WEBVTT - BONUS: Future Standard President & CIO Mike Kelly 0:00:02.520 --> 0:00:11.840 Bloomberg Audio Studios, Podcasts, radio news. This is Masters in 0:00:11.920 --> 0:00:15.440 Business with Barry Ritholts on Bloomberg Radio. 0:00:16.800 --> 0:00:20.480 This week on the podcast, an extra special guest, Mike 0:00:20.560 --> 0:00:25.080 Kelly has an absolutely fascinating career from Omega to Tiger, 0:00:26.120 --> 0:00:30.800 currently President and Chief Investment Officer at Future Standard. Really 0:00:30.880 --> 0:00:34.879 about as knowledgeable an individual as you'll find, covering private 0:00:34.920 --> 0:00:39.360 credit infrastructures and the wealth channel and what the future 0:00:40.000 --> 0:00:43.600 of what we broadly call alternatives look like. I thought 0:00:43.600 --> 0:00:46.080 this was fascinating and I think you will also, with 0:00:46.159 --> 0:00:50.680 no further ado my conversation with Mike Kelly. Mike Kelly, 0:00:51.040 --> 0:00:52.120 Welcome to Bloomberg. 0:00:52.400 --> 0:00:54.120 Thanks Perry, It's great to be here. 0:00:54.520 --> 0:01:00.400 So I'm fascinated by both your background and your career path, 0:01:00.440 --> 0:01:04.319 which is really really interesting. But let's roll back a 0:01:04.360 --> 0:01:09.720 little bit. Bachelor's at Cornell NBA, from Stanford, what was 0:01:09.720 --> 0:01:10.839 the original career plan? 0:01:12.360 --> 0:01:15.000 So taking a step back, you know, I grew up 0:01:15.080 --> 0:01:18.039 on the border of Queens Long Island. My dad was 0:01:18.080 --> 0:01:22.520 an NYPD cop in really the South Bronx, and Queen's 0:01:23.400 --> 0:01:26.880 mom raised the five of us kids in a traditional 0:01:27.160 --> 0:01:32.600 Irish American household and valued education. I knew from a 0:01:32.760 --> 0:01:36.600 pretty early part of my life that I wanted to 0:01:36.640 --> 0:01:41.160 go into investing. I'll tell you a little stories. So 0:01:41.880 --> 0:01:44.399 when we turned thirteen in my family, you got the 0:01:44.400 --> 0:01:48.400 big gift. And at the time, I was a nerdy kid. 0:01:48.440 --> 0:01:50.920 I was into computers. My dad would drop me off 0:01:50.920 --> 0:01:54.040 at the Queens Village Public Library and I would, you know, 0:01:54.160 --> 0:01:56.360 learn how to program on this Apple computer. They had 0:01:56.440 --> 0:01:58.560 just got the Apple two e in. And for my 0:01:58.640 --> 0:02:03.040 thirteenth birthday, I asked my parents for you got up 0:02:03.080 --> 0:02:04.960 to three hundred dollars. I got three hundred dollars of 0:02:05.000 --> 0:02:09.160 Apple stock. Was my request, really, and the big day 0:02:09.200 --> 0:02:12.040 came they gave me the envelope. Was really excited. I 0:02:12.080 --> 0:02:16.600 opened it up and it was a saving spot for 0:02:16.639 --> 0:02:20.160 a local bank. And my parents noted the disappointment in 0:02:20.160 --> 0:02:22.519 my face and said, you know, Michael was sorry, we 0:02:22.840 --> 0:02:24.000 don't know how to buy stock. 0:02:25.240 --> 0:02:27.519 And this is like late eighties, this is eighty three, 0:02:27.639 --> 0:02:28.799 eighty three, okay. 0:02:28.880 --> 0:02:34.040 So I said, then in there, I am going to 0:02:34.080 --> 0:02:37.400 teach myself how to do this, how to invest in 0:02:37.800 --> 0:02:40.760 these companies, and I set out. I still have it. 0:02:40.800 --> 0:02:42.520 I have the notebook over here. I actually brought it 0:02:42.560 --> 0:02:45.840 with me about stocks and all the things that I 0:02:45.840 --> 0:02:49.480 would read about investing and investing in the stock market. 0:02:49.600 --> 0:02:52.639 And so from an early early part of my life 0:02:52.680 --> 0:02:57.640 I wanted to go into investing. And so throughout you know, 0:02:57.760 --> 0:03:01.800 the years at Cornell. You know, at the time, I 0:03:01.880 --> 0:03:05.040 did some great internships. Wanted a boiler room. They made 0:03:05.040 --> 0:03:08.239 a movie about that one for Steve Winn at the Mirage, 0:03:08.520 --> 0:03:13.320 which was exciting. And then I studied in Japan, studying 0:03:13.320 --> 0:03:16.360 the banking system there for one summer, and as I 0:03:16.400 --> 0:03:19.040 was coming back, the only firm that actually would interview 0:03:19.160 --> 0:03:23.480 me was Solomon Brothers, and so I wound up fortunately 0:03:23.520 --> 0:03:28.000 getting a job at Salomon Brothers in the capacity yeah, 0:03:28.040 --> 0:03:33.160 in the financial institutions banking group. Started as an ibanker, 0:03:34.840 --> 0:03:39.240 loved Salomon Brothers, went up going to the forty second 0:03:39.240 --> 0:03:41.760 floor of seven World Trade Center, which is where Michael 0:03:41.800 --> 0:03:45.040 Lewis wrote the book Liar's Poker. So I wound up 0:03:45.080 --> 0:03:47.240 going to the fixed income trading floor for my third 0:03:47.280 --> 0:03:51.560 year and really got bit by the bug of markets. 0:03:51.640 --> 0:03:55.440 I knew I wanted to make the transition from investment 0:03:55.480 --> 0:03:58.920 banking over to the byside. So as I headed off 0:03:59.360 --> 0:04:03.720 to Stanford Business School, that was my mission, was to 0:04:03.760 --> 0:04:05.320 find my way into the buyside. 0:04:05.480 --> 0:04:08.560 So there's a sort of urban legend that you kind 0:04:08.560 --> 0:04:12.840 of cold called your way from Solomon Brothers into an 0:04:12.840 --> 0:04:19.080 internship with hedge fund legend Lee Cooperman at Omega is, 0:04:19.640 --> 0:04:21.600 first of all, is that a true story? And if 0:04:21.600 --> 0:04:23.600 it is, walk us through that. 0:04:23.560 --> 0:04:28.680 Call, all right. So I was at Stanford and I 0:04:28.760 --> 0:04:32.560 knew I wanted to make this transition into the buyside. 0:04:32.800 --> 0:04:36.960 And in looking at the careers of what I was 0:04:37.000 --> 0:04:40.400 looking at the greatest minds in investing, they all seem 0:04:40.480 --> 0:04:43.880 to be relegated to this corner of the market of 0:04:44.400 --> 0:04:47.800 hedge funds and private equity firms. And we're talking about 0:04:48.040 --> 0:04:50.160 the mid nineties here, when people didn't have a lot 0:04:50.160 --> 0:04:53.880 of understanding of what these firms actually did. But it 0:04:53.960 --> 0:04:59.400 struck me as an incredibly intense and exciting career path. 0:04:59.560 --> 0:05:02.560 Many of the people were very young and seemingly making 0:05:02.600 --> 0:05:05.400 a lot of money doing it and really working on 0:05:05.440 --> 0:05:12.960 some dynamic investment investing strategies. And so I had a directory. 0:05:13.000 --> 0:05:15.359 It was called the Van Hedge Fund Directory. It was 0:05:15.360 --> 0:05:18.920 a printed out piece of paper like from a fax machine, 0:05:19.279 --> 0:05:22.000 and it had the names and addresses of at the 0:05:22.040 --> 0:05:25.840 time the top twenty five hedgephones. So had you know, 0:05:26.000 --> 0:05:29.200 Bruce Kubner in there, and you know Paul Tudor Jones 0:05:29.279 --> 0:05:33.080 and George Soros, And so I went through this directory 0:05:33.360 --> 0:05:36.440 and literally called from a payphone. 0:05:36.480 --> 0:05:40.960 These individuals come on, Druckmiller, It's Mike Kelly like that. 0:05:40.960 --> 0:05:41.920 That sort of call. 0:05:42.279 --> 0:05:46.240 Now, the disadvantage is most people were screening their calls. 0:05:46.279 --> 0:05:49.000 Their assistants were like, yeah, he'll never call you back. 0:05:50.320 --> 0:05:54.520 The advantage for me was one of those individuals. Lee Cooperman, 0:05:55.160 --> 0:05:58.760 often didn't use an assistant and answered his own phone. 0:05:58.800 --> 0:06:01.279 He's there five in the morning, he's there at eight 0:06:01.320 --> 0:06:04.200 at night. Absolutely, if you call outside of business hours, 0:06:04.760 --> 0:06:05.720 Lee's the only guy in there. 0:06:05.839 --> 0:06:09.080 He picks up and goes Lee, and that's how he 0:06:09.120 --> 0:06:11.880 starts a conversation. I'm mister Cooperman. You know, I'm a 0:06:11.960 --> 0:06:14.640 kid from the Burrows like you. I just want to 0:06:14.640 --> 0:06:17.479 break into the industry. You know, I've worked at Solomon, 0:06:17.520 --> 0:06:21.799 but I've never been an investor before. I am willing 0:06:21.839 --> 0:06:23.839 to do whatever it takes. I am willing to sleep 0:06:23.839 --> 0:06:26.040 on my parents' couch and work for you for free. 0:06:27.120 --> 0:06:31.560 And he said, I only hire PhDs really, And I said, well, 0:06:31.560 --> 0:06:36.040 I'm getting my MBA right now and he said no, poor, hungry, 0:06:36.120 --> 0:06:38.800 and driven. And I was like, well, I'm all three 0:06:38.880 --> 0:06:42.480 of those. I check those boxes. And he said, well, 0:06:42.520 --> 0:06:46.159 I'm a value investor and I like the price. You 0:06:46.200 --> 0:06:47.040 can come work for me. 0:06:47.000 --> 0:06:50.160 For free, no kidding, Like, oh my god. 0:06:50.240 --> 0:06:56.160 I show up day one at Omega and Lee comes 0:06:56.200 --> 0:06:59.239 to me and says, let's go to breakfast. And I thought, 0:06:59.440 --> 0:07:03.159 this is a heaven first day and I'm going to 0:07:03.200 --> 0:07:06.640 breakfast with the legendary Lee Cooperman. So we go across 0:07:06.680 --> 0:07:08.599 the street. It's one hundred Wall Street. We go across 0:07:08.640 --> 0:07:12.480 the street to an Aubont Pan for breakfast, and we 0:07:12.560 --> 0:07:14.840 get to the counter, we order, and Lee turns to 0:07:14.840 --> 0:07:19.240 me and says, you're buying. So here I am day 0:07:19.240 --> 0:07:23.640 one and I'm already thirty dollars in the whole right 0:07:24.320 --> 0:07:27.679 in my illustrious investment career. But it turned out okay, 0:07:28.720 --> 0:07:31.320 And and that was how that was how I got 0:07:31.360 --> 0:07:34.440 my start in the investment business, and in particular in 0:07:34.520 --> 0:07:37.240 hedge funds and the alternative investment that's unbelievable. 0:07:37.280 --> 0:07:42.480 So after Omega, you leap from Lee Cooperman to working 0:07:42.560 --> 0:07:46.720 under Julian Robertson at Tiger Management. How did that come about? 0:07:47.160 --> 0:07:50.280 So I had worked full time after business school for 0:07:50.560 --> 0:07:53.880 Lee and four Omega Advisors. I received a phone call 0:07:54.920 --> 0:07:57.680 a few years later by Tiger Management. They were looking 0:07:57.720 --> 0:08:03.240 for someone in their macro an analyst group. And at 0:08:03.240 --> 0:08:06.480 that time, you know, getting a call from Tiger was 0:08:06.480 --> 0:08:08.160 like getting a call from the New York Yankees. Sure 0:08:08.160 --> 0:08:11.520 it was like the illustrious, you know, incredible firm. Was 0:08:11.640 --> 0:08:13.679 very honored and flattered interviewed. 0:08:13.960 --> 0:08:16.880 Let me interrupt you a second, just to remind listeners 0:08:16.920 --> 0:08:21.520 that the nineteen eighties and nineteen nineties were peak hedge 0:08:21.520 --> 0:08:25.200 fund years. They were masters of the universe. They put 0:08:25.240 --> 0:08:29.440 up the best numbers. They were the hardest for any 0:08:29.600 --> 0:08:33.120 investor that wanted to allocate to them. Was not easy 0:08:33.160 --> 0:08:36.160 to get into any of those funds. The world changed 0:08:36.160 --> 0:08:40.000 after the financial crisis, but that was the golden era 0:08:40.040 --> 0:08:41.160 of hedge funds, wasn't it? 0:08:41.240 --> 0:08:44.880 Most definitely? And I think what I appreciated the most 0:08:46.080 --> 0:08:50.840 about those first few firms I worked at, Solomon, Omega Advisors, 0:08:51.200 --> 0:08:55.960 Tiger Management. It was a commonality of culture in that 0:08:56.720 --> 0:09:03.079 these were very intense work environments with very intellectually curious 0:09:03.880 --> 0:09:09.000 individuals who were super smart and but like to have 0:09:09.120 --> 0:09:13.199 fun and were a joy to be around and learn from. 0:09:13.280 --> 0:09:17.240 And so I really enjoyed, you know, the aspects of 0:09:17.320 --> 0:09:20.520 the culture of the environments in my early career and 0:09:20.800 --> 0:09:22.199 really got a lot out of it. And it really 0:09:22.240 --> 0:09:25.599 appealed to kind of my personality of kind of an obsessive, 0:09:25.600 --> 0:09:29.280 intense personality. So I really enjoyed that. But going to 0:09:29.360 --> 0:09:33.880 Tiger was incredible, a very young group of people who 0:09:33.880 --> 0:09:35.760 have obviously gone on to do great things in their 0:09:35.800 --> 0:09:41.640 investment careers. A really intellectually challenging place to work. But 0:09:41.679 --> 0:09:45.200 I learned a ton about about investing from from you know, 0:09:45.240 --> 0:09:48.120 from Lee and from Julian and from the other individuals 0:09:48.120 --> 0:09:50.360 that I worked with and sort of shaped my sort 0:09:50.400 --> 0:09:52.240 of investment philosophy as time went on. 0:09:52.600 --> 0:09:56.280 I'm curious because they are obviously such different styles. Lee 0:09:56.360 --> 0:09:59.679 as the value guy, Tigers known as momentum and growth 0:10:00.200 --> 0:10:03.360 and just a hold and technology in a very very 0:10:03.360 --> 0:10:08.480 different opportunity set. What did you learn from from each 0:10:08.480 --> 0:10:12.680 of those? How different were Julian's and Lee's approaches? 0:10:12.800 --> 0:10:16.079 Well, I think Julian and Lee the inception of that 0:10:16.120 --> 0:10:19.280 both had a very value oriented approach. I think within 0:10:20.280 --> 0:10:23.000 Tiger there was an evolution over time and an adaptation 0:10:23.400 --> 0:10:25.880 even with some of the Tiger cubs, of adopting a 0:10:25.920 --> 0:10:29.839 more growth oriented strategy. But it was a time when 0:10:30.120 --> 0:10:34.840 doing real intense work could uncover really great long and 0:10:34.840 --> 0:10:38.480 short opportunities. I do think you know, years later, decades later, 0:10:38.520 --> 0:10:42.839 it became much more difficult with indexation and ETFs and 0:10:42.600 --> 0:10:46.120 and and the market structure changed. But back then, I 0:10:46.160 --> 0:10:50.240 would say, from an investment philosophy standpoint, there was a 0:10:50.320 --> 0:10:55.880 view that every single day you rebuy your portfolio. It 0:10:55.920 --> 0:10:59.800 doesn't matter if you're losing money or you're in the money, 0:11:00.080 --> 0:11:03.000 made a double already, if you own it, think about it, 0:11:03.040 --> 0:11:05.320 and re underwrite it as if you just bought it today. 0:11:05.520 --> 0:11:08.439 And are you as excited from a long and short 0:11:08.480 --> 0:11:12.680 perspective about that opportunity in the go forward period? And 0:11:12.679 --> 0:11:16.160 I think that discipline of reunderwriting your holdings every single 0:11:16.240 --> 0:11:19.559 day is something that's remained with me. I think, secondly, 0:11:19.600 --> 0:11:23.240 I would say what I would call a variant perception, 0:11:23.400 --> 0:11:25.600 or what is called a variant perception, something that Michael 0:11:25.600 --> 0:11:30.920 Steinhardt popularized of when you make an investment, How is 0:11:30.960 --> 0:11:33.600 your view different from the market, Because if you want 0:11:33.600 --> 0:11:37.160 to outperform the market, you can't just agree with the 0:11:37.160 --> 0:11:39.800 thesis that's already embedded in the price or value of 0:11:39.840 --> 0:11:43.360 an investment. And so that variant perception of how do 0:11:43.400 --> 0:11:46.840 you look at it different? You're either more bullish about 0:11:46.840 --> 0:11:50.960 that opportunity or you think that opportunity is overdone, and 0:11:51.000 --> 0:11:53.680 so you're either selling or your shorting or what have you. 0:11:53.760 --> 0:11:56.000 And so I think the variant perception is really really 0:11:56.600 --> 0:12:02.959 an important aspect of the philosophy. Having investment conviction is 0:12:02.960 --> 0:12:07.760 another principle. You know, go all in, do your work, 0:12:07.880 --> 0:12:11.760 get to a high conviction thesis, but loosely hold it 0:12:11.960 --> 0:12:14.520 like hold on loosely strong opinions. 0:12:14.520 --> 0:12:16.760 Loosely held is the expression I heard. 0:12:17.400 --> 0:12:20.640 That's exactly right, because if you have disconfirming evidence, don't 0:12:20.640 --> 0:12:24.680 ignore it, don't double down with your escalation of commitment, 0:12:25.440 --> 0:12:28.000 you know, reunderwrite it, and ask yourself, well, maybe I 0:12:28.160 --> 0:12:30.640 have to change my mind. The greatest investors in my mind, 0:12:30.679 --> 0:12:33.200 someone like a Stanley Druckn Miller, is willing to change 0:12:33.240 --> 0:12:36.240 his mind all the time, you know, based on new information. 0:12:36.320 --> 0:12:39.760 And so I think these principles form an investment philosophy 0:12:39.800 --> 0:12:42.520 that if if you don't know what your competitive advantage 0:12:42.559 --> 0:12:44.839 is in making an investment, whether you're a private market 0:12:44.880 --> 0:12:48.160 investor or a public market investor, you probably don't have 0:12:48.240 --> 0:12:50.640 a reason to be in that investment in the first place. 0:12:50.880 --> 0:12:54.880 That's exactly right. I love the concept of re underwriting 0:12:55.720 --> 0:12:59.680 so many new investors, and I started on a trading desk. 0:13:00.200 --> 0:13:04.120 Any position you had, you had to justify every moment 0:13:04.160 --> 0:13:06.760 you owned it. Hey, this is capital. I could turn 0:13:06.800 --> 0:13:09.800 this into capital in a millisecond. Would you buy this 0:13:10.360 --> 0:13:13.120 if this was back as cash and not as a 0:13:13.160 --> 0:13:16.800 holding where you bought it, whether you're underwater or head 0:13:17.000 --> 0:13:20.599 is totally irrelevant. Would you continue to re underwrite that? 0:13:20.600 --> 0:13:23.760 That's a great way to describe that. I'm really impressed 0:13:23.800 --> 0:13:27.000 with that. So from Tiger you go to front Point 0:13:27.160 --> 0:13:31.960 Partners and helped turn it into a truly institutionalized hedge fund. 0:13:32.200 --> 0:13:33.760 Tell us a little bit about front Point. 0:13:34.640 --> 0:13:37.720 So I got a call from the two original founders 0:13:37.760 --> 0:13:40.480 of front Point and they asked me to look at 0:13:40.480 --> 0:13:43.560 the business plan and to give them a critique, which 0:13:43.600 --> 0:13:45.840 I did. I thought it was fascinating at the time. 0:13:45.880 --> 0:13:49.000 A lot of hedge funds were frankly run as almost 0:13:49.040 --> 0:13:50.720 like family offices as a business. 0:13:51.520 --> 0:13:54.880 The third of the capital was the founders half the 0:13:54.960 --> 0:13:55.640 time any. 0:13:55.520 --> 0:13:58.920 Way, right, and most of the investment capital came from 0:13:59.040 --> 0:14:03.120 ultra high net worth family offices like Memphis, Mafia and others. 0:14:03.240 --> 0:14:09.240 And so there was a view that institutions would begin 0:14:09.360 --> 0:14:17.040 to embrace alternative strategies, and for them to embrace alternative strategies, 0:14:17.360 --> 0:14:19.920 the firms they would allocate capital to would need to 0:14:19.960 --> 0:14:23.080 look like the institutional asset managers they were used to 0:14:23.120 --> 0:14:25.560 like in the traditional mutual fund business. But a lot 0:14:25.560 --> 0:14:27.240 of hedge funds didn't look and feel that way. They 0:14:27.280 --> 0:14:30.360 were run more like family offices. And so we had 0:14:30.400 --> 0:14:35.520 a view that by forming a real institutional quality asset 0:14:35.560 --> 0:14:42.200 management firm that would house diversified strategies and managers who 0:14:42.240 --> 0:14:46.600 could provide absolute return strategies to these institutional clients, that 0:14:46.600 --> 0:14:49.440 that would be embraced. It would be embraced because of 0:14:49.480 --> 0:14:52.040 the excellence of the investment teams, but also by the 0:14:53.400 --> 0:14:58.600 world class investment asset management infrastructure that we would build 0:14:58.600 --> 0:15:00.600 with front Point. And so that was the thesis. You know, 0:15:00.600 --> 0:15:04.760 you're going back to two thousand now, and to be 0:15:04.880 --> 0:15:08.200 invited to join a firm, and these guys were in 0:15:08.240 --> 0:15:10.400 their fifties. I was, you know, twenty nine, thirty years 0:15:10.400 --> 0:15:12.600 old to build a company. It was an exciting thing 0:15:12.680 --> 0:15:15.840 for me. At the time. I still wanted to become 0:15:16.320 --> 0:15:18.760 Paul tuter Jones. I wanted to be a macro investor. 0:15:18.800 --> 0:15:21.680 I wanted to be an investment manager. But I thought, 0:15:21.960 --> 0:15:25.240 I'll start by helping these individuals help build this firm, 0:15:25.280 --> 0:15:27.960 and then I'll go back to running a fund, probably 0:15:27.960 --> 0:15:30.200 at front point, And didn't you. 0:15:30.200 --> 0:15:34.320 Begin at from point as CIO and eventually became co CEO. 0:15:34.440 --> 0:15:37.240 I was the head of manager's selection and overseeing the 0:15:37.320 --> 0:15:41.200 investment teams. Then I became chief investment officer and head 0:15:41.200 --> 0:15:43.520 of the multi strategy, and then I became co CEO 0:15:43.600 --> 0:15:45.480 of the firm. So it was an evolution over time. 0:15:48.160 --> 0:15:50.560 But at the outset, you know, hiring the investment teams, 0:15:50.600 --> 0:15:53.320 overseeing what they were doing, picking and selecting them was 0:15:53.360 --> 0:15:57.760 a fascinating job for me. I loved learning about different approaches, 0:15:57.880 --> 0:16:00.800 you know, market wizards, stock market wizards, all the different 0:16:00.800 --> 0:16:02.960 ways you could skin a cat with investing. So it 0:16:03.040 --> 0:16:05.400 was like a kid in a candy store and I 0:16:05.520 --> 0:16:09.960 began to reflect on my career at that time, in 0:16:10.000 --> 0:16:13.200 that everyone goes into the investment business with the mindset 0:16:13.240 --> 0:16:15.480 of I want to become a great investor. I want 0:16:15.520 --> 0:16:18.000 to become Warren Buffett, I want to become Julian Robertson. 0:16:18.040 --> 0:16:20.480 I want to become Paul Truder Jones. I was no different. 0:16:21.240 --> 0:16:23.560 That is a very crowded pond and a lot of 0:16:23.680 --> 0:16:26.080 luck and things have to go your way to conspire 0:16:26.160 --> 0:16:28.680 to result that way to become one of the top 0:16:28.680 --> 0:16:32.320 decile quartile managers out there. And I thought at the time, 0:16:32.400 --> 0:16:35.320 you know, building an asset management company like this, like 0:16:35.360 --> 0:16:37.160 I'm doing with my partner's at front Point. You know, 0:16:37.200 --> 0:16:39.280 I'm a young guy, my whole career ahead of me, 0:16:39.520 --> 0:16:41.080 and I thought, you know, actually, if I spent my 0:16:41.160 --> 0:16:45.480 career building asset management companies and managing them, that could 0:16:45.480 --> 0:16:48.720 be a pretty you know, robust career. I could really 0:16:48.800 --> 0:16:50.840 enjoy myself. And it's a pond no one seems to 0:16:50.840 --> 0:16:53.720 be fishing in, and maybe twenty years from now this 0:16:53.800 --> 0:16:57.160 might result in something. And so it was at that moment, 0:16:57.560 --> 0:17:00.640 you know, within front Point, that I began to move 0:17:01.200 --> 0:17:06.080 away from investing professionally in the markets and more building 0:17:06.119 --> 0:17:09.960 investment organizations and overseeing investment managers and strategies. 0:17:10.040 --> 0:17:14.160 So the next step along your career path you join 0:17:14.400 --> 0:17:16.600 ORX asset Management as CEO. 0:17:17.480 --> 0:17:20.920 Right, So we'd sold from point to Morgan Stanley. I'd 0:17:20.960 --> 0:17:23.879 run with my partner there for a few years. I 0:17:24.000 --> 0:17:27.119 was hired away from ORX to be the CEO of 0:17:27.200 --> 0:17:30.720 their asset management unit. So Japanese holding company, they were 0:17:30.760 --> 0:17:33.840 looking to diversify their holdings into the US and into 0:17:33.920 --> 0:17:38.000 various industries, one of them being asset management. They had 0:17:38.040 --> 0:17:40.320 a lot of capital to deploy and a low cost 0:17:40.320 --> 0:17:42.920 of capital being a Japanese holding company, and I thought 0:17:43.200 --> 0:17:47.000 I could exceed that hurdle and build something here. So 0:17:47.040 --> 0:17:49.640 it was back in twenty twelve, and it was during 0:17:49.680 --> 0:17:52.600 the pigs crisis, you know, and thinking about where could 0:17:52.680 --> 0:17:55.920 we acquire compelling asset management. 0:17:56.280 --> 0:17:59.119 Let me interrupt you for the people who might not 0:17:59.280 --> 0:18:02.920 have been traded through Brexit, Grexit, whatever the pigs crisis 0:18:03.720 --> 0:18:07.159 was Portugal, Italy, Greece, Spain, that. 0:18:07.480 --> 0:18:12.200 Correct, that's correct, And at that time the European Central 0:18:12.240 --> 0:18:14.960 Bank and some of the local national banks of these 0:18:14.960 --> 0:18:20.200 European countries were encouraging financial parties to divest of their 0:18:20.240 --> 0:18:23.760 non core holdings. And so as we were thinking about, 0:18:24.000 --> 0:18:26.400 you know, where in the world could we deploy capital 0:18:26.520 --> 0:18:31.560 to acquire asset management capabilities, Europe seemed a logical place 0:18:31.840 --> 0:18:36.960 because there was a force selling happening and so there 0:18:37.000 --> 0:18:40.840 was a jewel in the Crown of Rabobanks Holdings private 0:18:40.840 --> 0:18:45.440 bank in the Netherlands, and they needed to divest of Robiko, 0:18:45.600 --> 0:18:49.359 which had been around for which giant three hundred billion 0:18:49.400 --> 0:18:55.280 dollars plus and they had purchased that historically and had 0:18:55.320 --> 0:18:57.800 owned it, but it was non core to their to 0:18:57.840 --> 0:19:02.360 their private bank, and so we positioned ourselves as an 0:19:02.400 --> 0:19:08.240 advantageous buyer to them. We purchased it a very attractive valuation, 0:19:09.240 --> 0:19:13.560 was the largest in orcx's history. We acquired that capability, 0:19:13.800 --> 0:19:18.399 and you know, at the time, it was exciting to 0:19:18.400 --> 0:19:21.679 get that deal done. We had bought another stakes and 0:19:21.720 --> 0:19:26.800 other managers in the alternative space, but really I wanted 0:19:26.800 --> 0:19:31.920 to do something more entrepreneurial again, and so I began 0:19:32.000 --> 0:19:35.280 to look at what is the next business with an 0:19:35.359 --> 0:19:38.359 asset management like From point that I could, you know, 0:19:38.400 --> 0:19:41.240 set my career out to build. And that is how 0:19:41.640 --> 0:19:45.200 the inception of coming across what was then Franklin Square 0:19:45.240 --> 0:19:46.920 now Future Standard came about. 0:19:47.200 --> 0:19:51.040 So when you joined, did you join as CIO or 0:19:51.080 --> 0:19:53.080 president or what was the initial role? 0:19:53.400 --> 0:19:57.560 Yeah? So I was introduced to Michael Forman, the founder 0:19:57.560 --> 0:20:01.040 of Franklin Square, through a head hunter friend of mine, 0:20:01.040 --> 0:20:04.919 Scott Fletcher, and I was also introduced by Bennett Goodman 0:20:05.000 --> 0:20:09.240 and Doug Ostrover at GSO and Blackstone, and they had 0:20:09.400 --> 0:20:11.320 encouraged me to go and meet with their partner who 0:20:11.400 --> 0:20:14.520 they had partnered with. As I was describing what I 0:20:14.520 --> 0:20:18.480 thought the next big thing in asset management would be 0:20:18.640 --> 0:20:22.879 would be the arc of history of bringing alternatives from 0:20:23.119 --> 0:20:26.280 family offices and ultra high network throughout the eighties and nineties, 0:20:26.320 --> 0:20:29.880 and then the endowment model with David Swinson. Eventually institutions 0:20:29.920 --> 0:20:33.879 began adopting it. The one constituency that was still left 0:20:33.920 --> 0:20:37.760 out were the individual investors below ultra high net worth 0:20:37.840 --> 0:20:42.640 and family offices. And so I had a view that 0:20:42.800 --> 0:20:44.840 at some point that would change, and I wanted to 0:20:44.880 --> 0:20:47.520 help effectuate that change. And that is where I was 0:20:47.560 --> 0:20:51.160 introduced to Michael Foreman and his vision for what he 0:20:51.200 --> 0:20:54.159 was doing with Franklin Square and had been doing. And 0:20:54.200 --> 0:21:01.439 he had built this incredible chassis around productizing andributing income 0:21:01.480 --> 0:21:06.160 strategies and convinced me to join up with him as president. 0:21:06.240 --> 0:21:09.000 To go join him and you know, be the chief 0:21:09.040 --> 0:21:15.440 investment officer, help build out the asset management capability. Now, 0:21:15.480 --> 0:21:21.560 at the time, Franklin Square was a product and distribution firm, 0:21:21.760 --> 0:21:24.159 so they were creating the rappers and distributed them. But 0:21:24.359 --> 0:21:28.480 other external parties at the time Blackstone were the ones 0:21:28.520 --> 0:21:32.600 subadvising and providing all of the investment acumen. And as 0:21:32.640 --> 0:21:36.359 I would describe it today, and I use this analogy 0:21:36.440 --> 0:21:40.680 of Netflix, it was like seeing the red envelopes and DVDs, 0:21:40.400 --> 0:21:45.200 but Michael had created this incredible distribution engine, one hundred 0:21:45.200 --> 0:21:48.880 million person mailing list type of you know, distribution capability. 0:21:48.880 --> 0:21:52.560 And just like Netflix figured out how to digitize their 0:21:52.600 --> 0:21:56.360 business and create their own in house TV and movie studio. 0:21:57.080 --> 0:21:58.639 You know, that was my pitch to Michael, as you 0:21:58.640 --> 0:22:02.120 could eventually diversify this product base and you could bring 0:22:02.160 --> 0:22:05.720 in house capabilities so long as the quality is still 0:22:05.840 --> 0:22:09.600 very high, you can put it through these channels and 0:22:09.960 --> 0:22:13.600 offer them to private wealth clients. And so that's what 0:22:13.640 --> 0:22:15.040 we set out to do. 0:22:16.080 --> 0:22:20.800 Really fascinating coming up we continue our conversation with Mike Kelly, 0:22:21.080 --> 0:22:25.640 chief investment Officer and president of Future Standard, discussing how 0:22:25.680 --> 0:22:29.320 he helped build the company into a ninety billion dollar 0:22:29.880 --> 0:22:34.880 multi strategy platform for wealth management clients. I'm Barry Ridults. 0:22:34.880 --> 0:22:50.600 You're listening to Masters in Business on Bloomberg Radio. I'm 0:22:50.640 --> 0:22:54.000 Barry Ridults. You're listening to Masters in Business on Bloomberg Radio. 0:22:54.280 --> 0:22:57.960 My extra special guest this week is Mike Kelly. He's 0:22:58.040 --> 0:23:01.600 president and chief investment officer a Future Standard. They are 0:23:01.640 --> 0:23:05.879 an alternatives manager focused on the wealth channel, running over 0:23:06.400 --> 0:23:11.040 ninety billion dollars in client assets. You know, when you 0:23:11.280 --> 0:23:15.600 joined what was Franklin Square before it became Future Standard 0:23:16.040 --> 0:23:21.240 FS Investments, they effectively had one credit strategy plus whatever 0:23:21.280 --> 0:23:24.720 they were reselling on behalf of other people all over 0:23:24.800 --> 0:23:28.640 ten billion dollars. You're almost ten times the size now 0:23:28.640 --> 0:23:33.520 with a full multi strategy platform. How did that evolution 0:23:33.680 --> 0:23:37.280 come about? What were the key inflection points? Was that 0:23:37.400 --> 0:23:42.280 a tough sale to get everybody in house to accept that, hey, 0:23:42.280 --> 0:23:44.119 we have a nice little business here, Mike, why do 0:23:44.119 --> 0:23:45.000 you want to mess with it? 0:23:45.920 --> 0:23:51.000 Well, there was a nice business there, and change comes 0:23:51.040 --> 0:23:58.160 with resistance. But I think we've had a fortuitous progress 0:23:58.160 --> 0:24:00.800 of change over the last twelve years. And I would 0:24:00.800 --> 0:24:07.640 say it started out with forming multiple partnerships with various 0:24:07.680 --> 0:24:11.920 outside firms that Michael and I had relationships with the 0:24:12.080 --> 0:24:17.240 likes of KKR and Golden Tree, Rialto and real Estate EIG, 0:24:17.640 --> 0:24:25.080 Magnetar Wilshire in order to create some diversified strategies that 0:24:25.119 --> 0:24:28.440 we could offer to clients with best of breed managers 0:24:28.440 --> 0:24:31.520 across various disciplines. And so that was the first stage 0:24:31.520 --> 0:24:37.000 of evolution, was moving into more of a multi manager architecture. 0:24:37.800 --> 0:24:41.800 Concurrent to that, I began to hire internal talent, which 0:24:41.840 --> 0:24:44.000 is something similar to what I had done at front Point, 0:24:44.160 --> 0:24:47.320