00:00:02 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in Business with Barry Ritholts on Bloomberg Radio. 00:00:16 Speaker 2: This week on the podcast, an extra special guest, Mike Kelly has an absolutely fascinating career from Omega to Tiger, currently President and Chief Investment Officer at Future Standard. Really about as knowledgeable an individual as you'll find, covering private credit infrastructures and the wealth channel and what the future of what we broadly call alternatives look like. I thought this was fascinating and I think you will also, with no further ado my conversation with Mike Kelly. Mike Kelly, Welcome to Bloomberg. 00:00:52 Speaker 3: Thanks Perry, It's great to be here. 00:00:54 Speaker 2: So I'm fascinated by both your background and your career path, which is really really interesting. But let's roll back a little bit. Bachelor's at Cornell NBA, from Stanford, what was the original career plan? 00:01:12 Speaker 3: So taking a step back, you know, I grew up on the border of Queens Long Island. My dad was an NYPD cop in really the South Bronx, and Queen's mom raised the five of us kids in a traditional Irish American household and valued education. I knew from a pretty early part of my life that I wanted to go into investing. I'll tell you a little stories. So when we turned thirteen in my family, you got the big gift. And at the time, I was a nerdy kid. I was into computers. My dad would drop me off at the Queens Village Public Library and I would, you know, learn how to program on this Apple computer. They had just got the Apple two e in. And for my thirteenth birthday, I asked my parents for you got up to three hundred dollars. I got three hundred dollars of Apple stock. Was my request, really, and the big day came they gave me the envelope. Was really excited. I opened it up and it was a saving spot for a local bank. And my parents noted the disappointment in my face and said, you know, Michael was sorry, we don't know how to buy stock. 00:02:25 Speaker 2: And this is like late eighties, this is eighty three, eighty three, okay. 00:02:28 Speaker 3: So I said, then in there, I am going to teach myself how to do this, how to invest in these companies, and I set out. I still have it. I have the notebook over here. I actually brought it with me about stocks and all the things that I would read about investing and investing in the stock market. And so from an early early part of my life I wanted to go into investing. And so throughout you know, the years at Cornell. You know, at the time, I did some great internships. Wanted a boiler room. They made a movie about that one for Steve Winn at the Mirage, which was exciting. And then I studied in Japan, studying the banking system there for one summer, and as I was coming back, the only firm that actually would interview me was Solomon Brothers, and so I wound up fortunately getting a job at Salomon Brothers in the capacity yeah, in the financial institutions banking group. Started as an ibanker, loved Salomon Brothers, went up going to the forty second floor of seven World Trade Center, which is where Michael Lewis wrote the book Liar's Poker. So I wound up going to the fixed income trading floor for my third year and really got bit by the bug of markets. I knew I wanted to make the transition from investment banking over to the byside. So as I headed off to Stanford Business School, that was my mission, was to find my way into the buyside. 00:04:05 Speaker 2: So there's a sort of urban legend that you kind of cold called your way from Solomon Brothers into an internship with hedge fund legend Lee Cooperman at Omega is, first of all, is that a true story? And if it is, walk us through that. 00:04:23 Speaker 3: Call, all right. So I was at Stanford and I knew I wanted to make this transition into the buyside. And in looking at the careers of what I was looking at the greatest minds in investing, they all seem to be relegated to this corner of the market of hedge funds and private equity firms. And we're talking about the mid nineties here, when people didn't have a lot of understanding of what these firms actually did. But it struck me as an incredibly intense and exciting career path. Many of the people were very young and seemingly making a lot of money doing it and really working on some dynamic investment investing strategies. And so I had a directory. It was called the Van Hedge Fund Directory. It was a printed out piece of paper like from a fax machine, and it had the names and addresses of at the time the top twenty five hedgephones. So had you know, Bruce Kubner in there, and you know Paul Tudor Jones and George Soros, And so I went through this directory and literally called from a payphone. 00:05:36 Speaker 2: These individuals come on, Druckmiller, It's Mike Kelly like that. That sort of call. 00:05:42 Speaker 3: Now, the disadvantage is most people were screening their calls. Their assistants were like, yeah, he'll never call you back. The advantage for me was one of those individuals. Lee Cooperman, often didn't use an assistant and answered his own phone. 00:05:58 Speaker 2: He's there five in the morning, he's there at eight at night. Absolutely, if you call outside of business hours, Lee's the only guy in there. 00:06:05 Speaker 3: He picks up and goes Lee, and that's how he starts a conversation. I'm mister Cooperman. You know, I'm a kid from the Burrows like you. I just want to break into the industry. You know, I've worked at Solomon, but I've never been an investor before. I am willing to do whatever it takes. I am willing to sleep on my parents' couch and work for you for free. And he said, I only hire PhDs really, And I said, well, I'm getting my MBA right now and he said no, poor, hungry, and driven. And I was like, well, I'm all three of those. I check those boxes. And he said, well, I'm a value investor and I like the price. You can come work for me. 00:06:47 Speaker 2: For free, no kidding, Like, oh my god. 00:06:50 Speaker 3: I show up day one at Omega and Lee comes to me and says, let's go to breakfast. And I thought, this is a heaven first day and I'm going to breakfast with the legendary Lee Cooperman. So we go across the street. It's one hundred Wall Street. We go across the street to an Aubont Pan for breakfast, and we get to the counter, we order, and Lee turns to me and says, you're buying. So here I am day one and I'm already thirty dollars in the whole right in my illustrious investment career. But it turned out okay, And and that was how that was how I got my start in the investment business, and in particular in hedge funds and the alternative investment that's unbelievable. 00:07:37 Speaker 2: So after Omega, you leap from Lee Cooperman to working under Julian Robertson at Tiger Management. How did that come about? 00:07:47 Speaker 3: So I had worked full time after business school for Lee and four Omega Advisors. I received a phone call a few years later by Tiger Management. They were looking for someone in their macro an analyst group. And at that time, you know, getting a call from Tiger was like getting a call from the New York Yankees. Sure it was like the illustrious, you know, incredible firm. Was very honored and flattered interviewed. 00:08:13 Speaker 2: Let me interrupt you a second, just to remind listeners that the nineteen eighties and nineteen nineties were peak hedge fund years. They were masters of the universe. They put up the best numbers. They were the hardest for any investor that wanted to allocate to them. Was not easy to get into any of those funds. The world changed after the financial crisis, but that was the golden era of hedge funds, wasn't it? 00:08:41 Speaker 3: Most definitely? And I think what I appreciated the most about those first few firms I worked at, Solomon, Omega Advisors, Tiger Management. It was a commonality of culture in that these were very intense work environments with very intellectually curious individuals who were super smart and but like to have fun and were a joy to be around and learn from. And so I really enjoyed, you know, the aspects of the culture of the environments in my early career and really got a lot out of it. And it really appealed to kind of my personality of kind of an obsessive, intense personality. So I really enjoyed that. But going to Tiger was incredible, a very young group of people who have obviously gone on to do great things in their investment careers. A really intellectually challenging place to work. But I learned a ton about about investing from from you know, from Lee and from Julian and from the other individuals that I worked with and sort of shaped my sort of investment philosophy as time went on. 00:09:52 Speaker 2: I'm curious because they are obviously such different styles. Lee as the value guy, Tigers known as momentum and growth and just a hold and technology in a very very different opportunity set. What did you learn from from each of those? How different were Julian's and Lee's approaches? 00:10:12 Speaker 3: Well, I think Julian and Lee the inception of that both had a very value oriented approach. I think within Tiger there was an evolution over time and an adaptation even with some of the Tiger cubs, of adopting a more growth oriented strategy. But it was a time when doing real intense work could uncover really great long and short opportunities. I do think you know, years later, decades later, it became much more difficult with indexation and ETFs and and and the market structure changed. But back then, I would say, from an investment philosophy standpoint, there was a view that every single day you rebuy your portfolio. It doesn't matter if you're losing money or you're in the money, made a double already, if you own it, think about it, and re underwrite it as if you just bought it today. And are you as excited from a long and short perspective about that opportunity in the go forward period? And I think that discipline of reunderwriting your holdings every single day is something that's remained with me. I think, secondly, I would say what I would call a variant perception, or what is called a variant perception, something that Michael Steinhardt popularized of when you make an investment, How is your view different from the market, Because if you want to outperform the market, you can't just agree with the thesis that's already embedded in the price or value of an investment. And so that variant perception of how do you look at it different? You're either more bullish about that opportunity or you think that opportunity is overdone, and so you're either selling or your shorting or what have you. And so I think the variant perception is really really an important aspect of the philosophy. Having investment conviction is another principle. You know, go all in, do your work, get to a high conviction thesis, but loosely hold it like hold on loosely strong opinions. 00:12:14 Speaker 2: Loosely held is the expression I heard. 00:12:17 Speaker 3: That's exactly right, because if you have disconfirming evidence, don't ignore it, don't double down with your escalation of commitment, you know, reunderwrite it, and ask yourself, well, maybe I have to change my mind. The greatest investors in my mind, someone like a Stanley Druckn Miller, is willing to change his mind all the time, you know, based on new information. And so I think these principles form an investment philosophy that if if you don't know what your competitive advantage is in making an investment, whether you're a private market investor or a public market investor, you probably don't have a reason to be in that investment in the first place. 00:12:50 Speaker 2: That's exactly right. I love the concept of re underwriting so many new investors, and I started on a trading desk. Any position you had, you had to justify every moment you owned it. Hey, this is capital. I could turn this into capital in a millisecond. Would you buy this if this was back as cash and not as a holding where you bought it, whether you're underwater or head is totally irrelevant. Would you continue to re underwrite that? That's a great way to describe that. I'm really impressed with that. So from Tiger you go to front Point Partners and helped turn it into a truly institutionalized hedge fund. Tell us a little bit about front Point. 00:13:34 Speaker 3: So I got a call from the two original founders of front Point and they asked me to look at the business plan and to give them a critique, which I did. I thought it was fascinating at the time. A lot of hedge funds were frankly run as almost like family offices as a business. 00:13:51 Speaker 2: The third of the capital was the founders half the time any. 00:13:55 Speaker 3: Way, right, and most of the investment capital came from ultra high net worth family offices like Memphis, Mafia and others. And so there was a view that institutions would begin to embrace alternative strategies, and for them to embrace alternative strategies, the firms they would allocate capital to would need to look like the institutional asset managers they were used to like in the traditional mutual fund business. But a lot of hedge funds didn't look and feel that way. They were run more like family offices. And so we had a view that by forming a real institutional quality asset management firm that would house diversified strategies and managers who could provide absolute return strategies to these institutional clients, that that would be embraced. It would be embraced because of the excellence of the investment teams, but also by the world class investment asset management infrastructure that we would build with front Point. And so that was the thesis. You know, you're going back to two thousand now, and to be invited to join a firm, and these guys were in their fifties. I was, you know, twenty nine, thirty years old to build a company. It was an exciting thing for me. At the time. I still wanted to become Paul tuter Jones. I wanted to be a macro investor. I wanted to be an investment manager. But I thought, I'll start by helping these individuals help build this firm, and then I'll go back to running a fund, probably at front point, And didn't you. 00:15:30 Speaker 2: Begin at from point as CIO and eventually became co CEO. 00:15:34 Speaker 3: I was the head of manager's selection and overseeing the investment teams. Then I became chief investment officer and head of the multi strategy, and then I became co CEO of the firm. So it was an evolution over time. But at the outset, you know, hiring the investment teams, overseeing what they were doing, picking and selecting them was a fascinating job for me. I loved learning about different approaches, you know, market wizards, stock market wizards, all the different ways you could skin a cat with investing. So it was like a kid in a candy store and I began to reflect on my career at that time, in that everyone goes into the investment business with the mindset of I want to become a great investor. I want to become Warren Buffett, I want to become Julian Robertson. I want to become Paul Truder Jones. I was no different. That is a very crowded pond and a lot of luck and things have to go your way to conspire to result that way to become one of the top decile quartile managers out there. And I thought at the time, you know, building an asset management company like this, like I'm doing with my partner's at front Point. You know, I'm a young guy, my whole career ahead of me, and I thought, you know, actually, if I spent my career building asset management companies and managing them, that could be a pretty you know, robust career. I could really enjoy myself. And it's a pond no one seems to be fishing in, and maybe twenty years from now this might result in something. And so it was at that moment, you know, within front Point, that I began to move away from investing professionally in the markets and more building investment organizations and overseeing investment managers and strategies. 00:17:10 Speaker 2: So the next step along your career path you join ORX asset Management as CEO. 00:17:17 Speaker 3: Right, So we'd sold from point to Morgan Stanley. I'd run with my partner there for a few years. I was hired away from ORX to be the CEO of their asset management unit. So Japanese holding company, they were looking to diversify their holdings into the US and into various industries, one of them being asset management. They had a lot of capital to deploy and a low cost of capital being a Japanese holding company, and I thought I could exceed that hurdle and build something here. So it was back in twenty twelve, and it was during the pigs crisis, you know, and thinking about where could we acquire compelling asset management. 00:17:56 Speaker 2: Let me interrupt you for the people who might not have been traded through Brexit, Grexit, whatever the pigs crisis was Portugal, Italy, Greece, Spain, that. 00:18:07 Speaker 3: Correct, that's correct, And at that time the European Central Bank and some of the local national banks of these European countries were encouraging financial parties to divest of their non core holdings. And so as we were thinking about, you know, where in the world could we deploy capital to acquire asset management capabilities, Europe seemed a logical place because there was a force selling happening and so there was a jewel in the Crown of Rabobanks Holdings private bank in the Netherlands, and they needed to divest of Robiko, which had been around for which giant three hundred billion dollars plus and they had purchased that historically and had owned it, but it was non core to their to their private bank, and so we positioned ourselves as an advantageous buyer to them. We purchased it a very attractive valuation, was the largest in orcx's history. We acquired that capability, and you know, at the time, it was exciting to get that deal done. We had bought another stakes and other managers in the alternative space, but really I wanted to do something more entrepreneurial again, and so I began to look at what is the next business with an asset management like From point that I could, you know, set my career out to build. And that is how the inception of coming across what was then Franklin Square now Future Standard came about. 00:19:47 Speaker 2: So when you joined, did you join as CIO or president or what was the initial role? 00:19:53 Speaker 3: Yeah? So I was introduced to Michael Forman, the founder of Franklin Square, through a head hunter friend of mine, Scott Fletcher, and I was also introduced by Bennett Goodman and Doug Ostrover at GSO and Blackstone, and they had encouraged me to go and meet with their partner who they had partnered with. As I was describing what I thought the next big thing in asset management would be would be the arc of history of bringing alternatives from family offices and ultra high network throughout the eighties and nineties, and then the endowment model with David Swinson. Eventually institutions began adopting it. The one constituency that was still left out were the individual investors below ultra high net worth and family offices. And so I had a view that at some point that would change, and I wanted to help effectuate that change. And that is where I was introduced to Michael Foreman and his vision for what he was doing with Franklin Square and had been doing. And he had built this incredible chassis around productizing andributing income strategies and convinced me to join up with him as president. To go join him and you know, be the chief investment officer, help build out the asset management capability. Now, at the time, Franklin Square was a product and distribution firm, so they were creating the rappers and distributed them. But other external parties at the time Blackstone were the ones subadvising and providing all of the investment acumen. And as I would describe it today, and I use this analogy of Netflix, it was like seeing the red envelopes and DVDs, but Michael had created this incredible distribution engine, one hundred million person mailing list type of you know, distribution capability. And just like Netflix figured out how to digitize their business and create their own in house TV and movie studio. You know, that was my pitch to Michael, as you could eventually diversify this product base and you could bring in house capabilities so long as the quality is still very high, you can put it through these channels and offer them to private wealth clients. And so that's what we set out to do. 00:22:16 Speaker 2: Really fascinating coming up we continue our conversation with Mike Kelly, chief investment Officer and president of Future Standard, discussing how he helped build the company into a ninety billion dollar multi strategy platform for wealth management clients. I'm Barry Ridults. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ridults. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Mike Kelly. He's president and chief investment officer a Future Standard. They are an alternatives manager focused on the wealth channel, running over ninety billion dollars in client assets. You know, when you joined what was Franklin Square before it became Future Standard FS Investments, they effectively had one credit strategy plus whatever they were reselling on behalf of other people all over ten billion dollars. You're almost ten times the size now with a full multi strategy platform. How did that evolution come about? What were the key inflection points? Was that a tough sale to get everybody in house to accept that, hey, we have a nice little business here, Mike, why do you want to mess with it? 00:23:45 Speaker 3: Well, there was a nice business there, and change comes with resistance. But I think we've had a fortuitous progress of change over the last twelve years. And I would say it started out with forming multiple partnerships with various outside firms that Michael and I had relationships with the likes of KKR and Golden Tree, Rialto and real Estate EIG, Magnetar Wilshire in order to create some diversified strategies that we could offer to clients with best of breed managers across various disciplines. And so that was the first stage of evolution, was moving into more of a multi manager architecture. Concurrent to that, I began to hire internal talent, which is something similar to what I had done at front Point, and brought in individuals like Andrew Beckman and helped him build out his internal private credit team. We made some acquisitions as well and Chiron Asset Management, Portfolio Advisors, Post Road Group in various disciplines, and so it was a combination of an evolution of external partnerships, in house hiring and talent and development and growing those and acquisitions sort of inorganic acquisitions of capabilities and managers to bring on. And I'd say starting from this inception of packaging and distribution, we then evolved into a diversified asset manager. And then after this series of in house capabilities and acquisitions, we adapted the firm into what I would call a true alternative platform. You know, a platform, And I'll distinguish a platform from a diversified asset management because I do think they are different. Diverse fied asset manager, you have different strategies that you offered to clients, but those strategies don't have to interrelate at all with one another, and there may be no shared set of relationships or gleaned insights or what have you. A platform, as I would call it, is more interwoven. There's more collaboration, there's shared underwriting, their shared origination and relationships for deal flow, there's an exchange of insights and specializations, all with the intention of improving outcomes for clients. And that evolution if you will. You know, it's easy to wipeboard that out and describe we're going to do this to your point, it's really hard to actually execute on that. 00:26:41 Speaker 2: So there's an underlying thesis in this. Once this full platform is built out, Hey, there is a giant wealth channel that a lot of alts are not tapping. Into it's the next great frontier. High net worth mass affluent wants the same sort of access to strategies that they see foundations and Dowmans institutions having access to tell us a little bit about how you see that opportunity, How large is it, how much has already been captured? Where are we in the cycle of this getting pushed out to mom and pop investors. 00:27:19 Speaker 3: So backing up to when Michael first started Franklin Square, this is now back in seven eight, launched the fund in January vote nine. So auspicious, great timing for a credit strategy and delivering income to individual investors through the independent broker dealer channel. And you know, if you remember that time, you had this declining yield environment and the FED cutting rates over that course of time, and so there was a search for income, particularly for retirement accounts. And so in the early days, a lot of our offerings were income strategies, income oriented, whether it's middle market lending clos offering, our real estate lending strategies and so for so generating income. And I think we saw that post Great post a Great financial crisis, banks would begin to withdraw from those lending activities and see those over to asset managers and direct lenders like ourselves, but also that private wealth and individual investors would begin to embrace these strategies to pick up income sources. And so those two trends I think we got correct. What we probably didn't foresee was the adoption curve. I think we probably assumed it would be more linear than it actually turned out to be. It took longer you think about it. This is now going back. I mean, Franklin Square has started almost twenty years ago. It's very topical today, and we've seen a lot of flows in the last five plus years, but it has been more recent that adoption picking up and being spoken about across the entire industry. So I do think there's been this arc of evolution and adoption, but I would tell you Barry, it's still very much in the early days, given the dynamics of private companies and their capital needs. 00:29:16 Speaker 2: So let's put that into a little context. The twenty tens, you not only had zero interest rate policy of ZYRUP, you had QE, you had Operation Twist, like the FED did everything it could do to make cash trash and force people off the sidelines. Hence, Tina, there is no alternative became popular. In hindsight, it's kind of surprising that it took private credit as long as it did to really find a bit Like you would think in that era of zero interest rates, Hey we're going to give you seven percent, but it's variable. If the Fed raises rates, we should see you bump up in yields. What was it like building out into that environment as a not just as an executor, but also as an investor as. 00:30:05 Speaker 3: A c Yeah, I would say two things. One's a market backdrop issue in one's more of an operational issue on the market backdrop issue, I define this golden era of investing is post vulker like nineteen eighty seven up until twenty twenty one. As we're coming out of COVID, And if you look at a chart of spectacle US stocks and bond prices, sixty forty made incredible sense. You had disinflationary forces, you had benign demographics, you had globalization, and it was great to set it and forget it with a sixty forty mix. 00:30:43 Speaker 2: That era was a thirty five year bull market in bonds. 00:30:47 Speaker 3: That incredible. 00:30:48 Speaker 2: There are long stretches where fixed income is outperforming equity in that run. 00:30:54 Speaker 3: Right, So why do you need an alternative right? If the music sounds great, you don't need alternative music. When the music is all crap. Nirvana comes along, right, and so I think the experience that investors had was proved to me, I need something else, and it hasn't really been you know, particularly with fixed income. Right when you think about the experience of the last six years or so where high duration fixed income has not been great at all, that's forty percent of your traditional portfolio that's just stopped working overnight. And so that catalyzed a lot more inquiry into diversified sources of private market income, private returns, and so forth. The other issue that slowed the adoption curve is on the operational infrastructure side, and it's something that the likes of Lawrence at I Capital and Matt A Case have been solving for. But it was really clunky in the early days. You had you know, double layers or fees, you had feeder funds, you had high loads K one I say, just not something that the individual investor and their advisors wanted to embrace, understandably, because you had to fill out by hand a subdoc for every single investor and so both the MAC market backdrop changing and morphing and opening up people's minds, as well as access and operational infrastructure. And we'll get to this, but education, which we're clumsily, you know, getting our way to educating these strategies, how they work, these structures, how to embrace them, how to incorporate them into portfolio. You know, that took time. It just took time for the whole industry to get there. And I feel like we're finally at the point where we're arriving. But as I said earlier, I still look at this adoption and penetration from these investors as very early. 00:32:52 Speaker 2: How much of an accelerant was twenty twenty two with the what was it, five hundred and fifty basis points of rate hikes if your long duration, well that's going to really leave a mark. What did that year do to acceptance of alternatives from that wealth channel? 00:33:12 Speaker 3: So two things, One was positive and one was more of a challenge. The positive side of things was with the backup of duration of the long yields that began to challenge the traditional fixed income side of the portfolio. So if you think about the traditional fixed income portfolio, I think about fixed income risk in three ways liquidity, credit risk, and duration. And so most people had very long duration, highly liquid, low credit risk investments and treasuries and agency bonds and mortgage securities, municipal securities that began to fail them and not provide the ballast against equities it had been and it didn't provide the income because duration was working against you. So that was a positive four for let's find something else. The negative force was going from zero to five percent. People went from not earning anything on their cash and needing to deploy it to make any money, to oh, wait a minute, I haven't made money on my cash in a long time. Five percent sounds pretty good. 00:34:17 Speaker 2: Money market five and change was great it especially when. 00:34:22 Speaker 3: The time Yeah, yeah, for sure. And so you began to see some hoarding of cash balances that only began to be deployed as the FED started to cut that those rates again. 00:34:34 Speaker 2: I would imagine the inverted yield curve around that time was problematical. So why do I want to tie up money if liquid money market is yielding even more? 00:34:43 Speaker 3: Most definitely? 00:34:44 Speaker 2: Huh really interesting. So, so you've described the current environment as having created a new investing imperative, focus, research, flexibility to change course, conviction. Tell us about what you see is the modern investing imperative around alternatives. 00:35:06 Speaker 3: Right, So we all know about the decline and the number of publicly traded companies. If we were coming out of college, it was nine thousand. Today you know barely four thousand. Both the number of private companies and the size of private companies has exploded, and the opportunity to invest in these private companies has increased dramatically as well as the access and the availability and those companies taking advantage of access to private equity and direct lending sources of financing. And that allows for a much broader palette for investors to build portfolios with by accessing those companies. And I would say very increasingly, in order to get diversification, or to build diversification, you do have to look outside of public stocks and bonds. The stock market is becoming less and less representative of the total economy as it used to be. It's very concentrated right now in AI infrastructure and the mag seven and the build out there. And you have, you know, myriad number of private companies of you know, small to mid size and some larger size that provide you access to what's really driving the US economy. We call that the middle market. And the middle market are you know, a couple hundred thousand plus companies that drive the US economy that are not publicly traded. We define the middle market as companies of a billion dollars of enterprise value and down, so sort of lower and core middle market. And these are businesses that you know, frankly, are fast growing, they're fragmented ecosystem, They're hard to find. But if you can navigate and invest directly in these businesses or lend to these businesses, it's a very attractive access for investors. 00:37:00 Speaker 2: Let's talk a little bit about that. I like to step back and take the thirty thousand foot view to kind of get a sense of how this evolved. My general sense was you had a lot of consolidation with big money center banks following the financial crisis, even the decade leading up to, and it felt like much of Wall Street, much of the giant banks, just kept moving up market and left these huge swaths of billion dollar companies behind because let's be honest, what's a billion dollar company? It's small change to them? Is that what created the opening for all of this private credit, real estate financing, private debt. There's like this whole world that used to be traditional banks. Like explain that transition a little bit. 00:37:50 Speaker 3: So, as I spoke about earlier, I started my career at Solomon and Fig Banking, and we would talk about merging banks, and we had these old that you would take with bank information and merge the banking world and pitch banks on why they should consolidate. Well they did. Throughout the eighties, nineties, and two thousands, the banking world became much more consolidated into these four Meggat banks that hoovered up a number of regional banks. So that was you know, this is a confluence of factors. That was one factor the Great Financial Crisis, and Dodd Frank and red capitules was another big factor of driving higher capital requirements for banks and their activities. You also had banks increasingly looking towards generating fee income versus making loans on their balance sheet. In other words, they wanted to be in the moving business, not the storage business, because that's what they're publicly traded shareholders were valuing. And so they answered that call, and so increasingly they began to step back from those lending activities, particularly to mid size private companies and real estate activities. And that allowed for asset management companies, who I would estimate have very attractive asset liability matches within their lending activities to step into that opportunity and provide that financing capital through closed end funds, through BDCs, through different structures to be able to lend and provide access to the individual investor to generate income off those lending activities. And so I think all of those things provided the opening and it's been a market share shift from the banking system to the direct lending and asset management world in private lending. 00:39:45 Speaker 2: Really interesting last question on the evolution of future standard. You've served roles both as chief Investment Officer and CEO co CEO. As CIO, you think about generating returns. As a CEO, you have to think about so many everything else but people, infrastructure, clients, culture, systems. How do you integrate that those two very different sets of responsibilities. 00:40:17 Speaker 3: Right, So, in terms of thinking about the role, overseeing the investment teams and investment strategies is a big part of what I do as Chief Investment Officer, I like to use the analogy of like I like to be the Rick Rubin in the room of really talented professionals, provide an environment by which they can do their best work, and then get the hell out of the way. And so you have to identify the talent you help to work and develop them. You have to work with their process, how and why they make decisions as individuals and teams of individuals. Make sure that their priorities align with our clients and the firm overall. Give them all the resources that they need to do their job, and increasingly they're more sophisticated resource requests like around AI deployment and things of that nature. And then get out of their way, allow them to do their best work. And you pointed out, you know, designing incentives, designing culture, reinforcing behavior is a big part of all of that. So that's one big part of my job. You know, also interfacing with clients, both private wealth clients and institutional clients. Strategy for the firm, internal strategy, corporate development, but also M and A and new new deployment of acquisition of different strategies, products and launching new products and new extensions of existing products is a big part of my of my role and then reinforcing you know, the culture overall of what we're trying to build. 00:41:50 Speaker 2: And you mentioned earlier you were I'm want to say that again. Earlier you mentioned that the firm was selling into the broker dealer networks. That seems to have evolved into more of an RIA networks. Even the big shops like Ubs and Morgan Stanley have kind of pivoted away from transactions more to fees. How has that transition affected who you're selling products to? 00:42:20 Speaker 3: So over the last you know, fifteen plus years, there has been an evolution and a broadening of the types of platforms that have been embracing private market strategies, alternative investment strategies. You know, there's the wirehouses, so the big four names Morgan Stanley, UBS, Merrill, Lynch, Wells Fargo. There are the large rias like Rockefeller and Saratae that are building out their capabilities for independent advisors and growing quite tremendously. And then you have the independent broker dealer channel, the lpls of the world, and so there there's an ecosystem of wealth platforms just here in the US. You know, overse three hundred thousand financial advisors and brokers in the United States, and all of those channels are increasingly embracing and hosting onto their platforms access to these types of strategies through various, you know, phases of development within those platforms. I would say there's a real spectrum of adoption, you know. You know, when I started at what was then Franklin Square, you know, talking to a big wirehouse like Morgan Stanley, they would tell you that a very small group of their advisors were doing the vast majority of alternatives business. Now across you know, fifteen thousand plus advisors, there's a much broader and wider democratization of adoption of alternatives across THEIRS and other people's platforms. But there's still a lot of individual investors and advisors who are still at zero percent allocated to something other than a stock under cash, and that evolution is that's why I think we're still in the very early I. 00:44:05 Speaker 2: Think really really interesting. Coming up, we continue our conversation with Mike Kelly, President and Chief Investment Officer of Future Standard, discussing the state of alternatives today. I'm Barry Ridults. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Redults. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Mike Kelly. He is president and chief investment officer of Future Standard. They are a ninety billion dollar alternative platform focusing on private credit, private equity, real estate, infrastructure, and multi asset strategies. So it's hard not to look at I have a credit today and not think this is becoming a jug ernaut. Is that a sign of maturity or is this, you know, just a lot of capital chasing, not a lot of loans. 00:45:12 Speaker 3: So I'd start by saying that there is a misconception that private credit generally is becoming a bubble. And I consider myself a student of history and calamities, and I try to think about and if you look at the build of what we call private credit, the asset management's direct lending to private companies matching up against you know, various you know situations in the past where we had true bubbles, you had an outgrowth of capital versus the economic driver of activity. We don't have that today. If you actually add up the pockets of what we really call private credit, which is not just direct lending but high yield strategies, broadly syndicated loans and banks and eye loans. That's private credit provision. It's grown lockstep with the economy. The economy had gone from twelve thirteen billion before the Great Financial Crisis, it's thirty trillion today, and so it's grown in lockstep. It's just the market share has shifted to direct lenders in asset management away from banks, high yield and broadly syndicated loans. And so the opportunity in private credit is not outgrowing the underlying opportunities. These private companies are making themselves. They're availing themselves of this private form of financing from asset management companies. And there's a lot more of these private companies demanding this capital. So there is a balance between the supply and demand of this capital for the opportunity. Now, having said that, in this search for yield that we talked about, there was an outgrowth of evergreen strategies and selling to the private wealth community, particularly within private credit strategies, in this demand for income, and we did see an explosion and concentration and crowdedness in particular funds and pockets of large cap lending that did result in you know, very tight spreads, covenants being loosened, an increase in paying kind or pick over cash financing, and we also sort of a concentration of lending to software companies as rates were being cut and distributions were being cut. Within BBC's and private credit, we began to see that, coupled with the concerns about software exposure, begin to result in some redemptions. And that is where a lot of the headlines have been focused on private credit and negative sentiment around private credit trying to get out of these structures when they're having difficulty doing so. I think the backdrop, though, is private credit is still a very valuable and value enhancing component for most portfolios to generate income, despite some of the indigestion and negative headlines that I've been developing. 00:48:12 Speaker 2: Let's talk about those retemptions because they always crack me up. We saw this a couple of years ago with b RET and b cred, which is which part of five year lockup is confusing to you. I don't I don't understand, and for the listener, a lot of these illiquid alternatives have a tiny gait of five percent gate, which is really there as an accommodation when you know, I call it the widows and orphans clause. If you know, if if the surgeon is hit by a bus and he leaves behind wife and kids, they perhaps shouldn't be in an illiquid alternative in those circumstances. But given that, let's let's talk a little bit about the ill liquidity premium, which some people look at as a bug, but I think is a feature of the this sort of investment. Tell us a little bit about how you think about ill equidity and how do you communicate ill equidity or liquidity issues to potential investors. 00:49:15 Speaker 3: Well, I'd start by saying investing is all about trade offs. There's no right or wrong, no black or white. You know, alternatives aren't better than traditional in forms of investing. There's just trade offs. And the trade offs within private market strategies and the structures that offer them is that you have the advantages of the potential for enhanced return through an illiquidity premium or enhance diversification from your public holdings. The tradeoff of that is these are ill liquid strategies, They are complex, and they are higher fees than public market strategies. ETFs and indices and things of that nature, and so you have to balance those before determining whether or not the trade offfs make sense for you, for your clients, for an institution, what have you. And I really mentioned the liquid the liquid part of it, because these strategies are a liquid evergreen structures as wrappers around these liquid underlying strategies did not make an ill liquid private asset class liquid. It was just an access point. It provides its own advantages of continuous compounding and no capital calls and ten ninety nine's and so forth, but it didn't turn an I liquid asset class into liquid. I never understood the term semi liquid, which implies half liquid, which it's not. These are not half liquid private investments, and so that isn't ast as a backdrop. You know, a lot of it comes down to managing the expectations of what the trade offs are. Going back to the advantages you are providing capital and in our case a future standard, we're providing capital to a very fragmented ecosystem. We cherry pick, you know, a handful of the best middle market, mid sized private businesses, and we provide them with capital, either through equity capital or through loans that we make to these companies. These companies are not massive in size, and they can't dictate final terms, and so we can lend to them at very advantageous prices that work for them because they're growing businesses. They need capital to grow, to acquire new businesses, to fund their operations, and so they're not going to negotiate to the final basis point on spread. So we can provide a very attractive form of financing to them and pass along that income to individual investors through the private wealth community. And so it works for both sides. And that form of income is you know, does come with an expectation of higher returns than what you'll be able to replicate in the sort of megacap market or in the public fixed income market. 00:52:01 Speaker 2: It makes a lot of sense. Back in the day this was thought of as an institutional product and a family office product. It began migrating downstream to ultra high net worth and then high net worth. Now the question is is this going to be marketed to mass affluent for one case? Things like that, who do you see as as appropriate buyers of a variety of private credit products. 00:52:31 Speaker 3: So we'll start by saying, you know, one of the reasons at future standard. Why we like working with advisors is nobody has a better finger on the pulse of suitability than the advisor to their clients. They will know for their client base, risk preferences, liquidity preferences. You know their ability to understand these strategies and have them incorporated into their portfolio. We say that if if you're going to allocate to a private market strategy like the ones we offer, if you're not looking to allocate for at least the next four or five years or beyond, don't make the allocation. If you need the liquidity in the next few years, there's no guarantee to our earlier point that you'll be availed of that liquidity, and so the determination of suitability is at the advisor level, and I think that's where it sits. You could make the argument that this should be relegated to those with net worth or income of a certain bracket of level. The regulators, you know, have their policies on that. But when it gets a little bit fuzzy where someone is accredited but may or may not be suitable, I think the advisor is most positioned to be able to and we would rather have fewer but more suitable investors or as a client base than more and less suitable investors as our client base. You asked a question about retirement accounts. I think there's been a lot of you know, lines written about the big numbers that are being thrown around, you know, twelve to fifteen trillion of DC four oh one K plans. This, in my view, should be among the least controversial of places to think about incorporating less liquid private market strategies. 00:54:15 Speaker 2: Not tapping it for years ago, donate it for decades. 00:54:18 Speaker 3: Usually for a young person in the retirement account. I think about, you know, my little brother who's a school teacher and Queen's and you know, if he has a thirty year horizon or at a twenty year horizon, why shouldn't he have some allocation incorporated in say a target date fund, two long duration investments that might pick up an illiquidity premium if he doesn't need the capital for a very long time. 00:54:45 Speaker 2: And that's a couple of hundred basis points over treasury easily. 00:54:49 Speaker 3: And also, let's face a lot of the best investors in the world are still occupied in this world we call alternatives, and so why not avail yourself of the best investment minds and teams and firms that are out there and their capability sets. And so I do think there will be in corporation of private market strategies into retirement plans into d C four oh one K plans. I think it's going to be a much longer evolution than maybe some would like. It will also only be a subset of the twelfth to fifteen trillion out there, because you have to get the planned sponsors comfortable and other constituents and players up to speed and comfortable with the risks and the fees and the liabilities and so forth. And so it's a going to be a small allocation, say fifteen percent of a target date fund, and that's going to be a subset of all of the capital out there. So in the end, it's an opportunity. Long term, it will be something that people can elect to have or not have in the QDIA. It may be qualified default, they may elect in or so forth. That will evolve over time. But I do think the headlines are getting a little bit ahead of themselves that there's this wave of trillions of dollars that are about to go into alternatives. 00:56:08 Speaker 2: So you mentioned sixty forty earlier. I'm kind of hearing, hey, sixty forty is going to be changing over the next decade to something that's maybe sixty twenty five fifteen. Is that sort of a reasonable number set? 00:56:24 Speaker 3: So this will now get into my view on portfolios and portfolio allocation generally, which I have a view that doesn't match up with those numbers? 00:56:36 Speaker 2: Can I before you say something? I always get into trouble when I say this, But hey, if you're twenty thirty forty and you have a reasonable risk tolerance, what the hell do you need bonds for? Like, people don't like hearing that, But sixty forty, how about ninety ten? If you have fifty year time horizon, you just have to not mess it up at the worst possible moment. Where are you going with your pushback to sixty forty? 00:57:05 Speaker 3: So I'm not even though I've used the term alternatives throughout the discussion here, I don't really like it. I think there's a point in the future where we won't call these strategies alternatives. 00:57:19 Speaker 2: Because they're not all the same. There's a broad dispersion of risk and returns there. 00:57:24 Speaker 3: That's exactly right, and to use that other analogy. When everyone's wearing a Nirvana T shirt, it's no longer alternative music, right, And let's face it, there's a much broader embrace of these strategies. Although it's early, eighty eight percent of Advisor's surveyed have indicated that they plan to allocate capital for their clients to private market strategies. So this is not a niche embrace. This is a broad embrace. And so it's becoming more mainstream. And you know, the reason I don't like the numbers of sixty forty versus you know, fifty thirty twenty is when you think about alternatives, it's just this little peg like a trivial pursuit, you know, you know, peg on a circle. Is it doesn't match up with with how I think about portfolios. So, if you think about private equity, private equity rhymes and looks a lot more from a risk standpoint like stocks than it does real estate credit. It's right there in the name and so yeah, right, it's equity, it's for growth and so, and yet we relegate private equity into a bucket with things like real estate credit, even though they do very very different things for your portfolio. So The way I like to look at it is there's a part of your portfolio for growth, and those are all forms of equity from public stocks and stock indices through to private equity and private company access, through to venture appital and other forms of growth equity. You have your income portfolio, and that's your lower risk, high duration, high liquidity treasuries and agency bonds, through to other forms of income like less liquid private credit you know, in other shorter duration, higher credit risk investment strategies. And then you have what I think is probably an introduction of something that we haven't had to think about since the seventies, like a real asset category and commodities based and precious metals, you know, raw land and real estate and things that in a more inflationary world and a world where you need more diversification of sources, you probably need. A real asset. Infrastructure would be another example of that real asset category. And within each of those three buckets of a portfolio, you have a spectrum of illiquidity and risk profile. And so for each allocator they will need to determin within their growth bucket how much liquidity they need to generate the kind of growth and how much risk. They're willing to bear into private equity and venture capital to build that growth bucket, and the same thing for their fixed income bucket with degrees of credit risk, liquidity duration, and then within their real acid bucket. And so I do believe, even though the world doesn't really look at it that way, that we will eventually get to that point and no longer talk about the term alternatives. 01:00:31 Speaker 2: It's going to be different types of income producing properties and growth produce. 01:00:35 Speaker 3: That's exactly right. 01:00:36 Speaker 2: It makes a lot of sense. You mentioned earlier we saw a big uptick in interest rates, which suddenly is a double edged sword. You're getting yield. We now have a new FED chair who seems to have surprised everybody by being a little bit hawkish in the current environment of oil prices and tariffs and hopefully the end of war. But how do you think about the role of rates and the FED. How does that impact the yield producing portion of the alternative portfolios? 01:01:13 Speaker 3: Well, as I said earlier, I do think we've exited this golden era that ended roughly five years ago into a more inflationary, deglobalized, less benign demographic backdrop. It will result in a higher resting heart rate for inflation. I'm not suggesting we're going back to the seventies by any means, but there's a dozen or so factors that will keep inflation more elevated, particularly in this deglobalized, localized world of supply chain breakdown. 01:01:42 Speaker 2: The post GFC zero rates, that's it for our lifetime. Nobody really expects to see that. 01:01:49 Speaker 3: Again, I don't expect to see that anytime, so. 01:01:52 Speaker 2: Barring media or from out of space. So what does that mean for the potential for are various types of private credit to generate. 01:02:03 Speaker 3: Right in that backdrop, you're going to have higher rate uncertainty, higher volatility, and a need to look for other forms of income, other forms of floating rate exposure. Right, if rates go up, floating rate exposure pays you more. It works against you with high duration investments. You begin to lose money on those, and so it does act as a balance to your traditional fixed income sources. You will need diversification just generally in the world, given this economic backdrop and the need for obtaining resources and how you build out a diversified portfolio, and so these types of income strategies and private equity strategies and real asset, real estate and infrastructure strategies are again a broader palette to paint from in a different environment than the one in which sixty forty was the perfect answer and a simplified answer of set it and forget it and be able to have you know, diversified, low volatility outcomes. And so I do think the role of the FED is trying to navigate this tug of war between the inflationary forces and perhaps the deflationary forces that AI may introduce to pockets of that economy. And so it's a tougher job for Kevin worsh And it's he wants to go back potentially to you know, less disclosure, maybe more Alan Greenspan, like you know, communication style, where we have to divine the tea leaves a little bit more and try to anticipate what's going to happen. And that makes a trickier And if you're building portfolios for the long term, incorporating these strategies in a diversified way, you will have you know, countervailing balance within your portfolio. It won't matter if the Fed's going to raise or lower interest rates by twenty five or fifty basis points. If you built a truly diversified portfolio. 01:03:58 Speaker 2: Makes a lot of sense. You mentioned some of the headline risk, and we've had a couple of minor blow ups over the past year or so. Some people look at that as the first cockroach. I don't know if that's the right metaphor. I'm curious what data points do you look at to just keep an eye on the health of private credit underwrited. 01:04:21 Speaker 3: So when you're looking at private credit underwriting, you're looking at default rates versus history. You're looking at, you know, the situations where there are defaults and what losses ensue post those defaults. You're looking at interest rate coverage ratios, so to the extent that the businesses that you're underwriting in a diversified portfolio can cover their interest payments. So you're watching all of these metrics. You'll need the value of the collateral underlying those businesses. And I would say there's no systemic crisis broad based within private credit today. We're not seeing that. There are idiosyncratic stories, and when you have hundreds and hundreds of credits being underwritten, you're always going to have individual circumstances of companies that are going bad or undertaking one fraud normal default rate, and it doesn't By the way, just because of a company to false doesn't mean you lose money. I mean historically, if you had a default rate of you know, two or three percent, and you lose half your money on that, you can do the math and how much your actual losses will translate over a period of time against the income that you're generating in return. And so if you might factor in the loss of fifty or one hundred basis points of loss against the ability to generate nine or ten percent returns, you can do the math is what that on a net basis will return for you. Defaults today are well within historical ranges and are being well managed. Interest rate coverage ratios are well within historical ranges and are in a healthy range. Today. What we are seeing are pocket of weakness and pockets of vulnerability. And again, over the course of we haven't had an economic cycle since the Great Financial Crisis. I don't even count COVID if it wasn't an economic cycle. 01:06:12 Speaker 2: Even twenty twenty two care a blip. 01:06:15 Speaker 3: And yet we're always going to have some areas that are experiencing some disruption or some indigestion. Right now, you have software, which is an issue that AI is disrupting, but you have to sort through that and healthcare services. There are some labor and reimbursement issues that have hit certain healthcare companies within software. No one knows. No one knows what the true impact of AI is going to be on software. My view is most companies will be fine and adapt and evolve their business models. There will be a subset of those companies that will be truly disrupted and where your collateral will not be worth very much. But again, if you look at a megacap or large cap lent private credit portfolio and you said twenty percent is allocated to software, and you thought fifteen percent of that was going to have disruption and trouble. So now you're relegating this down to about three percent of your portfolio. And even if that all went to zero and there was no collateral value and no recovery on any of those that's going to ensue over the next three to five years three points of loss. So assume a straight line amortization of those losses about a point a year or less than a point a year off of a portfolio that generates nine percent ten percent, So instead of nine or ten, it's eight or nine if all of that gets disrupted as expected. In other words, this is not a catastrophe. This is a normal course of business with a pocket of sector weakness. I think the private credit industry is still healthy. It still provides very attractive general returns. And this is all assumptions based, and assumptions can change, and of course, but as I look at the fundamental health of the private credit business, it's still very much intact. 01:08:07 Speaker 2: Huh, really really interesting. I have one or two more questions before we get to our favorites, and I have to ask you a thirty thousand foot view. Step back and look at the private credit landscape three years, five years, ten years from now. What does it look like in terms of ongoing growth? How much do you think this is going to penetrate into the wealth channels? What does the industry look like you out a couple of years. 01:08:39 Speaker 3: So when we talk about private credit, and often when you read about private credit in the press, it seems like one monolithic category within private credit. There are a Baskin Robins series of flavors that all get defined as private credit. And you have senior credit, junior debt MEZ. You have clos, you have sponsored non sponsored opportunistic credit, you have asset backed finance, you have royalties and so forth. And so there are many different forms of credit to private entities and companies that we call private credit. My expectation is those flavors will develop, They will begin to uh, you know, grow in size, the demands for that capital buy those companies' entities will increase. We're seeing the entrance of insurance capital and an investment grade. You know, most of what we call in private credit is not investment grade, but there's the investment grade demand for private capital for these companies that is, you know, exploding in size, and you know Mark talks about that at Apollo, and you know, there is all of this that's developing over time, and I expect that to continue. And then on the demand side, I expect that private wealth will continue demand income. They will continue to struggle with traditional forms of fixed income and highduration assets. If my view on the macro world transpires as I think it will, they will continue to need to search for income through different sources. That's both corporate income and real estate income and other forms of asset backed income and so those demand that supply and demand will continue to grow lockstep with one another, and we will have a much larger ecosystem of what we call private credit in the future. 01:10:40 Speaker 2: So you were a trustee at the Stanford Graduate School of Business. You're currently a trustee of the Tiger Foundation as well as a board member at the Spotlight Foundation. Tell us a little bit about the work you do with these foundations. 01:10:54 Speaker 3: Yeah, So one of the things that Julian Robertson imparted on all of us from a young age was give back as much as you can, as early as you can. Don't wait until you know you're about to die. And so I joined the Tiger Foundation, you know, probably over twenty years ago, which was Julian's foundation at Tiger Management that funds not for profit initiatives in New York City to fight poverty and have been doing that now for a Tiger Foundation has been around at least twenty five years or more, and so that's been an exciting legacy for Julian and for all of us that work together a Tiger and I'm a trustee on that and work hand in hand with the other trustees in undertaking funding those initiatives. The Spotlight Foundation was a group of Stanford Business School friends of ours. We after we graduated, we decided to memorialize our friendship through a foundation that would fund not for profit entrepreneurs that were funding education initiatives. Seeing how important education was in all of our lives personally, wanting to impact those people that didn't have the same advantages and opportunities that we had. And so we fund a lot of education initiatives, particularly in less advantage communities, and we fund the entrepreneurs, the ones we're doing earlier stage startups that could become the next Kip, you know, in the charter schools of the world, or you know, we funded the Seattle Girls School to bring science initiatives to girls within the inner city Seattle community. And so that's something that you know, is very near and dear to my heart. 01:12:46 Speaker 2: Sounds really interesting, all right, Let's jump to our favorite questions we ask all of our guests, starting with tell us about your mentors who helped shape your career. 01:12:58 Speaker 3: Yeah, well, you know, I've had various mentors over the over time. Certainly would put you know, Lee and Julian in that category, not as a personal mentorship, but more as individuals I observed and admired as investors. But also you know, you're looking at someone like Julian, how philanthropic he was and giving and the way he treated people. I really admired that about him. There was another individual who's a mentor to me to this day, Gil Caffrey. Gil was a partner at Tiger. He was my partner at front Point as we built that firm. And Gil is an incredible human being. He's smart, and he has the highest integrity. He always treated everyone with respect. He was a direct individual, but you know, or is a direct individual, but he was never emotional. He just showed you how to treat clients with respect, how to treat your co workers with respect. And it's just somebody who mentored me personally and who I try to emulate every day. 01:14:15 Speaker 2: Really good answer. Let's talk about books. What are some of your favorites? What are you reading currently? 01:14:22 Speaker 3: Book I'm reading currently London Falling by Patrick Radden Keith, who wrote Empire, Pain and Say Nothing. He's an incredible investigative journalist writing this wild story, a true story about a boy and a family within London in the eighties and nineties and in the backdrop of London undergoing the changes it had. It is a fascinating piece of work. It's one of the best books I've read, and I try to read a lot in the last five years, and so I've really enjoyed that best book all time. I would say, man Search for Meaning. I read it in high school. Victor Victor Francle, I read it in high school. I reread it every year, just it has It's amazing that Victor had the ability to have the mind frame he had through the horrors he faced, and how that mindset and your sort of ability to attach meaning to what goes on in your life. And you can't control what happens to you, but you can control how you respond to it. I love all things stoicism Marcus Aurelius. Yeah, sure, and and and but Victor Francle's writing. It's uh. I still have the torn pages of my high school copy with my pen marks and I and I reread it every year. It's it's It's an amazing book. 01:15:55 Speaker 2: Really really interesting. What are you streaming these days? Tell us what sort of podcasts or Netflix, Amazon Prime you're watching. 01:16:04 Speaker 3: So my wife and I love documentaries We are watching The Dark Wizard right now about Dean Potter, who was an extreme climber and extreme athlete. I love watching depictions of obsessive personalities, I think probably because I see some of that in myself. But I like watching based on people who are in other fields, so whether they're athletes or extreme athletes, or musicians or chefs, like Hero Dreams of Sushi, the Bears coming back Out, you know Last Dance. I love Kobe Bryant and Michael Jordans. You just people who pour themselves into what they do because I always learn something about how they think about the world and pour themselves into what they do as it applies to what I do, what I love to do, and so you know, I love It's one of the reasons I love watching some of these documentaries. 01:17:05 Speaker 2: So I have a couple of things I have to share with you. Have you ever read the book Endurance about the chefs like it reads like it's fiction. It's just so one of the best and I'm drawing a blank. I think it was called Open Andre Agassiz. 01:17:23 Speaker 3: Also one of the best sports biographies. 01:17:27 Speaker 2: Just really really interesting. And then I have to slip over to music because you mentioned Nirvana twice. You mentioned Rick Rubin. You're big music fan? What what genres? 01:17:39 Speaker 3: What do you? Where? 01:17:40 Speaker 2: Do you what? What ponds do you fish? 01:17:43 Speaker 3: When I was younger, I was really into heavy metal. I still am, but Rush and heavy metal and bands like that. Yeah, and I and I played bass in a band. And nowadays it's really you know, I'll listen to Miles day Davis, I'll listen to uh, you know, Burning Spear and Reggae. I'll listen to Radiohead, listened to Why. I've just finished Michael McDonald's autobiography. 01:18:12 Speaker 2: Uh, I know what you're told you're about to say. Did you see it's. 01:18:19 Speaker 3: Yea yacht documentary or something? They called it yacht rock doc I love yacht music, yacht rock. It was so surprisingly good. 01:18:30 Speaker 2: I'm a big Steely Dan fan. Well, so I expect it to hate it. And there's a brilliant line where he gets Donald Fagan on the phone and he's just. 01:18:38 Speaker 3: Like and he hated the fact that he called him yacht rock and hung up on him. But like in the in the Michael McDonald autobiography, he talks about Steely Dan and their process. They were super obsessive, you know, they every note counted. They would do take after take after take. It was very sort of Beatles Beach Boys for certain musicians, Miles Davis probably you know, who were just so intense about the process of creating music. And I love seeing that and I love learning from that. 01:19:10 Speaker 2: So there's a YouTube series, or it's a series that ended up on YouTube called Classic Albums and the making of Steely dan Asia is insane. But they also give you a little history and show you, Hey, you like my old school. Here's the forty three different guitar solos before they and then they didn't just take one, they patched twelve of them together. Yeah, it's it's pretty amazing. I think it's called Classic Albums, and you can find a bunch of other stuff, But I thought the Steely dance stuff was was really it was. 01:19:46 Speaker 3: Really solo every time. 01:19:49 Speaker 2: And I have a couple of years on you, but I'll make you a tiny little bit jealous. I was in I want to say, high school. I saw a Black Sabbath at Madison Square Garden and this unknown band's opened for them named Van Halen. Oh gosh, and it was insane. I'm not exaggerated. 01:20:08 Speaker 3: Jealous. 01:20:09 Speaker 2: Is this what every concert is supposed to be like I want to say I was fourteen something like that. Head blown. All right, our final two questions. What sort of advice would you give to a recent college grad interested in a career in either alternative investments, private credit, what have you? 01:20:32 Speaker 1: So? 01:20:34 Speaker 3: In my view, and I have two young sons well twenty and seventeen, and it's kind of the advice that I've given them. I believe the greatest definition or criteria of success going forward is going to be adaptation. So learn to adapt. Everything is being disrupted. Jobs are being disrupted, not replaced or being dis abrupted, careers, the world. Your ability to try and fail and get up again. You know, as the Japanese say, you know Rise eight fall seven, you know, Nanna koobi yaogi, You're actually supposed to put yourself out there and be resilient and adapt, and you're going to need to. I think in the future. That's a really important I think mindset to have in the world we're entering into and is going to transpire. Obsess about what you do as much as you can read everything you can get your hands on, network to what every extent you can meet people, put yourself out there and do it in person, don't do it over zoom. Get out there and immerse yourself in whatever it is that you're doing. And then finally, I would say, be the man or woman in the arena. You know, I think there's an overfixation on likes and the comment section. Forget the comment section, forget the number of likes you have. Put yourself in the arena. They are always going to be weak critics sitting in the stands throwing rocks at you. Ignore them. 01:22:18 Speaker 2: That's the famous quote from Theodore Roosevelt Teddy, Right, yeah, that's right, the man in the arena. And our final question, what do you know about the world of alternative investments and private credit today? Might have been helpful when you were first getting started thirty or so years ago. 01:22:37 Speaker 3: So when I was starting out in the business, I viewed the markets as this giant puzzle that needed to be solved. And I like puzzles, So you know, I thought, all right, I'll take all of the classes and read all of the books on cracking the code, and you know, quantitative finance and derivative math and all of these things. And yes, over the years I've used those, But if I could go back and do it all over again, I would have taken far more psychology and philosophy classes and maybe fewer you know, classes on building DCF models, because as I think about my career and how it's evolved in my daily interactions and even observing the markets, it's far more driven by behavior than it is by math, at least the world I've occupied. I don't work at rentech, but it's irrationality and incentives and behavior for better or worse that creates opportunities, that creates management challenges, what have you. But I would have studied more of the psychology and philosophy. 01:23:48 Speaker 2: Really really interesting answer. Thank you Mike for being so generous with your time. We have been speaking with Mike Kelly, President and chief investment Officer at Future Standard. If you and enjoy this conversation, well check out any of the six hundred and forty nine we've done over the past twelve years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcast. I would be remiss if I didn't thank our crack staff that helps put these conversations together each week. Alexis Noriega is my video producer Sean Russo is my researcher. Anna Luke is my podcast producer. I'm Barry Ritaults. You're listening to Masters in Business on Bloomberg Radio.