that you
Speaker 2: did at Alliance Bernstein credit to any large asset manager.
Speaker 1: Look, those are absolutely critical elements. And it's amazing how
Speaker 1: as the asset management industry has consolidated and these investment
Speaker 1: organizations have grown, how difficult it is for those organizations
Speaker 1: to pivot into those things.
Speaker 2: Why is that? Is it just legacy systems that people
Speaker 2: can't get past the sung costs? Or is it something no?
Speaker 1: Or I think it ends up being cultural. I think
Speaker 1: that investing requires focus and very similar to a lot
Speaker 1: of organizations. You are built around these teams that are
Speaker 1: small and agile, right because you have to adapt to
Speaker 1: the market. Sure, but how do you pull those teams
Speaker 1: together into larger organizations to be able to do bigger things.
Speaker 1: And I think, you know, that's where the innovation experience
Speaker 1: that I had within technology and within software really came
Speaker 1: in handy because I not only understood markets and investment process,
Speaker 1: but I was able to take kind of how do
Speaker 1: you invest at scale? How do you bring technology as
Speaker 1: a force multiplier for your investors so that your investors
Speaker 1: can focus, they can be and operate in smaller or
Speaker 1: teams make decisions quickly, but at the same time that
Speaker 1: you can build large scale customization on behalf of your clients.
Speaker 2: So let's talk about a little innovation. You found ab
Speaker 2: Labs in twenty fifteen. Tell us a little bit about
Speaker 2: what ab labs did and what it allowed you to
Speaker 2: express within that project.
Speaker 1: Yeah. So when I go back to that period of time,
Speaker 1: I think there were four of us at Align Spurn
Speaker 1: scene that realized there was something maturely changing in the market,
Speaker 1: which was fintech was really changing and accelerate the changes
Speaker 1: within the broader asset management system. And so myself and
Speaker 1: you know, Vicky Waally, Matt bass carled Sprouls CTO, decided
Speaker 1: that in order to get our organization ready, that we
Speaker 1: needed to build that muscle, not just set the top
Speaker 1: down as an initiative, but actually at as a bottom
Speaker 1: up engagement tool for the organization, and so we tackled
Speaker 1: topics like robo advisors, crypto blockchain within that construct as
Speaker 1: a way to educate the organization much more rapidly and
Speaker 1: get people leaning forward into innovation.
Speaker 2: So was this a pure research group or was this
Speaker 2: a bit of a venture fund that's focused on fintech.
Speaker 1: So it ended up leading to both, right, it ended
Speaker 1: up leading to venture investments, But in large part, most
Speaker 1: of that effort was a really around building organizational readiness
Speaker 1: to innovate. And you know, a lot of the things
Speaker 1: that spun out of that effort really to continue to
Speaker 1: impact that organization today in terms of the forward lean
Speaker 1: when it comes to innovation and the overall operating stack
Speaker 1: that allows them to be able to again allow the
Speaker 1: portfolio managers to focus on markets and yet to be
Speaker 1: able to deliver scalable solutions.
Speaker 2: You mentioned culture earlier. How important is it for an
Speaker 2: organization to have the right mindset to lean into technology,
Speaker 2: to be aware of the fact that, hey, if you're
Speaker 2: not caunabilizing yourself, someone else will look.
Speaker 1: I think that culture defines success in investing and particularly
Speaker 1: in investing organizations, that you have to set in an
Speaker 1: investment culture where your investors, first of all, are very
Speaker 1: aligned to delivering performance and the type of performance that's
Speaker 1: going to end up making your clients happy. I think
Speaker 1: that you need to have a culture where people collaborate.
Speaker 1: If you don't, it's going to be really tough to
Speaker 1: have scaled performance.
Speaker 2: Right.
Speaker 1: You can succeed in one area, but you're only going
Speaker 1: to be as good and have as much insight is
Speaker 1: that any one, you know, small group, which is going
Speaker 1: to limit your success if you try to do other things.
Speaker 1: And the final point, you know exactly the one you
Speaker 1: brought up, which is around innovation. The world is moving
Speaker 1: really rapidly. The way you do research, the way you
Speaker 1: put together portfolios, the way you execute in the market
Speaker 1: is changing. And frankly, what end advisors want right for
Speaker 1: their clients and what we as an asset manager have
Speaker 1: to deliver is changing very rapidly. Everyone wants mass customization
Speaker 1: but delivered with the quality of institutional asset management, and
Speaker 1: I think it's really requires innovation and technology in order
Speaker 1: to do that well. And frankly, that's why I joined
Speaker 1: Goldman Sacks because I felt that you needed the scale
Speaker 1: resources that come with a firm like Goldman Sacks in
Speaker 1: the analytics and the ability to really invest in technology
Speaker 1: and in data. If we were going to succeed in
Speaker 1: going to market in the RIA and wirehouse community and
Speaker 1: delivering to you know, institutional quality portfolios that really meet
Speaker 1: the individual needs of every individual at minimum sizes of
Speaker 1: one hundred thousand dollars.
Speaker 2: It's interesting because in the past what you're describing has
Speaker 2: been somewhat mutually exclusive. It's very hard to deliver institutional size,
Speaker 2: asset management and mass customization together. I'm going to assume
Speaker 2: innovation and technology is what bridges that gap absolutely. So
Speaker 2: let's talk about a couple of related quotes that you
Speaker 2: have that caught my ear because it relates to where
Speaker 2: we are on this market adoption cycle of technology and
Speaker 2: how the world is changing. Quote. As a long term investor,
Speaker 2: all you do is worry. But it's not about what
Speaker 2: you're thinking. It's about how you react. Explain.
Speaker 1: Yeah, So I think that the most successful investors, the
Speaker 1: way they invest is they decide what works, what they
Speaker 1: believe works over time, and they're simply trying to stick
Speaker 1: with it. And so what is the worry about. The
Speaker 1: worry is about, first of all, is that thing that
Speaker 1: I believe works over the long haul to what extent
Speaker 1: is it wrong? Because where I'm really going to underperform
Speaker 1: is if I get a long term trend. And so
Speaker 1: you should be constantly challenging your core thesis. But inside
Speaker 1: of that, you know, I think it's really critical to
Speaker 1: be humble and to understand that that core thesis you
Speaker 1: have to stick with it over time. And so the
Speaker 1: other aspect of this is, Okay, what can you do
Speaker 1: to make it so that you stick with your core
Speaker 1: core thesis? Because if you have an environment where your
Speaker 1: core thesis, whatever it is you do, whether it's investing
Speaker 1: in growth, investing in in companies that are lined up
Speaker 1: with a long term trend like technology, you know you're
Speaker 1: going to be challenged, right, And so the question is
Speaker 1: how do you construct portfolios? How do you look out
Speaker 1: for the challenges that are going to cause your clients
Speaker 1: to fire you? Right? And if you can tilt out
Speaker 1: of whatever it is that works over the long haul
Speaker 1: in those periods of time when maybe it's gotten crowded
Speaker 1: or over extended, you're going to be much more successful
Speaker 1: in capturing those periods of when the opportunity is the
Speaker 1: best i e. Buying low and selling high rather than
Speaker 1: having to sell low because your investors essentially have lost patience.
Speaker 2: So you raise a really interesting point about constantly having
Speaker 2: to reevaluate your underlying thesis. But it makes me think
Speaker 2: of one of the biggest challenges there, which is how
Speaker 2: can you tell whether or not an underlying thesis is
Speaker 2: no longer true or if you're just in a period
Speaker 2: of Hey, this style is out of favor. And this
Speaker 2: is what happens on a regular basis. Value underperforms growth
Speaker 2: for a while, or international underperforms domestic. How can you
Speaker 2: identify when you have a giant secular shift versus simply hey,
Speaker 2: this has fallen out of favor these days.
Speaker 1: Yeah, So that's where doing research and developing an investment
Speaker 1: process are absolutely critical. Right. Your investment process makes it
Speaker 1: so that when you know there might be a challenge,
Speaker 1: that use other tools like momentum, like you know, risk
Speaker 1: analytics to be able to like not question whether your
Speaker 1: thesis is out there, but actually reduce your risks before
Speaker 1: the market has questioned your thesis. Right, so nothing may
Speaker 1: have changed, but if the market is changing, the pricing
Speaker 1: of that risk, right, it matters to your portfolio. So
Speaker 1: I think that first point is really critical, which is
Speaker 1: you need to have things that actually diversify you out
Speaker 1: of that long term right, and they have to kind
Speaker 1: of take place before you've already lost money. I think
Speaker 1: the second thing is that you want to be doing
Speaker 1: the research and developing your process so that when your
Speaker 1: style has gone out of favor, that you know when
Speaker 1: to double down, right, that you know when to lean in,
Speaker 1: and you have confidence to do it. And so that's
Speaker 1: a lot of what investment process design is is how
Speaker 1: do you stick with the long term bets? How do
Speaker 1: you tilt out and tilt in rather than you know,
Speaker 1: being kind of and reacting being backfooted or reacting that
Speaker 1: you're actually front footed and you're able to kind of,
Speaker 1: you know, shallow out the drawdowns and lean into the opportunities.
Speaker 2: So we've mostly been talking about things that apply to equities,
Speaker 2: things like momentum and value and growth. Let's talk about
Speaker 2: the other side of a balanced portfolio, which is fixed income.
Speaker 2: How you thinking about fixed income, be it corporate's treasury
Speaker 2: or even tips. In what's been a pretty wild environment
Speaker 2: where the Central Bank has raised rates five hundred and
Speaker 2: twenty five basis points in about eighteen months. How do
Speaker 2: how do you process that?
Speaker 1: Yeah, so from a long term perspective, this seems trite
Speaker 1: to say, but fixed income is about income, right, And
Speaker 1: so the starting point is evaluating income, evaluating the likelihood
Speaker 1: that you actually can capture and hang on to the
Speaker 1: income because a lot of the credit instruments, if you
Speaker 1: have losses in your portfolio, that gives up the income. Right,
Speaker 1: So starting point is income. Shape of curves matter, So
Speaker 1: spread curves historically most of the time are steep. Interest
Speaker 1: rate curves most of the time are steep. That happens
Speaker 1: not to be the case today, right.
Speaker 2: What have we been inverted for two years?
Speaker 1: Just about almost?
Speaker 2: That's a pretty unusual set of circumstances, at least in
Speaker 2: the modern era.
Speaker 1: Well, it's also very very unusual to see an inversion
Speaker 1: like this and not see a material slow down in growth.
Speaker 2: Right.
Speaker 1: Part of the reason why twelve months ago people were
Speaker 1: forecasting with high probability that we be in a recession
Speaker 1: is because historically, yield curve inversions really kind of announce
Speaker 1: that we're slowing down.
Speaker 2: Pretty good track record historically too, I.
Speaker 1: Think that what's changed this time around is that you know,
Speaker 1: real rates and nominal rates are high enough that they
Speaker 1: are slowing the economy down, but there's enough offsetting fiscal
Speaker 1: impulse within the US economy at least that you know
Speaker 1: you have growth continuing on. And so you have this
Speaker 1: interesting situation where inflation has been coming down, right. It
Speaker 1: maybe not in a straight line, and certainly the last
Speaker 1: couple of data points that we've had haven't haven't really
Speaker 1: pleased the market in terms of the FED being able
Speaker 1: to ease aggressively. But inflation has come down from its peak,
Speaker 1: but growth continues. And I think that you know, for
Speaker 1: for fixed income and the income piece, you're better off
Speaker 1: in the front end. Now if you look at value
Speaker 1: in the curve and from a longer term perspective, look
Speaker 1: at what are the real rates relative to the real
Speaker 1: ability for the economy to grow, we're pretty attractive here, right.
Speaker 1: And the one thing we do know is that if
Speaker 1: growth does slow down in a way that like cascades
Speaker 1: into inflation, that bonds are going to do their job
Speaker 1: on the price side, which is they're going to diversify
Speaker 1: the equities that you hope.
Speaker 2: So falling inflation still robust growth and a decent yield
Speaker 2: on fixed income. Dare I use the word goldilocks? Is
Speaker 2: this a pretty decent investing environment for relative to what
Speaker 2: we've seen over the past few years.
Speaker 1: Look, certainly on a year to day basis, if you
Speaker 1: look at your full portfolio, you've done pretty well, right,
Speaker 1: and that that really comes from the starting point, which is,
Speaker 1: you know, you have high nominal yields and you have
Speaker 1: economic growth and earnings growth on the equity side. Those
Speaker 1: two things were working together to generate a pretty good
Speaker 1: return in absolute terms.
Speaker 2: Really quite quite intriguing. So let's talk a little bit
Speaker 2: about your experience in the two thousands. You came back
Speaker 2: to New York from the West Coast and you ended
Speaker 2: up at Lehman Brothers working on the credit strategy side.
Speaker 2: Tell us a little bit about what brought you to
Speaker 2: Lehman and what were your experiences like.
Speaker 1: Yeah, so I was a client of Lehman's back in
Speaker 1: the early nineties, mid nineties, and so I had a
Speaker 1: lot of relationships there, and you know, I had always
Speaker 1: loved fix income as an investor. Unfortunately, fix income became
Speaker 1: a lot less interesting in the later nineties, and so
Speaker 1: my team had really pivoted towards more equity strategies. And
Speaker 1: so when I was coming back looking to get back
Speaker 1: into Wall Street from the technology and space, Lehman was
Speaker 1: one of the phone calls I made. Tom Corkran and
Speaker 1: Rick Reader were people that knew me, that had done
Speaker 1: business with me, and they said, hey, you know, what
Speaker 1: would you think about trading prop within Lehman Brothers? And
Speaker 1: I said, look, I haven't traded fix income markets for
Speaker 1: coming up on five or six years. I don't think
Speaker 1: I should be managing capital right away. But there was
Speaker 1: a real change going on within fixed income markets and
Speaker 1: specifically within credit markets, which is derivatives were coming into
Speaker 1: the space. Hedge funds were coming into the space. And
Speaker 1: so when you looked inside of the credit business at Lehman,
Speaker 1: the people that understood derivatives didn't understand credit. The people
Speaker 1: that understood credit didn't understand derivatives. And I happened to
Speaker 1: be one of the rare individuals that had grown up
Speaker 1: understanding credit, understanding derivatives, and understanding what a hedge fund
Speaker 1: types of trades a hedge fund would be interested in doing.
Speaker 1: And so I came into the role, you know, with
Speaker 1: ostensibly the title of hedge fund strategist, and my job,
Speaker 1: my day job was really to work with the traders
Speaker 1: and the salespeople to come up with trade ideas for
Speaker 1: hedge funds. And so all I was doing was looking
Speaker 1: for ideas for myself that I found was interesting, and
Speaker 1: so that cascaded into people realize that, wait, this person
Speaker 1: understands credit, they understand rivers, they understand these alternative strategies,
Speaker 1: and so I was able to cascade that into running
Speaker 1: all of credit strategy, including kind of some of the
Speaker 1: prop prop research analysts that work within the organized.
Speaker 2: So let's set the stage a little bit. What year
Speaker 2: do you come back to Lehman Brothers two thousand and three,
Speaker 2: So it's post dot com implosion. Technology had fallen about
Speaker 2: eighty percent if you look at the NASDAC peak to
Speaker 2: try suddenly had become very attractive as the Gulf War
Speaker 2: was beginning. What was that era like at Lehman Brothers
Speaker 2: in the early to mid two thousands, What what were
Speaker 2: you seeing and what was the general energy like at
Speaker 2: that shop? Because I remember that trading floor as being
Speaker 2: just a monster sort of noise machine.
Speaker 1: Yeah, it was super high energy. This was the world
Speaker 1: of fix income right, fix income was booming. The growth
Speaker 1: of structured credit of you know, mortgage credit, you know,
Speaker 1: was really kind of expanding the opportunity set and every
Speaker 1: there was a lot of credit being borrowed right, you know,
Speaker 1: to fund companies in the aftermath of two thousand, two
Speaker 1: thousand and two, that credit cycle, there were secondary opportunities
Speaker 1: from a distressed debt perspective. It was just a high
Speaker 1: end energy, rapid growth area, and so it was exciting
Speaker 1: to be there watching what was going on, helping to
Speaker 1: influence what was going on in terms of product creation
Speaker 1: and client education.
Speaker 2: I don't know if people realize, oh three was still
Speaker 2: fairly early days of the ramp up of mortgage backed securitization,
Speaker 2: and it had already been underway, but no way near
Speaker 2: the numbers we saw a few years later. What was
Speaker 2: that experience like, watching this machine start to develop some momentum.
Speaker 1: Yeah, So I didn't directly watch the mortgage side of
Speaker 1: the business. I was on the corporate credit side of
Speaker 1: the business. But without question, the overall fixed income franchise
Speaker 1: was growing, and so we were able to cascade that
Speaker 1: into you know, growth in our franchise and product innovation.
Speaker 1: That really was serving our clients, which were largely both
Speaker 1: hedge funds and asset managers.
Speaker 2: So you were Leman during what probably was the five
Speaker 2: most exciting years in the company's one hundred and eighty
Speaker 2: year history. Any stories stand out from that period, I
Speaker 2: would imagine you saw a lot of things happen there.
Speaker 1: Yeah, so I tell you that, you know the number
Speaker 1: of stories I have around the fall of Lehman in
Speaker 1: two thousand and eight. You know, that was a period
Speaker 1: of time that you know, obviously a very difficult time
Speaker 1: for the economy, for everyone involved at the human level,
Speaker 1: but you know, it was a tremendous leadership kind of
Speaker 1: experience because you really got to understand what you were
Speaker 1: made of, who you were about, and you got to
Speaker 1: develop a reputation. You know, from my standpoint, you know,
Speaker 1: the story that stands out to me. So, you know,
Speaker 1: I had taken over from Rick Reader doing the weekly
Speaker 1: credit call, so on a weekly basis, myself, you know,
Speaker 1: or Eric Felder would do a call really surveilling from
Speaker 1: a macro perspective what was going on in markets and
Speaker 1: specifically credit markets. And so Lehman had failed on Sunday
Speaker 1: right gone bankrupt, had gone in taken my box in
Speaker 1: and cleaned up.
Speaker 2: My desk, literally like walking out with the banker box
Speaker 2: full of personalized and.
Speaker 1: Being interviewed on, you know, on the outside by the media.
Speaker 1: But Monday morning, I walk in, I'm wearing a suit,
Speaker 1: ready to go and saying and we're all standing around
Speaker 1: not knowing what to do, and post bankruptcy, post bankruptcy,
Speaker 1: we don't know if we have salaries or head or
Speaker 1: healthcare for that matter. And my team and I are
Speaker 1: sitting down. Everyone's kind of, you know, at different stages
Speaker 1: of what do we do. And we have this call
Speaker 1: that we do every week that is the following morning.
Speaker 1: And so Mike, wait, just let me make sure I
Speaker 1: understand this.
Speaker 2: So Sunday Leman files. Yeah, Monday, it's front page news
Speaker 2: all over the world. And what time is your call?
Speaker 2: Eight am?
Speaker 1: It's it was at seven five am.
Speaker 2: So you have to get on the horn and speak
Speaker 2: to the entire sales team and and.
Speaker 1: All of our clients, right. And I sat with my
Speaker 1: team and I said, look, I want to do this
Speaker 1: because it's the right thing to do. And I don't
Speaker 1: know what our outcome is here, but you know, I
Speaker 1: don't want to go out this way. I want to
Speaker 1: go out with everyone knowing that the last thing we
Speaker 1: did in our jobs was we tried to serve them right.
Speaker 1: And and so, you know, one of my team members
Speaker 1: got by name of Krishna hag Day and I worked
Speaker 1: till probably eleven thirty or midnight that night, put together
Speaker 1: the presentation the next morning.
Speaker 2: That's till Sunday night midnight.
Speaker 1: Sorry, that's Monday night midnight. Call goes on on Tuesday.
Speaker 1: We show up on Tuesday morning and we're going over
Speaker 1: the internal hoot and there's you know, probably three hundred
Speaker 1: four hundred clients styled in however many more right, and
Speaker 1: everyone looks up and they're like, we can't believe these
Speaker 1: guys are still going right. And and in fact, I
Speaker 1: think it was about an hour later that over the hoot,
Speaker 1: the CEO of Barclays comes over and you know, announces
Speaker 1: that Barclays is buying Lehman Brothers right the US operations,
Speaker 1: and someone in Equities has the you know, hilarity of
Speaker 1: playing God's Save the Queen over the hoot. But the
Speaker 1: number of emails that I got around from clients saying, wow,
Speaker 1: you know, we've always respected your work, but to go
Speaker 1: on and to do your job in servicing your clients
Speaker 1: on this day of all days, is like hats off
Speaker 1: to you, And so I think that like that was
Speaker 1: one of the things that I think it's lost in
Speaker 1: all the stories and the media is that you had
Speaker 1: a group of people here that really did care about
Speaker 1: clients and went out of their way even when the
Speaker 1: chips were down, to keep doing their jobs.
Speaker 2: So Barclays takes over Lehman us with I think there
Speaker 2: was a FED backing of that, if I remember correctly,
Speaker 2: or there was some Was there a guarantee or did
Speaker 2: there no backing? But it was post bankruptcy, so all
Speaker 2: the prior liabilities would go away without a FED banking,
Speaker 2: without a FED backing, and you end up in I
Speaker 2: guess it's a fairly similar role at Barclays, right. How
Speaker 2: similar was the transition? How smooth was that?
Speaker 1: It was quite a bumpy transition. It's a pretty awkward
Speaker 1: position to be interviewing for your own job. We had
Speaker 1: a fantastic franchise, right, you know, the Lehman franchise was
Speaker 1: really known for research and for it was very very
Speaker 1: strong in credit and in the derivative space, and we
Speaker 1: were known for serving clients right within that space, and
Speaker 1: so that transition happened. It was messy, as you can imagine,
Speaker 1: but also we kind of very quickly got back to
Speaker 1: work because there were opportunities in markets, clients needed advice
Speaker 1: in markets, and we needed to figure out what was
Speaker 1: going to happen to the financial system.
Speaker 2: So Barclays had, if i I'm sure I'm getting this wrong,
Speaker 2: they had a small US presence before the.
Speaker 1: Purchase, pretty limited US purchase, and.
Speaker 2: This gave them a fairly substantial footprint in the United States.
Speaker 2: Were there a lot of redundancies or did you pretty
Speaker 2: much just pick up your whole corporate fixed income team
Speaker 2: and slought them into Barclay's.
Speaker 1: Yeah, so, so there was a good amount of redundancy,
Speaker 1: which was painful. But it was literally the fifth round
Speaker 1: of layoffs that we went through at the time, and
Speaker 1: again we said goodbye to a lot of really good
Speaker 1: people who you know, thankfully most of the people ended
Speaker 1: up landing well over time, but it really told you
Speaker 1: a lot about the people that you worked with and
Speaker 1: how they operated. And you know, for me, it was
Speaker 1: definitely formative as a leader to be able to go
Speaker 1: through that difficult period of time to try to do
Speaker 1: my best to support my team and to serve my clients.
Speaker 2: It really looks like Barclays stole you guys, stole the
Speaker 2: crown jewels of Lehman Brothers post bankruptcy when everybody was terrified, like, hey,
Speaker 2: we can't figure out what's going on there. Post bankruptcy,
Speaker 2: the assumption is all the risk has attenuated and you're
Speaker 2: just left with searched through the rubble of the collapse,
Speaker 2: and here's some really spectacular assets, great teams and a
Speaker 2: long history of making money. Uh, what was the experience, like,
Speaker 2: what was the transition like to Barclays?
Speaker 1: Look, you know, I think that it was surreal to
Speaker 1: go from one firm to another, and it's an experience
Speaker 1: that most people won't have.
Speaker 2: Right literally in the same building, right you just change
Speaker 2: the sign on the front door.
Speaker 1: In the same building, although we moved around, but you know,
Speaker 1: it was real. But you know, I think when you
Speaker 1: work in financial services, you're used to change, You're used
Speaker 1: to disruption, probably not at that scale and at that speed.
Speaker 1: But you know, the the other thing I would tell
Speaker 1: you is that you know what the organization was able
Speaker 1: to accomplish and what we as individuals learned from that
Speaker 1: experience was just like priceless. I mean, once you've been
Speaker 1: through an environment like that, everything else kind of pales
Speaker 1: by comparison. You kind of wake up and you know
Speaker 1: you're able to deal with any sort of crisis, right
Speaker 1: Like I'll contrast that with the pandemic, where which was
Speaker 1: equally kind of a it was a much more massive
Speaker 1: crisis at both the personal level, you know, operational level.
Speaker 1: But you know, we've been through crisis, and I think
Speaker 1: for managers that have been through crisis, have had to
Speaker 1: manage risk through crisis, that you get used to it,
Speaker 1: You learn the lessons, you're able to roll them forward.
Speaker 1: And frankly, it's one of the things that I think
Speaker 1: I do really well is in these periods of difficulty
Speaker 1: and crisis that you know, I'm able to zoom out
Speaker 1: and understand how to deal with the crisis, kind of
Speaker 1: slow things down, get people to pull people together, to
Speaker 1: communicate and to solve things as if there are problems.
Speaker 2: That baptism of fire is unique to our generation. I'm
Speaker 2: gonna imagine the previous generation went through the eighty seven
Speaker 2: crash and the two thousand dot Com implosion sort of
Speaker 2: was the bridge between the two. I'm curious how long
Speaker 2: did it take before you were standing up that weekly
Speaker 2: credit call at Barclays that used to do at Lehman Brothers.
Speaker 1: I think it was as soon as we.
Speaker 2: Were allowed to, like a couple of months.
Speaker 1: It was more weeks.
Speaker 2: Oh really?
Speaker 1: Yeah?
Speaker 2: And you continue doing that at Barclays for how long?
Speaker 1: It was about eighteen months until a Lin spurn Steen
Speaker 1: gave me a call and said, Hey, we're looking for
Speaker 1: ahead of credit. Any interest in talking to us?
Speaker 2: Huh? Really really quite fascinating. So what's the big takeaway
Speaker 2: from that experience? We've talked about innovation and culture. Now
Speaker 2: you bring up the issue of leadership. What did that
Speaker 2: entire experience leave you with?
Speaker 1: Yeah? So, so look, I think there are a couple
Speaker 1: of different things that I took away. The first and
Speaker 1: foremost is you take care of your people, and you
Speaker 1: t take care of your clients, and everything else is
Speaker 1: going to take care of itself. Right. I think that
Speaker 1: that period of time for me, because I was very
Speaker 1: involved in working with the New York Fed around what
Speaker 1: do we do to stabilize things? And provided despite having
Speaker 1: gone bankrupt, provided a lot of insight and ideas around
Speaker 1: actions that could be taken to really stabilize the US
Speaker 1: financial system. And for me, it was a calling around,
Speaker 1: you know, making sure that I didn't just operate within
Speaker 1: an organization and with narrow goals, but rather that the
Speaker 1: importance that the financial system plays when it comes to
Speaker 1: the US economy and the strength of the nation is
Speaker 1: absolutely critical, and that we can't take that for granted.
Speaker 1: And you know, there's a higher calling for anyone that
Speaker 1: works in a seat like I do today, which is
Speaker 1: you have a responsibility to make sure that the country
Speaker 1: benefits from the work that you're doing. And so I've
Speaker 1: always through that period of time one of my biggest
Speaker 1: takeaways was any policy and maker calls, I'm going to
Speaker 1: provide them the best advice I can, the best insights
Speaker 1: I can, so that they can do the best job
Speaker 1: they can for the US economy. And it's that economy
Speaker 1: that impacts so many people in the country, both their wealth,
Speaker 1: their wellbeing, as well as the country's national security. And
Speaker 1: I think that, you know, a lot of folks look
Speaker 1: at our industry and they question, you know, whether or
Speaker 1: whether why we exist, whether we need to exist. You know,
Speaker 1: I think that, you know, history has shown that the
Speaker 1: you know, the the ability to grow the country and
Speaker 1: invest in innovation and infrastructure is really subject to the
Speaker 1: ability to finance that infrastructure. And so one of the
Speaker 1: things I find amazing about working at Coleman Sachs is
Speaker 1: that that is very much our purpose, right, We're here
Speaker 1: to help fund, you know, the the growth in the economy.
Speaker 1: You know, yes, we do that to to make money
Speaker 1: as an organization, but ultimately that benefits so many people
Speaker 1: from their longer term kind of growth.
Speaker 2: So you mentioned you frequently were responding to various policymakers.
Speaker 2: I'm trying to remember was was Tim Geithner new York
Speaker 2: Fed she when you were a Lehman or did he
Speaker 2: come in afterwards?
Speaker 1: No, Geitner was head of the New York festal.
Speaker 2: So you must have had a lot of back and
Speaker 2: forth with him over that time. There were some people
Speaker 2: working both in the Treasury Department and in the New
Speaker 2: York Fed and the Federal Reserve clearly paying very close
Speaker 2: attention at that point to what was going on.
Speaker 1: Yeah, I spent more of my time with the New
Speaker 1: York Markets team, so Haley Bowski and her team, because
Speaker 1: I was a technical individual, right, like I'm a market expert,
Speaker 1: I'm not a policy expert, but I would say that
Speaker 1: some of the work that I did ended up turning
Speaker 1: into some of the programs that the FED actually launched,
Speaker 1: including the TALF where I can trace back through some
Speaker 1: of the books that have been written, including the one
Speaker 1: where I'm a small character that you know some of
Speaker 1: the work I did turned into policy, which was you're
Speaker 1: reassuring to know that I did work that helped students
Speaker 1: get student loans through that period of time when banks
Speaker 1: weren't able to finance those loans.
Speaker 2: Huh, really really fascinating when everything was frozen. Hey, the
Speaker 2: policymakers go to the experts because they don't have that expertise.
Speaker 2: So let's talk a little bit about your role as
Speaker 2: a CIO. First. What is public investing we referring to
Speaker 2: public stocks and bonds or what does this include?
Speaker 1: Yeah, it includes public stocks and bonds managed both fundamentally
Speaker 1: and through our quint business and in individual sleeves, as
Speaker 1: well as multi asset portfolios.
Speaker 2: So multi asset could be a hedge fund or is
Speaker 2: that internal?
Speaker 1: Is that outside it's all internally managed, but it could
Speaker 1: include a hedge fund, it could include more traditional mutual
Speaker 1: fund or a ETF.
Speaker 2: So prior to this, you were co cio with fixed
Speaker 2: income at Goldman for a couple of years. First question,
Speaker 2: co cio always seems like that's challenging when there's multiple heads.
Speaker 2: How do you run as co CIOs?
Speaker 1: Yeah, I would say rather than challenging, it's actually fantastic
Speaker 1: because you have a partner. Obviously, it takes effort. When
Speaker 1: you have a partner, you have to invest in a relationship,
Speaker 1: you have to communicate and over communicate. But it's fantastic
Speaker 1: what you can accomplish where you have different perspectives, different
Speaker 1: points of view, and the geographic and kind of resource
Speaker 1: span of two individuals. So my cohad and cocio when
Speaker 1: I was leading fixed income, sat in London and because
Speaker 1: of that we were able to cover more of our
Speaker 1: investment leaders, gather more perspectives, wider set of perspectives on
Speaker 1: investing markets. He came from more of an emerging markets background.
Speaker 1: I have from more of a develop market credit background.
Speaker 1: We mixed kind of macro and bottoms up and we're
Speaker 1: able to do I felt a really good job, but
Speaker 1: it requires investing in the relationship. You have to make
Speaker 1: sure you're communicating all the time. You're doing a lot
Speaker 1: of kind of weekend calls to make sure you're caught up,
Speaker 1: but it can be quite powerful and it prevents you
Speaker 1: from missing.
Speaker 2: Things, especially they're starting out six or eight hours ahead
Speaker 2: of us, you're ending a couple hours after them. It
Speaker 2: allows pretty much almost a full day of coverage that
Speaker 2: you wouldn't necessarily get if both of you in the
Speaker 2: New York of both of you in London. Absolutely, So
Speaker 2: let's talk about your current role CIO of public investing.
Speaker 2: That's kind of an unusual title. I don't know a
Speaker 2: lot of firms that break the world down that way.
Speaker 2: Tell us a little bit about the thinking behind public investing.
Speaker 2: Why did Goldman structure it that way?
Speaker 1: Yeah, so we have a very large effort to invest
Speaker 1: in private assets across credit and equity. In order to
Speaker 1: make sure that we were also investing in our public
Speaker 1: investment strategies, we felt it was important to kind of
Speaker 1: unify those strategies under public investing structure. I think that
Speaker 1: when you think about and look at the evolution of
Speaker 1: public markets, there's a lot of change going on, and
Speaker 1: both from a trading perspective, a market structure perspective. You know,
Speaker 1: hedge funds, non hedge funds, ETFs, passive, active, and in
Speaker 1: order to really leverage the capabilities we have from a
Speaker 1: data analytics perspective across all these strategies, we felt bringing
Speaker 1: these historically kind of completely independent strategies together to deliver
Speaker 1: better performance for clients made a lot of sense.
Speaker 2: That's really kind of intriguing. As opposed to saying fixed
Speaker 2: income public and private, equity public and private, you guys
Speaker 2: are using the divining line as public versus private. Obviously
Speaker 2: very different asset classes and different structures, so I kind
Speaker 2: of get a better sense of that structure. Tell us
Speaker 2: a little bit about what is the day in the
Speaker 2: life of Goldman Sachs, chief investment Officer of public Investing
Speaker 2: for the Asset Management Group. What does that look like?
Speaker 1: Yeah, so I think like a lot of investors, like Frankly,
Speaker 1: a lot of advisors, you know, I wake up every day,
Speaker 1: get in and the first thing I'm looking at is
Speaker 1: markets in the prior days worth of performance. Right, performance
Speaker 1: is job one for any investor, and so that's exactly
Speaker 1: what I'm kind of focusing my time. And then from
Speaker 1: there it's really going to go around three things that
Speaker 1: deliver performance over the long haul, which is people, process
Speaker 1: and platform.
Speaker 2: Say that again, people, process, platform, Okay.
Speaker 1: Got it? And people as obvious, your investors. Making sure
Speaker 1: you're checking in on them, investing in them, catching up
Speaker 1: with them on what they're focused on, what needs they have,
Speaker 1: what resources they need. Process. We're constantly doing performance and
Speaker 1: process reviews across our different strategies, and really the goal
Speaker 1: there is to make sure that our team members are
Speaker 1: learning from best practices across the entire platform, and that
Speaker 1: we're bringing the insights across not just public but public
Speaker 1: and private into our portfolios and our portfolio decision making.
Speaker 1: The final thing really goes back to that story around innovation,
Speaker 1: which is I don't think a lot of asset managers
Speaker 1: out there are like, oh, we have systems, We've outsourced
Speaker 1: our systems. That's a good way to fall behind the
Speaker 1: evolution in the marketplace. If you look at innovations like
Speaker 1: what's happening in AI. The only way to keep up
Speaker 1: and deliver strong performance going forward is going to be
Speaker 1: to be investing in your data and analytics, and that
Speaker 1: requires a scale and a focus that very few CIOs
Speaker 1: actually put in. And so from my perspective, you know,
Speaker 1: all those things come together in delivering strong performance. But
Speaker 1: but you know, I think the other dimension of this
Speaker 1: is that clients are looking for more than just a
Speaker 1: return number, right, They're increasing looking for customization so that
Speaker 1: the returns match up with their needs and that they're
Speaker 1: delivered in a tax efficient manner and delivered customized specifically
Speaker 1: for them. And so when it comes to direct indexing,
Speaker 1: you know, when it comes to a SMA of communis
Speaker 1: and taxable fixed income, those are things that we're able
Speaker 1: to deliver with the quality of institutional quality, portfolio construction
Speaker 1: and insight, but all the way down as I mentioned before,
Speaker 1: to one hundred thousand dollars minimum size, and we're able
Speaker 1: to kind of take all this knowledge, all this investment expertise,
Speaker 1: and really use it to solve client problems, which is
Speaker 1: the solutions dimension of our business.
Speaker 2: Really interesting. Your recent background was more credit and fixed income.
Speaker 2: Lier in your career a little more on the equity side.
Speaker 2: What's it like being responsible for the whole public investing side,
Speaker 2: especially given how much things have changed on the equity side.
Speaker 1: I got to say I have the best job in
Speaker 1: the world, right. I get to see every investment process,
Speaker 1: every investment decision. I get to interact with the smartest
Speaker 1: people that genuinely care about delivering performance to their clients
Speaker 1: and solving helping their clients solve their problems. Like every
Speaker 1: day I wake up and I can't believe how lucky
Speaker 1: I am to be able to walk in and learn
Speaker 1: something new from my investors every single day, And that, frankly,
Speaker 1: is one of the things that I think differentiates our organization.
Speaker 1: Every organization has smart people, but the density of smart
Speaker 1: people and their humility and willingness to learn from each
Speaker 1: other and willingness to teach other people and particularly newcomers.
Speaker 1: But even for me as a CIO, you know, one
Speaker 1: of the most senior people within the investment work. Every
Speaker 1: day I'm learning from my team.
Speaker 2: And we keep coming back to culture, which you talked
Speaker 2: about earlier. How important is culture towards those sort of values.
Speaker 1: Look, culture is foundational. You can't succeed without it. And
Speaker 1: every day we wake up we ask ourselves what we
Speaker 1: can be doing to improve our culture, to continue to
Speaker 1: invest in our culture and our people, because that's the
Speaker 1: only way we keep up. This is a competitive environment, right,
Speaker 1: It's one of the most competitive games in the world.
Speaker 1: Is markets, and so if you're not always training to
Speaker 1: get better, you're going to fall behind. And we've seen
Speaker 1: plenty of players do that, their performance WANs and you know,
Speaker 1: suddenly you wake up they've been gobbled up by someone else,
Speaker 1: or you know, they're out of business.
Speaker 2: So we mentioned that your focus is on public investing,
Speaker 2: but Goldman has a very substantial private investing side where
Speaker 2: it's either private credit or private equity or a lot
Speaker 2: of different things that on the equity side as well
Speaker 2: on that are privates. How how do you interact with
Speaker 2: your peers on the private side and how does that
Speaker 2: integrate into Goldman sax asset management in total.
Speaker 1: Yeah, So one of the cores to our culture, core
Speaker 1: values of our culture is around collaboration and so on
Speaker 1: a regular basis, i e. You know, weekly and monthly,
Speaker 1: we have collaboration across public and private investing where we
Speaker 1: share again you know, with appropriate governance around it, so
Speaker 1: that we're not sharing things we're not supposed to, but
Speaker 1: we share insights around what's going on in markets for
Speaker 1: the benefit and broader benefit of our investment teams and
Speaker 1: ultimately our clients that were investing on behalf of So.
Speaker 2: I would not be doing my job if I didn't
Speaker 2: ask you a few questions about stocks and bonds, and
Speaker 2: especially some quotes of yours. One thing that leapt out
Speaker 2: you had said late last year, I think twenty twenty
Speaker 2: four is going to be the year of the bonds.
Speaker 2: Explain sure.
Speaker 1: So we had seen late late last year really started.
Speaker 1: I think that quote was from either late October or
Speaker 1: early November. We had seen kind of a steady pace
Speaker 1: of inflation coming down, so the FED hikes were working,
Speaker 1: the economy was normalizing, and we felt that rates were
Speaker 1: too high relative to what was necessary to continue to
Speaker 1: see inflation come down. I think in six weeks of
Speaker 1: twenty twenty three we ended up seeing the rally that
Speaker 1: we were hoping to see in twenty twenty four.
Speaker 2: That was huge, and it was like the last couple
Speaker 2: of months of the year, just a giant one hundred
Speaker 2: bases point move in yields, which is kind of unusual,
Speaker 2: isn't it.
Speaker 1: It's a reminder of when the coast is clear, everyone's
Speaker 1: going to go for yield and it's going to be
Speaker 1: too late. And so you know, since then, we've seen
Speaker 1: kind of the data revert a bit. Growth has been strong,
Speaker 1: which is good, right. We want growth to be strong,
Speaker 1: you know, for our overall portfolio. But inflation has ticked
Speaker 1: up a little bit, so it broke its its nearer
Speaker 1: term pathy. Every data point that we end up seeing
Speaker 1: kind of confirms that the long term trend is still
Speaker 1: towards inflation normalizing. And so, you know, our our ethos,
Speaker 1: our focus has been, Look, you're going to get these
Speaker 1: periods of time of retlacement. You want to make sure
Speaker 1: you have room to add into those because you don't
Speaker 1: want to miss it, because you know when inflation turns,
Speaker 1: it's going to turn quickly and everyone is going to
Speaker 1: jump in.
Speaker 2: That kind of reminds me of another quote of yours.
Speaker 2: The market still has runway. Explain what you mean by that?
Speaker 2: How much runway is left?
Speaker 1: We have been watching growth very carefully. As I mentioned,
Speaker 1: central banks outside the US are actually becoming more accommodative
Speaker 1: with the exception of Japan, and underlying growth is actually
Speaker 1: looking pretty good and diverse. Right. Economies are growing and
Speaker 1: companies are being very disciplined on the cost side, which
Speaker 1: is leading to earnings growth that's out outpacing kind of
Speaker 1: nominal growth. And so for those reasons, we do think that,
Speaker 1: you know, equity markets have continued runway. Having said that,
Speaker 1: you know, the other thing we have realized is that
Speaker 1: parts of the market, you know, particularly around technology and AI,
Speaker 1: have run up so fast right that the risk return
Speaker 1: is setting up for potential for corrections.
Speaker 2: And so they're definitely ahead of themselves.
Speaker 1: And so there are these long term trends in places
Speaker 1: like Japan and India, and you know, a lot of
Speaker 1: value even in other parts of the market that we
Speaker 1: think represent you know, nearer and longer term opportunities to
Speaker 1: diversify your portfolio. And and so we one of the
Speaker 1: things we think a lot about is when something has
Speaker 1: gotten overdone, when it's crowded, right, how do you tilt
Speaker 1: out of that area and into places that are going
Speaker 1: to work for you either in the short term in
Speaker 1: the long term. And we see that as material opportunities,
Speaker 1: particularly in India and Japan that are going to be
Speaker 1: long term and even more broadly in the industrial space.
Speaker 1: When it comes to to global equities.
Speaker 2: And let's talk about an area that's had some challenges.
Speaker 2: Some of the Treasury auctions have been pretty mediocre over
Speaker 2: the past couple of sessions. You mentioned, hey, at a
Speaker 2: certain point auction buyers just you know, shrug their shoulders
Speaker 2: at the whole process. Tell us you're thinking about what's
Speaker 2: going on with treasury auctions.
Speaker 1: Yeah, so I think the comment was more around, and
Speaker 1: it probably came from the fall around. We will get
Speaker 1: these times. The Treasury has to auction off a lot. Right,
Speaker 1: the deficit is quite large and structural, and so to
Speaker 1: the extent the curve doesn't represent value, it is going
Speaker 1: to cause auctions to tail right. This is not going
Speaker 1: to be the first time that we've seen it, and
Speaker 1: it's really critical for both the US government right US
Speaker 1: Treasury to focus on kind of managing its its liability side,
Speaker 1: as well as investors to be thinking about whether there's
Speaker 1: good value or not. I think that, you know, a
Speaker 1: lot of investors are very concerned about the long term
Speaker 1: stability of running deficits at the pace that we are,
Speaker 1: and that's going to require political solutions and choices over
Speaker 1: the coming years. A lot of this is tied to demographics,
Speaker 1: social security, you know, medicare you know, and frankly, these
Speaker 1: were things that we were looking at thirty forty years
Speaker 1: ago when I was in school and are finally taking place,
Speaker 1: which is we're having the baby boomers retire and the
Speaker 1: fiscal you know, costs of that are now have to
Speaker 1: get charged the economy, and so I think in the
Speaker 1: near term, you know, we're in pretty good shape because
Speaker 1: duration does represent value on a real basis, right, and
Speaker 1: we are growing, which is a big big deal. To
Speaker 1: grow nominally actually is a fantastic thing for debt load.
Speaker 1: But it's something that we're going to have to be
Speaker 1: very focused on. As debt investors. We talk a lot
Speaker 1: about within our fixed income or debt sustainability and the
Speaker 1: types of things that would worry us.
Speaker 2: So when rates were zero, nobody really seemed to be
Speaker 2: worrying too much about debt. You had the usual suspects
Speaker 2: come out and say, oh, debt's unsustainable, but they've been
Speaker 2: saying that for forever. Five hundred and twenty five basis
Speaker 2: points higher. Suddenly, hey, the interest income on this is substantial.
Speaker 2: Is there any pressure on the Fed despite a slight
Speaker 2: uptick in inflation, to say, hey, we got to bring
Speaker 2: rates down a little bit just to make the fiscal
Speaker 2: side more sustainable or is that just not part of
Speaker 2: their charge.
Speaker 1: I don't think that's part of their charge. They do
Speaker 1: look to liquidity and treasury markets, which is absolutely critical.
Speaker 1: But I think with this level of debt and this
Speaker 1: cost of debt, if we don't grow, if growth slows down,
Speaker 1: it can slow down really hard, and that can cascade
Speaker 1: into a real problem for the FED, which is employment, right,
Speaker 1: And so you know, I think the FED is watching
Speaker 1: very carefully the evolution of some of the debt stacks
Speaker 1: where you know, in commercial real estate, let's say, where
Speaker 1: rates are very high and it's impacting the value of
Speaker 1: that commercial real estate as it sits in the banking
Speaker 1: system and other financial institutions. And were that to become
Speaker 1: even more problematic and spill into growth and you know,
Speaker 1: cause deflation, then I think you would see or disinflation.
Speaker 1: I think you would see the FED moved pretty rapidly.
Speaker 2: Let me ask you one curveball question before we get
Speaker 2: to our favorite questions, which is you're on the board
Speaker 2: of directors for Minds Matter, a nonprofit that focuses on
Speaker 2: hell being to prepare young people from low income families
Speaker 2: to become ready for college. Tell us a little bit
Speaker 2: about the organization and how you got involved with them.
Speaker 1: I got involved with Minds Matter because I followed a
Speaker 1: girl that I really liked she was volunteering every Saturday.
Speaker 1: And this May is going to be the thirtieth anniversary
Speaker 1: of me being married to that young woman. So, you know,
Speaker 1: my wife introduced me to minds Matter. I've always cared
Speaker 1: about education as a path for people to be able
Speaker 1: to better themselves. And you know, Minds Matter serves over
Speaker 1: one thousand students in fourteen cities across the country. It
Speaker 1: helps those students get into college, it helps them believe
Speaker 1: that they belong in college and succeed in college, and
Speaker 1: then it helps them post college build the network that
Speaker 1: they need to to succeed in life.
Speaker 2: Huh. Really really interesting. All right, let's jump to our
Speaker 2: favorite questions that we ask all of our guests, starting
Speaker 2: with who were some of your mentors who helped shape
Speaker 2: your career?
Speaker 1: Yeah, so three that stand out to me early in
Speaker 1: my career. Doctor Jeremy Siegel at the Wharton School, who
Speaker 1: I worked for three years, was just fantastic in terms
Speaker 1: of educating me, in terms of frankly feeding me with
Speaker 1: the pay he gave me. And you couldn't find a
Speaker 1: better person to learn about markets and macro than doctor Siegel.
Speaker 2: And he's probably the person that got this inflation cycle
Speaker 2: more right than anybody else out there. When the first
Speaker 2: Cares Act passed, he was the first person saying, you
Speaker 2: realize how inflationary this fiscal stimulus is going to be.
Speaker 2: And everybody looked at him like he had two heads.
Speaker 2: Turned out to be dead right.
Speaker 1: He's such a fantastic individual. I own a lot of
Speaker 1: my career of success, so others. The two others I
Speaker 1: would call out Eddie Raja, who is my first trading
Speaker 1: boss ex Solomon Brothers trader uh is out there in
Speaker 1: Duncan Hennis who ran markets at at Banker's Trust, ended
Speaker 1: up being one of the CIOs at Soros Group, you
Speaker 1: know three kind of really early mentors, and then more
Speaker 1: more recently you know at and my former employer was
Speaker 1: Peter Kraus for giving me the opportunity. Learned a lot
Speaker 1: about leadership from from Peter as well as Doug. People's
Speaker 1: learned a lot about investing and and asset management from Doug.
Speaker 1: So really really appreciative of of There's a long, much
Speaker 1: longer list of people that I would love to shout
Speaker 1: out because I've learned from pretty much everyone I've ever
Speaker 1: worked for.
Speaker 2: So let's talk about books. What are some of your favorites.
Speaker 2: What are you reading right now?
Speaker 1: I would say I read a lot outside of industry,
Speaker 1: but things that are going on and then I love
Speaker 1: me a good like you know, Navy seal that is
Speaker 1: going and taking down the terrorists and defending a country
Speaker 1: kind of book. So in that genre, I read a
Speaker 1: lot about Brad Taylor, Brad thor, Vince Flynn. You know,
Speaker 1: give me anything that's like a techno thriller and I'm
Speaker 1: there when it comes to reading for content. One of
Speaker 1: my favorite books I've read kind of more recently in
Speaker 1: the last twelve months has been Chip War. I think
Speaker 1: the history of the chip is amazing. The gene was
Speaker 1: like eye opening around you how genetics really works. And
Speaker 1: there are a lot of There are a lot of
Speaker 1: implications to investing and the way you design investing systems,
Speaker 1: particularly with AI. The Hard Thing About Hard Things by
Speaker 1: Horowitz is a great kind of leadership and startup book
Speaker 1: and how to think about kind of running an organization.
Speaker 1: And I'd also throw in that the latest Elon Muss
Speaker 1: book is is fantastic. It's a really interesting read, kind
Speaker 1: of an interesting personal dissection, but a great read around
Speaker 1: how to think about value engineering in a physical sense,
Speaker 1: not in a computer sense. So so those are those
Speaker 1: are a couple that, uh, that's best.
Speaker 2: And our final two questions, what sort of advice would
Speaker 2: you give to a recent college grad interested in a
Speaker 2: career in either investing or asset management.
Speaker 1: Yeah, so the first thing I tell you is read
Speaker 1: voraciously about markets and then build yourself a model portfolio,
Speaker 1: because the best way to learn is to actually be
Speaker 1: doing things. To use that to figure out your style,
Speaker 1: and from a style investing style perspective, read about other investors.
Speaker 1: You know, every investor has a tail of how they've
Speaker 1: lost money and the lessons they've learned through that. It's
Speaker 1: a lot easier to learn from someone else's mistakes than
Speaker 1: from your own. You'll make plenty of your own, but like,
Speaker 1: make sure you're reading about how others failed and really
Speaker 1: try to get to the core of it, not the
Speaker 1: the kind of polished version. And then the third thing
Speaker 1: I would recommend them do is be process oriented, right,
Speaker 1: build a process, say, you be really conscious about how
Speaker 1: you're making decisions and why you're making decisions and what
Speaker 1: is going into each of those decisions.
Speaker 2: And our final question, what do you know about the
Speaker 2: world of investing in asset management today you wish you
Speaker 2: knew thirty or so years ago when you were first
Speaker 2: getting started.
Speaker 1: I'd leave you with kind of three observations that strike
Speaker 1: me or you know that that have really kind of
Speaker 1: accumulated over the last thirty years. So three things you know.
Speaker 1: The first is discipline works over smarts, So the smartest
Speaker 1: people loose the most money. You know, the most disciplined
Speaker 1: people actually generate strong returns over time. The second thing is,
Speaker 1: when in doubt, do what works over time. Don't try
Speaker 1: to time the market, just you know, be humble in
Speaker 1: what you understand about what's going on, and then do
Speaker 1: what works over time, because that's the highest likelihood you
Speaker 1: are to deliver returns. And then the final thing I
Speaker 1: wish I had learned this one earlier in life, is that,
Speaker 1: particularly as an individual investor, that if you don't think
Speaker 1: about after tax returns when you're making investment decisions, you're
Speaker 1: missing the whole game. Is the highest hit ratio, the
Speaker 1: lowest cost that you will ever face, is to really
Speaker 1: align your investing approach to be low, to be tax efficient.
Speaker 1: And I think your taxes change over time, particularly given
Speaker 1: the fiscal situation. If you're earning good money, your tax
Speaker 1: rates are likely to rise, right and you should be
Speaker 1: happy to pay them. That you're successful enough to pay them,
Speaker 1: but you know, make sure you're investing your money through
Speaker 1: a tax efficient lens.
Speaker 2: Huh really quite fascinating, A cise, thank you for being
Speaker 2: so generous with your time. We have been speaking with
Speaker 2: A c Shah Cohaed and CIO of public Investing at
Speaker 2: Goldman Sachs's Asset Management. If you enjoy this conversation, well
Speaker 2: check out any of the previous five hundred or so
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