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Speaker 1: Look New Trillions. I'm Joel Webber and I'm Eric bell Chierness.

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Speaker 1: So Eric on the show, most of the time we've

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Speaker 1: talked to people in E t F advisors around E

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Speaker 1: t F. We're gonna shake it up a little bit today. Yeah,

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Speaker 1: we're going to talk to somebody who is somewhat of

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Speaker 1: a legend from the mutual fund industry and somebody who's

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Speaker 1: got a new venture and it's related to something a

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Speaker 1: word that comes up probably on every single episode. Can

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Speaker 1: you guess what that word is? Active? Close? Alright? Yes,

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Speaker 1: I think all three? Yeah, you're right. His name is

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Speaker 1: Peter Krauss. He's starting a venture called Aperture Investors. He's

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Speaker 1: formerly of Goldman Sachs and most recently he was the

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Speaker 1: CEO of Alliance princetein or Yeah. So I mean this

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Speaker 1: is a major league person here who knows the mutual

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Speaker 1: fund industry. He's very well aware of the rise of

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Speaker 1: passive and the cost obsession going on now in the

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Speaker 1: end history, and so he has a solution for the

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Speaker 1: mutual fund side. So this is a little bit about

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Speaker 1: can they get it back together, can they stop this

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Speaker 1: sort of migration over to low cost passive and we'll

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Speaker 1: try to break it down to how this would practically

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Speaker 1: work for an investor as well. We're also joined by

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Speaker 1: Shannai Basik, who covers finance or finance, depending on how

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Speaker 1: you want to say, for Bloomberg News, this time on Trillians.

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Speaker 1: The man who hates e t s. Okay, so, Peter,

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Speaker 1: you're you've been called the man who hates e T s.

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Speaker 1: Why do you hate et F so much? Well, I

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Speaker 1: didn't really say I hated ets the New York New

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Speaker 1: York Times. They're trying to get clicks. Yeah, exactly. I

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Speaker 1: think e t s are a useful vehicle. But in

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Speaker 1: all things, in the securities market, there's a lot more

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Speaker 1: than what there appears on the front cover. E t

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Speaker 1: s are actually rather sophisticated security. They are actually derivatives.

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Speaker 1: They aren't really just a package of indie ugual stocks

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Speaker 1: or bonds. They're actually a set of promises to buy

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Speaker 1: and sell those securities, will hold those securities over time.

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Speaker 1: There are major participants in the marketplace that support that.

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Speaker 1: Some of the e t f s are quite liquid,

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Speaker 1: Some of the e t f s are not very liquid.

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Speaker 1: Some e t f s have trillions of dollars attached

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Speaker 1: to them, and some ETFs have tens of millions of

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Speaker 1: dollars attached to them, and there's thousands of eats if

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Speaker 1: that exactly My concern with e t s at the

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Speaker 1: time and still is that investors don't really understand their

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Speaker 1: construct and they don't really understand the potential risks the

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Speaker 1: e t F itself, the liquidity e t F itself

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Speaker 1: relies on market participants who actually trade them. But the

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Speaker 1: market participants get paid by having a spread between what

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Speaker 1: they buy it at what they sell it at. If

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Speaker 1: that spread collapses or that spreads not available, where the

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Speaker 1: market participants somehow feels that they need a bigger spread

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Speaker 1: while the investor is subject to that cost. And we've

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Speaker 1: actually had some experience in the market about three years

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Speaker 1: ago in August when the SPX or the or the

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Speaker 1: standard and Poors ETF separated from the cash market for

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Speaker 1: about thirty minutes by a significant amount, something that people

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Speaker 1: did not think was going to happen. Having been in

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Speaker 1: the markets for a long time, probably now going on

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Speaker 1: forty years, things like that just don't happen out of

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Speaker 1: thin air. They actually have a rationale, there's actually a

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Speaker 1: reason for that, and it's hard to fix because at

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Speaker 1: the end of the day, it again relies that liquidity

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Speaker 1: relies on market participants, meaning institutional participants, actually having confidence

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Speaker 1: to trade those markets at that point in time in

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Speaker 1: a very tight bit as spread. If that spread extends

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Speaker 1: or goes away, or it gets larger, the cost becomes

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Speaker 1: very significant. I don't think investors actually understand that risk. Now,

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Speaker 1: for the highly liquid large cap equity markets, that risk

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Speaker 1: is less and it's actually reasonably modest. But for bond markets,

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Speaker 1: it's actually quite significant, and there's lots and lots of

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Speaker 1: money follow high yield e t s for example, and

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Speaker 1: the high yield e t F S tracking error, which

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Speaker 1: is a measure of the cost of that bit as spread,

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Speaker 1: its actually quite large. It's sometimes seventy eight basis points,

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Speaker 1: almost one percentage point. Well, you wouldn't give up one

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Speaker 1: percentage point. That's a lot of money in a you know,

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Speaker 1: yield environment of call it five percent for a high

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Speaker 1: yield security, that's the yield. So I think investors need

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Speaker 1: to understand that better. My whole point was understand the

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Speaker 1: e t F better, understand the risks of the ETF better,

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Speaker 1: which is a big part of the show, and I

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Speaker 1: can literally I can feel Eric wanting to pounds right now.

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Speaker 1: So let's just let him ask a question. Well, what

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Speaker 1: you're saying about the reliance on the middleman is true.

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Speaker 1: You are relying on a lot of these people connected

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Speaker 1: to the system market makers to make markets. If they

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Speaker 1: don't have all the inputs from the stocks and bonds.

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Speaker 1: Like that day on August where some of the stocks

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Speaker 1: were halted, they widen their spreads and that's what caused

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Speaker 1: the dislocation of the e t F. Now since then

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Speaker 1: they've tried to make it to the et F, the

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Speaker 1: stocks are not going to have different halting times. So

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Speaker 1: I think the e t f s are just downstream

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Speaker 1: sometimes from like a rule in the exchange or the

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Speaker 1: plumbing as I call it. So that has like can

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Speaker 1: when breggsit happened, that did not happen. However, it is

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Speaker 1: true you have to trade the e t F. In

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Speaker 1: the high yield case, I think that most of the

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Speaker 1: money and high yields still goes for mutual funds because

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Speaker 1: active mutual funds that's where they really kick butt. In

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Speaker 1: the high yield area or bonds in general, I think

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Speaker 1: beat h y G So the high yield e t

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Speaker 1: F I think is more used as like quick beta

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Speaker 1: for traders. Maybe there's some long term money, but for

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Speaker 1: the most part, I think investors have figured out that

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Speaker 1: you can do better going active in a mutual fund.

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Speaker 1: UM But so just two caveats on that, but I

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Speaker 1: think both points are very valid. Something interesting, UM, you know,

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Speaker 1: in your own research and aperture, you've been in the

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Speaker 1: mutual fund industry for so long, but you still see

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Speaker 1: something wrong with the mutual fund industry. You've said there

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Speaker 1: are too many of them. Can you explain your thinking

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Speaker 1: here and what's the idea with aperture, what's the what's

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Speaker 1: where did this big idea come from? So um I

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Speaker 1: have been operating in the mutual fund industry for a

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Speaker 1: very long time, and of course any portfolio manager in

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Speaker 1: the mutual fund industry, any portfolio managing the industry, will

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Speaker 1: say that their objective is to actually perform. That's what

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Speaker 1: they would say every day. The problem is the incentive

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Speaker 1: structure is actually not set up that way. The incentive

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Speaker 1: structure is you're paid based on your asset levels, not

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Speaker 1: based on your performance. And that's a fundamental disconnect. And

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Speaker 1: over many years, thirty forty years. It led to companies

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Speaker 1: being focused on the growth of their assets. I have

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Speaker 1: to before you go any farther, I want to ask

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Speaker 1: if you said this at any of your prior jobs

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Speaker 1: with the table has been flipped over. I did say

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Speaker 1: this that many of my prior jobs at the tables over.

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Speaker 1: In many cases they did. Now I have been saying

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Speaker 1: this for really literally the past three years, um and

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Speaker 1: I think what happened is is that we got to

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Speaker 1: a tipping point, which was sometime before this, where the

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Speaker 1: size of assets under management was so large it became

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Speaker 1: difficult to perform. And I spent a lot of time

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Speaker 1: investigating long term performance of managers of different types of managers,

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Speaker 1: concentrated managers, diversified managers, managers and large cap managers and

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Speaker 1: small cap managers outside the United States, and unfortunately, the

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Speaker 1: data that's available, which is you know, publicly available to anybody,

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Speaker 1: really proves the point that there's no easy way to

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Speaker 1: identify a manager that will persistently perform, and on average,

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Speaker 1: managers do not perform in access of their fees. And

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Speaker 1: that's a really troubling problem. And of course the investor

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Speaker 1: in the world has figured that out and in fact,

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Speaker 1: they've moved their money from you know, mutual fund assets

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Speaker 1: and active management to E t S and passive. And

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Speaker 1: I actually think we need et S and passive because

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Speaker 1: basic hypothesis is there's too much money being managed actively

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Speaker 1: to actually perform. So can you explain your fee structure

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Speaker 1: that what does the future look like when so many

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Speaker 1: people are going to zero? So if you take the

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Speaker 1: prospect that I'm assuming I'm right for the minute, that

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Speaker 1: there's too much money being managed actively, you need to

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Speaker 1: change the incentive structure. Because if you don't change the

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Speaker 1: incentive structure, then people will just keep managing the assets

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Speaker 1: because they're paid to manage the assets and they're paid

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Speaker 1: to gather the assets. But if you go back to

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Speaker 1: basic principles, which is why is the PM there and

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Speaker 1: BYM portfolio manager, yes, I'm sorry, I'm sorry. The portfolio

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Speaker 1: manager exists because they want to perform. And if you

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Speaker 1: ask a portfolio manager that that is what they would say,

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Speaker 1: I'm here to create performance for my clients. If that's

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Speaker 1: the basic concept, guess what, let's pay you based on

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Speaker 1: that concept. If you don't perform, you don't get paid.

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Speaker 1: If you do perform, you do get paid. It seems

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Speaker 1: like a fair deal. There's a cap to how much

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Speaker 1: you can get paid. Still, there is a cap in

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Speaker 1: the US under the the Act rules. There. The the

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Speaker 1: SEC view is that we should have performance linked fees,

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Speaker 1: and there's performance linked fees include a fulcrum structure which

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Speaker 1: creates a cap. But the cap is reasonable and so

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Speaker 1: if managers hit that cap, they're still possible out performance

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Speaker 1: over the cap and the managers performance uh fee. Then

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Speaker 1: it's just declined by the certain pro rata amount by

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Speaker 1: which the actual excess return exceeds the cap. But just

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Speaker 1: a question on this performance fees. This has been something

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Speaker 1: been hearing a lot about and on Twitter where a

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Speaker 1: lot of I called the gladiator pit of debate with ideas.

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Speaker 1: A lot of people will push back on performance fees

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Speaker 1: and say, well, the problem with them is it it

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Speaker 1: inspires really outrageous bets, reckless behavior, because now you're really

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Speaker 1: looking to get as much money as possible, and couldn't

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Speaker 1: that really turn out bad for the investor? Right, So

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Speaker 1: that's a very good point. And so you need an

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Speaker 1: ecosystem in which the performance fee exists. So there's both

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Speaker 1: a structure for the performance fee. So point one is

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Speaker 1: Our proposition is that there's too much money being managed actively,

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Speaker 1: And the reason why there's too much money is there

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Speaker 1: too many managers who are paid based on the amount

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Speaker 1: of assets they have rather than the performance. If they

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Speaker 1: were paid on performance, given their historical performance, they wouldn't

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Speaker 1: exist and therefore be less managers and less capacity. More

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Speaker 1: money would be impassive, but the managers that did exist

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Speaker 1: would perform and produce performance for clients that we're saying

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Speaker 1: there's a dinosaur die off that needs to happen. There

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Speaker 1: is a dinosaur die off. And people have asked me

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Speaker 1: many many times, wouldn't that happen by consolidation, And I've

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Speaker 1: said to people, you know, and consolidation in the manufacturing business,

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Speaker 1: for example, generally leads to more efficiencies. Consolidation in the

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Speaker 1: asset management business, however, is the opposite. When one firm

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Speaker 1: buys another, they don't expect the portfolio managers in the

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Speaker 1: acquired firm to go out of business. They actually expect

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Speaker 1: the portfolio managers to grow. There's no reduction in the capacity.

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Speaker 1: In fact, there's a there's an expectation that will it

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Speaker 1: will grow. So consolidation is not the answer. The only

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Speaker 1: answer I've said sort of uh uh with gallows humor

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Speaker 1: is death. You know, then the portfolio manager out of business.

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Speaker 1: But another answer would be to change the revenue structure.

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Speaker 1: And if you change the revenue structure, then those managers

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Speaker 1: who can't perform will be out of business and they

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Speaker 1: won't carry any money. So put that's point one. Point

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Speaker 1: to to go back to Eric's point if I if

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Speaker 1: I'm a longer answer, sorry, Point two is all right,

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Speaker 1: how do we deal with if you pay people in performance?

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Speaker 1: How do we deal with risk taking? Because on the

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Speaker 1: one hand, people say, well, I don't like the fact

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Speaker 1: that I pay you a fee to try to perform

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Speaker 1: and you get it whether you do or you don't.

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Speaker 1: I don't like that, But I also don't want to

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Speaker 1: pay you a performance fe because I'm worried you'll take

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Speaker 1: too much risk. Now, look, you sort of can't have

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Speaker 1: your cake and eat it too, But just for the moment,

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Speaker 1: let's assume that that's the position. When so what we've

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Speaker 1: said at apertures, look, that's a fair point. So number one,

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Speaker 1: in the forty act vehicles, the fees are capped, and

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Speaker 1: so excessive risk taking that is attempting to produce a

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Speaker 1: return and excess of the cap doesn't actually pay the manager,

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Speaker 1: so they really don't have any real reason to do that.

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Speaker 1: But the way we set up the compensation structure is

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Speaker 1: quite interesting. So we've said two managers, look, we're going

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Speaker 1: to pay you on performance, but half of your compensation

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Speaker 1: is deferred. You receive that compensation if in the succeeding

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Speaker 1: two years you actually produce zero or positive returns for

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Speaker 1: your client. If you actually produce negative returns for your client,

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Speaker 1: you reduce that deferred compensation or potentially lose all of it.

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Speaker 1: So that is a very significant impact on how the

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Speaker 1: manager takes risk. Now there's a further interesting element in

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Speaker 1: the ecosystem. You've heard of high water marks. In the

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Speaker 1: head fund industry, firms use high water marks. I don't

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Speaker 1: like high water marks they do in gender risk taking

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Speaker 1: because what happens in a high water mark is if

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Speaker 1: you're down five you have to earn the five percent

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Speaker 1: back before you earn any money. That actually makes you

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Speaker 1: a risk taker. It take makes you take too much risk,

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Speaker 1: And if you actually don't earn the five percent in

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Speaker 1: the second year, then you're really swinging for the fences

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Speaker 1: because you're gonna be you won't have earned any money

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Speaker 1: for two years. So we we set the performance every

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Speaker 1: year and we use this three year averaging, and that

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Speaker 1: deferred compensation is a way to control risk. So it's

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Speaker 1: a complicated ecosystem, yes, but I think we've actually addressed

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Speaker 1: your concern. You were talking about consolidation being a bad thing.

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Speaker 1: It's funny you say that because earlier this year we

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Speaker 1: broke that JP Morgan was among um large banks that

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Speaker 1: we're looking to buy et F companies. So you know,

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Speaker 1: with JP Morgan, with Goldman's Acts becoming massive et F players, now,

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Speaker 1: is this a good thing or a bad thing for

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Speaker 1: their business models? Well, my proposition is is that we

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Speaker 1: need more passive investing vehicles essentially, or more passive providers.

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Speaker 1: I don't like the fact, although I think it's gonna

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Speaker 1: be hard to change because passive is so benefited by

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Speaker 1: scale that between you know, the two large players, three

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Speaker 1: large players, State Street, Van Guarden and black Rock, you

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Speaker 1: have you know, enormous concentration, and so you have operational

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Speaker 1: risk in inside of those firms, which the market completely discounts,

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Speaker 1: but there is real risk there. Having said that, investors

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Speaker 1: will need to continue to have passive vehicles to allocate

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Speaker 1: capital too. And everybody's portfolio should include a substantial amount

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Speaker 1: of passive and managers who are paid for performance, who

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Speaker 1: actually produce performance. And then over the whole portfolio managers

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Speaker 1: clients will actually get performance, which today they're not getting. UM.

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Speaker 1: And so I think that JP Morgan, Goldman Sachs getting

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Speaker 1: into the t F business just provides for a more

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Speaker 1: diversification of the passive vehicles. And that's a good thing. Um.

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Speaker 1: And let's talk about this. There needs to be more passive.

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Speaker 1: So let me give you the numbers here right now,

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Speaker 1: I think the fund industry is about sixteen trillion dollars

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Speaker 1: that is passively managed. The rest is active. Obviously that

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Speaker 1: swing from a pendulum twenty years ago where it was active.

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Speaker 1: Where is that pendulum going to stop, in your opinion,

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Speaker 1: where they'll have a nice new equilibrium were active will

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Speaker 1: be right sized fifty passive. Great question. I don't know

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Speaker 1: the answer, as you would you would expect that that's

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Speaker 1: a guess. But um, look we know. One of the

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Speaker 1: reasons why I pushed very hard to try to change

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Speaker 1: the revenue structure in the industry is that the existential

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Speaker 1: question is that if managers were paid fixed fees I eat,

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Speaker 1: paid to try as opposed to pay to perform. Over time,

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Speaker 1: more and more money would leave the active industry and

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Speaker 1: go into the passive industry. And what I was concerned

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Speaker 1: about is that you didn't have a level playing field

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Speaker 1: between active and passive. Fee structures inactive were just materially

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Speaker 1: higher than fee structures in passive and ets. So investors

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Speaker 1: were saying, look, I don't get I don't get returns

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Speaker 1: net of fees in the active space. I might as

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Speaker 1: well just pay less fees and get the market return

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Speaker 1: minus the fee. And if you if you looked out

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Speaker 1: over a long period of time and said, well, philosophically,

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Speaker 1: that means that people would just move from active to

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Speaker 1: passive because they're not getting paid anything to be an

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Speaker 1: active in fact, their returns are less than what they

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Speaker 1: would get in passive. Then you end up with a

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Speaker 1: market that's pent passive. And that, of course, theoretically is

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Speaker 1: a disaster because now you don't have a capital market

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Speaker 1: that actually prices. So I I went down to Washington

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Speaker 1: to talk to the SEC and I said and the

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Speaker 1: tragicy Department, And I said to them, look, you have

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Speaker 1: a philosophical or fiduciary problem. Nobody wants the markets to

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Speaker 1: be passive because we will be able to price an

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Speaker 1: ip L. That's a really bad thing. And this is

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Speaker 1: the largest capital market in the world, and we need

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Speaker 1: to be the most robust capital market in the world.

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Speaker 1: So what you you're not going to say, as regulators,

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Speaker 1: we're going to outlaw passive or you can't have more

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Speaker 1: than ext percent passive. That's not going to happen. But

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Speaker 1: what you can do is create a level playing field

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Speaker 1: so that competition allows investors to actually move money into

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Speaker 1: vehicles that makes sense to them, and that will create

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Speaker 1: a balance in the market. And that was why I

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Speaker 1: was pushing the regulators and treasury to think about a

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Speaker 1: structure where the base fee was this et F like fee.

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Speaker 1: Then investors could say, look, I could have either active

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Speaker 1: or passive at the same cost, but I have an

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Speaker 1: option on the active managers performing. So Derik's question, I

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Speaker 1: think passive will continue to grow. It's at thirty today.

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Speaker 1: I think it will easily get the fifty. Whether it

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Speaker 1: goes beyond fifty or sixty, I don't know. My guess

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Speaker 1: is that somewhere in the fifty to six level is

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Speaker 1: kind of where it tops out. I think that, uh,

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Speaker 1: if you thought about, well, of your sixteen trillion, could

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Speaker 1: eight trillion be actively managed? You know, that's a question.

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Speaker 1: I don't know, but I do think in ten to

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Speaker 1: fifteen years there's going to be at least a trillion

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Speaker 1: dollars managed by these performance structors. And you know, the

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Speaker 1: old industry isn't going to go away tomorrow. The old

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Speaker 1: industry is going to remain for a long period of time.

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Speaker 1: By the way, there are managers in the old industry

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Speaker 1: that do perform, that do cap their capacity, but they're

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Speaker 1: very small number. Is it hard to recruit talent? You're

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Speaker 1: pushing down fees across the board? Do people want defer

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Speaker 1: and differing compensation? You're telling people they are going to

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Speaker 1: get paid less, So what is it like to recruit

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Speaker 1: money managers? Well, I'm actually not telling people they're gonna

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Speaker 1: get paid less. I'm actually telling people if they perform,

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Speaker 1: they're going to get paid substantially more, actually substantially more,

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Speaker 1: And we pay the managers thirty of the that's a

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Speaker 1: significant improvement in the percentage of the revenues that they

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Speaker 1: earn relative to industry standards. Let's focus on appertuers, I

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Speaker 1: can what products are you selling and how much are

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Speaker 1: they going to cost? So I can't focus on specific

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Speaker 1: products because as you know, there's a registration process, but

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Speaker 1: we do expect to have all of our products available

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Speaker 1: in both registered investment vehicles, both in the US and

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Speaker 1: in Europe and perhaps in Asia over time, as well

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Speaker 1: as separate accounts for institutions. So what we are our

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Speaker 1: thesis is that we want these investing vehicles and these

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Speaker 1: fees available to anybody who wants to be able to

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Speaker 1: participate them, anybody meaning retail investor all the way to

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Speaker 1: institutional investors. So does that mean mutual fund Yes, that

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Speaker 1: would mean mutual funds. Act Advisor of funds UH and

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Speaker 1: use its funds which are mutual funds in Europe. And

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Speaker 1: of course they could be in different vehicles if we

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Speaker 1: were in Asia, but for the time being, I think

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Speaker 1: the U S and Europe's a very big market. Now

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Speaker 1: there's a couple, there's I think at least one e

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Speaker 1: t F that has a folk groum fee. Why not

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Speaker 1: do this in the e t F structure is because

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Speaker 1: you don't want to show your holdings every day, or

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Speaker 1: specifically because of what you talked about earlier, not like

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Speaker 1: the trading aspect. Why a mutual fund because clearly, you know,

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Speaker 1: people are all kind of thinking et F right now.

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Speaker 1: I wouldn't want to be where the money is going.

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Speaker 1: So it's a very interesting question, Eric, very interesting question.

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Speaker 1: I hope you're ready for the response embracing Okay, well

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Speaker 1: we'll see so. Um. Along with the idea that I

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Speaker 1: wanted to change the revenue structure of the market, I

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Speaker 1: also think that the structure of the mutual fund and

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Speaker 1: the pricing of the mutual fund meaning NAV at the

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Speaker 1: end of the day, is an anachronism. I mean, we

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Speaker 1: have that structure because it's seventy years old, not because

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Speaker 1: we would design it that way. Today, we can price

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Speaker 1: a mutual fund all day long. What stops a mutual

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Speaker 1: fund from being priced all day long like a security answer? Nothing,

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Speaker 1: just the rules. So one of the things that I

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Speaker 1: think the industry needs to do is to recognize that

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Speaker 1: continuous pricing for mutual funds is actually very healthy for

386
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Speaker 1: invest sters. If you continuously priced mutual funds, what's the

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Speaker 1: difference shereet of mutual fund and in e t F

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Speaker 1: Exactly nothing excepted in the mutual fund case, we actually

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Speaker 1: are not disclosing the positions to the street and allowing

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Speaker 1: the street potentially to disrupt the pricing value that the

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Speaker 1: investor keeps because the securities are known only to the investor.

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Speaker 1: So I think one of the things that has to

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Speaker 1: happen in the next year or so is the sec

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Speaker 1: needs to examine continue to examine the possibility for continuously

395
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Speaker 1: trading mutual funds. If you continuously traded mutual funds as

396
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Speaker 1: a security that was listed in the New York Stock

397
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Speaker 1: Et Change, you could tomorrow take sixteen trillion dollars and

398
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Speaker 1: turn them into e t s, the only difference being

399
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Speaker 1: the tax treatment, which is a biggie for a lot

400
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Speaker 1: of people. It's about the tax treat of capital gains.

401
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Speaker 1: Let's talk about the tax treaming. There is no reason

402
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Speaker 1: on Earth why e t f s should have deferred

403
00:21:52,680 --> 00:21:55,600
Speaker 1: taxes and mutual fund should pay taxes every year. The

404
00:21:55,600 --> 00:21:57,679
Speaker 1: only reason why it exists is that e t f

405
00:21:57,720 --> 00:22:00,560
Speaker 1: s were dreamt up a long time after Earth the

406
00:22:00,680 --> 00:22:03,719
Speaker 1: I R S built the code. The fact that inside

407
00:22:03,720 --> 00:22:06,760
Speaker 1: and E t F every transaction is treated is a

408
00:22:06,800 --> 00:22:10,360
Speaker 1: light kind exchange is kind of a silly thing. You're

409
00:22:10,359 --> 00:22:13,719
Speaker 1: shooting so many arrows at your fort right now. Mutual

410
00:22:13,720 --> 00:22:16,880
Speaker 1: funds should not pay tax eating now you're you're gonna

411
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Speaker 1: be You're gonna be dead by the time i'm Mutual

412
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Speaker 1: funds should not pay taxes, and E t F s

413
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Speaker 1: it should avoid paying taxes. There should not be a

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Speaker 1: subsidy running between mutual funds and ets. They both should

415
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Speaker 1: be treated the same. Right In other words, eat Mutual

416
00:22:32,160 --> 00:22:34,320
Speaker 1: funds are kind of double taxed. When you sell it,

417
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Speaker 1: you get taxed, and you also get taxed for doing nothing.

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Speaker 1: You're saying, kill one of the taxes in the mutual

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Speaker 1: fund to make it even with the E t F.

420
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Speaker 1: To be precise, mutual funds are not double tax Mutual

421
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Speaker 1: funds are taxed in two ways. You're not double taxed.

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Speaker 1: You're taxed as gains and losses occurred during the course

423
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Speaker 1: of the year and distributions occur in the year, and

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Speaker 1: then you are taxed with your adjusted basis relative to

425
00:22:54,280 --> 00:22:56,919
Speaker 1: your sale value. The E t F the same thing happens,

426
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Speaker 1: but it's all deferred, so there is it's a timing difference.

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Speaker 1: It's actually not a permanent difference. It's a timing difference

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Speaker 1: between when you pay the tax. But there's no earthly

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Speaker 1: reason why the e t F should not pay that tax.

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Speaker 1: If the I R S wants to increase its revenues,

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Speaker 1: which I would think they do, given that the government's

432
00:23:16,400 --> 00:23:20,280
Speaker 1: going to post i think latest reading eight billion dollar deficit,

433
00:23:20,640 --> 00:23:22,960
Speaker 1: they ought to tax et S and there's no reason

434
00:23:23,000 --> 00:23:25,480
Speaker 1: why they shouldn't other than the sort of silly rule

435
00:23:25,560 --> 00:23:28,200
Speaker 1: that existed well before you created an e TF for

436
00:23:28,440 --> 00:23:32,199
Speaker 1: just fell down. Well, no, I actually completely understand that

437
00:23:32,200 --> 00:23:34,639
Speaker 1: point of view. From the mutual fund side, it's not fair.

438
00:23:34,840 --> 00:23:36,920
Speaker 1: In fact, the tax efficiency of an et F was

439
00:23:36,960 --> 00:23:39,479
Speaker 1: a happy accident, as Kathleen Mori already told, didn't mean

440
00:23:39,520 --> 00:23:41,639
Speaker 1: to do that. It was just a nice byproduct. And

441
00:23:41,720 --> 00:23:44,439
Speaker 1: it turns out that for some people that's the number

442
00:23:44,440 --> 00:23:46,639
Speaker 1: one benefit. For others it's maybe two or three. But

443
00:23:47,080 --> 00:23:50,639
Speaker 1: it certainly adds to this whole like basket of advantages

444
00:23:50,640 --> 00:23:52,600
Speaker 1: that has helped the ETF. So so I agree with you.

445
00:23:52,640 --> 00:23:55,880
Speaker 1: I've actually analyzed this in great detail because I'm actually

446
00:23:56,000 --> 00:23:59,600
Speaker 1: intellectually interested in it. So the e t F is

447
00:23:59,600 --> 00:24:02,199
Speaker 1: the greatest to state vehicle in the world. If you

448
00:24:02,240 --> 00:24:03,880
Speaker 1: buy the e t F and die with it, it's

449
00:24:03,880 --> 00:24:05,800
Speaker 1: a step up in basis you never pay the tax.

450
00:24:06,119 --> 00:24:08,480
Speaker 1: That's a terrific opportunity. The number of people to take

451
00:24:08,480 --> 00:24:11,520
Speaker 1: advantage of that is less than point one percent. E

452
00:24:11,640 --> 00:24:14,919
Speaker 1: t F holding periods, you know, are within one to

453
00:24:15,000 --> 00:24:18,680
Speaker 1: two years, maybe three years max. The benefit that that

454
00:24:18,880 --> 00:24:21,399
Speaker 1: holder is getting is the net present value of the

455
00:24:21,440 --> 00:24:24,120
Speaker 1: tax payments over that time period at today's interest rates.

456
00:24:24,160 --> 00:24:27,359
Speaker 1: It's the minimus. People think it's an attractive thing. It

457
00:24:27,440 --> 00:24:30,720
Speaker 1: really doesn't pay that much, but it is a marketing

458
00:24:30,880 --> 00:24:34,480
Speaker 1: pitch that e t F organizations use a happy accident.

459
00:24:34,800 --> 00:24:36,440
Speaker 1: It's nice to say to somebody, why don't you take

460
00:24:36,440 --> 00:24:39,840
Speaker 1: advantage of the happy accident? The fact that mutual funds

461
00:24:39,840 --> 00:24:43,560
Speaker 1: pay taxes. That's just the facts. That's fine. There's another

462
00:24:43,600 --> 00:24:45,879
Speaker 1: interesting issue. If you force the e t F to

463
00:24:46,000 --> 00:24:49,520
Speaker 1: actually pay taxes, their costs would actually go up because

464
00:24:49,560 --> 00:24:52,359
Speaker 1: they'd actually have to account for the ten forty to

465
00:24:52,440 --> 00:24:55,040
Speaker 1: get sold that gets sent to you each year, So

466
00:24:55,200 --> 00:24:57,720
Speaker 1: there's also a cost differential. That's actually the thing that

467
00:24:57,760 --> 00:25:00,119
Speaker 1: bothers me the most. It's not so much a act

468
00:25:00,240 --> 00:25:02,200
Speaker 1: is because the net present value is a small number.

469
00:25:02,480 --> 00:25:05,240
Speaker 1: It's the fact that the mutual fund structure has to

470
00:25:05,240 --> 00:25:09,159
Speaker 1: actually account for that taxation every year, send out information

471
00:25:09,200 --> 00:25:12,439
Speaker 1: to their constituents, their mutual fund holders. They pay attacks,

472
00:25:12,480 --> 00:25:14,359
Speaker 1: the e t F doesn't pay that, and then the

473
00:25:14,359 --> 00:25:17,080
Speaker 1: e t F says, my fees are lower. But that's

474
00:25:17,119 --> 00:25:20,119
Speaker 1: that's what really bothers me. Yeah, and Mike Tyson's punch out.

475
00:25:20,119 --> 00:25:22,520
Speaker 1: You're the guy who's like days in the corner right now. No,

476
00:25:22,640 --> 00:25:24,520
Speaker 1: I mean this is something wrong with the t F. Yeah.

477
00:25:24,600 --> 00:25:26,760
Speaker 1: I just think this is an inequality in the system

478
00:25:26,760 --> 00:25:29,040
Speaker 1: that needs to be addressed. Listen, I call this the

479
00:25:29,080 --> 00:25:32,720
Speaker 1: fighting spirit on Twitter. I'm amazed that how few people

480
00:25:32,720 --> 00:25:35,280
Speaker 1: are out there pushing back on this sort of raw,

481
00:25:35,400 --> 00:25:37,879
Speaker 1: rob passive thing. I like it. This is good debate.

482
00:25:37,960 --> 00:25:40,639
Speaker 1: This is what people need. It's there. There aren't that

483
00:25:40,680 --> 00:25:43,840
Speaker 1: many people on the active side who are fired up

484
00:25:43,880 --> 00:25:46,640
Speaker 1: like this. It's it's odd. But I have one quick

485
00:25:46,680 --> 00:25:50,760
Speaker 1: question though, in terms of your funds, right, you have

486
00:25:50,800 --> 00:25:52,960
Speaker 1: equity Right, let's say we talk about an equity fund.

487
00:25:53,400 --> 00:25:55,639
Speaker 1: One thing that's coming up a lot lately is active share.

488
00:25:55,680 --> 00:25:58,320
Speaker 1: So the amount of the portfolio that say, isn't in

489
00:25:58,359 --> 00:26:01,280
Speaker 1: the benchmark. How much you need exposure are you getting?

490
00:26:01,760 --> 00:26:04,200
Speaker 1: Do you plan to have a high active share, which

491
00:26:04,240 --> 00:26:06,359
Speaker 1: I assume you would if you're on a performance fee,

492
00:26:06,880 --> 00:26:08,879
Speaker 1: and thus, how would you use it in a portfolio

493
00:26:09,000 --> 00:26:11,320
Speaker 1: as like a ten percent add on to a low

494
00:26:11,359 --> 00:26:14,199
Speaker 1: cost passive core or you look into sell funds that

495
00:26:14,240 --> 00:26:17,120
Speaker 1: would have smaller active share that would be used as

496
00:26:17,119 --> 00:26:21,480
Speaker 1: your complete core position. Yeah, great question. So what I

497
00:26:21,520 --> 00:26:26,600
Speaker 1: love about this fee structure is the portfolio manager is emancipated. Literally,

498
00:26:26,880 --> 00:26:30,560
Speaker 1: I'm paying them to perform. And so what you find

499
00:26:30,560 --> 00:26:34,000
Speaker 1: with portfolio managers, and look, I've interviewed the hundred portfolio

500
00:26:34,040 --> 00:26:37,120
Speaker 1: managers over the last nine months and and probably had

501
00:26:37,119 --> 00:26:39,680
Speaker 1: three meetings each with them, So that's three interviews. Which

502
00:26:39,680 --> 00:26:42,040
Speaker 1: you find with portfolio managers is they all have styles.

503
00:26:42,440 --> 00:26:44,679
Speaker 1: They all have I don't mean styles like value growth,

504
00:26:44,720 --> 00:26:47,520
Speaker 1: I mean investing styles. They have ways in which they

505
00:26:47,560 --> 00:26:50,960
Speaker 1: take risk, ways in which they're comfortable taking risk. And

506
00:26:51,320 --> 00:26:54,560
Speaker 1: you never before in a mutual fund could actually do

507
00:26:54,600 --> 00:26:57,000
Speaker 1: what you said, which is have a small active position

508
00:26:57,040 --> 00:26:59,159
Speaker 1: that was really all of your alpha and then the

509
00:26:59,160 --> 00:27:01,520
Speaker 1: rest of your port folio was just an index. And

510
00:27:01,560 --> 00:27:03,280
Speaker 1: the reason why you couldn't is because you were charging

511
00:27:03,320 --> 00:27:05,680
Speaker 1: sixty five basis points to the client. The client would say,

512
00:27:05,680 --> 00:27:08,800
Speaker 1: how can you have you know your portfolio index, I

513
00:27:08,800 --> 00:27:12,000
Speaker 1: could pay you know, ten basis for that. We're changing

514
00:27:12,040 --> 00:27:14,920
Speaker 1: that model entirely. You're paying us ten basis points in

515
00:27:14,960 --> 00:27:18,119
Speaker 1: a US large cap portfolio. If we chose, if the

516
00:27:18,160 --> 00:27:20,399
Speaker 1: portfolio manager chose to have a portion of that in

517
00:27:20,480 --> 00:27:23,679
Speaker 1: an index, actually an index, or just replicate the index

518
00:27:23,720 --> 00:27:27,600
Speaker 1: in a swap, you wouldn't be upset because you're not

519
00:27:27,720 --> 00:27:30,600
Speaker 1: actually charging more getting charged more for that than you

520
00:27:30,600 --> 00:27:32,840
Speaker 1: would if you bought it outside the mutual fund. So

521
00:27:32,920 --> 00:27:36,080
Speaker 1: portfolio managers are going to construct these portfolios and ways

522
00:27:36,119 --> 00:27:40,560
Speaker 1: in which they're comfortable taking risk, which I think increases

523
00:27:40,600 --> 00:27:43,760
Speaker 1: the probability that they actually create a return. Because you

524
00:27:43,840 --> 00:27:47,240
Speaker 1: want portfolio managers to be able to manage portfolios in

525
00:27:47,440 --> 00:27:50,000
Speaker 1: with the least amount of constraints as possible. You lower

526
00:27:50,040 --> 00:27:53,600
Speaker 1: the constraints, you increase the probability for performance. The people

527
00:27:53,600 --> 00:27:56,560
Speaker 1: that are going to come and be portfolio managers are aperture,

528
00:27:56,760 --> 00:27:59,920
Speaker 1: are people that actually believe they can perform. And I've

529
00:28:00,040 --> 00:28:02,639
Speaker 1: I've had a couple of debates with folks that are

530
00:28:02,680 --> 00:28:05,800
Speaker 1: in the traditional industry and they say, listen, some years

531
00:28:05,800 --> 00:28:08,639
Speaker 1: people don't perform. You know, you can't hold the talent,

532
00:28:08,960 --> 00:28:11,359
Speaker 1: and I said, look, I don't want the talent that's

533
00:28:11,359 --> 00:28:14,480
Speaker 1: in your company, because the talent in your company is

534
00:28:14,520 --> 00:28:17,040
Speaker 1: happy to get paid whether or not they perform. I

535
00:28:17,080 --> 00:28:20,479
Speaker 1: actually want talent that wants to get paid when they perform.

536
00:28:20,720 --> 00:28:23,560
Speaker 1: I'll pay them more. They'll be more focused on performance,

537
00:28:23,560 --> 00:28:25,800
Speaker 1: and they're aligned with the client. And this one last thing,

538
00:28:25,800 --> 00:28:28,879
Speaker 1: it's critical, which we haven't talked about this whole active

539
00:28:28,880 --> 00:28:33,840
Speaker 1: passive debate, is focused on capacity because you know that

540
00:28:33,920 --> 00:28:37,040
Speaker 1: when you manage more and more dollars, it becomes more

541
00:28:37,080 --> 00:28:40,360
Speaker 1: and more difficult to produce returns. If I pay you

542
00:28:40,360 --> 00:28:43,920
Speaker 1: on performance, you will cap your own capacity. That is

543
00:28:43,960 --> 00:28:48,840
Speaker 1: a huge benefit, huge benefits, the biggest benefit that aperture offers,

544
00:28:49,440 --> 00:28:52,920
Speaker 1: because if you don't have that, then the owner of

545
00:28:52,960 --> 00:28:56,000
Speaker 1: the company, of the asset manager, and the portfolio manager

546
00:28:56,280 --> 00:28:58,440
Speaker 1: are always fighting over you know, who's got you know,

547
00:28:58,520 --> 00:29:01,360
Speaker 1: how much capacity is there really available in the industry.

548
00:29:01,400 --> 00:29:04,560
Speaker 1: The portfolio manager will always say they can manage more money,

549
00:29:04,720 --> 00:29:08,600
Speaker 1: and unfortunately the asset manager themselves, the shareholders of those

550
00:29:08,680 --> 00:29:11,680
Speaker 1: of those companies, they're incentivized to grow the assets too.

551
00:29:12,600 --> 00:29:14,840
Speaker 1: So this is the only company that I've seen so

552
00:29:14,880 --> 00:29:18,960
Speaker 1: far with the owner the equity, meaning me and generally

553
00:29:19,320 --> 00:29:22,000
Speaker 1: that both of us are incentivized to actually cap the

554
00:29:22,040 --> 00:29:25,240
Speaker 1: capacity because we make money when the clients make money,

555
00:29:25,280 --> 00:29:27,280
Speaker 1: and the same thing for the for the portfolio manager.

556
00:29:27,440 --> 00:29:29,600
Speaker 1: That's a key difference. So, speaking of which, what do

557
00:29:29,640 --> 00:29:34,080
Speaker 1: you view as going to be your your ideal size?

558
00:29:34,680 --> 00:29:37,360
Speaker 1: So I think the ideal size of the company. First

559
00:29:37,400 --> 00:29:40,280
Speaker 1: of all, this is a company that I believe will

560
00:29:40,320 --> 00:29:42,760
Speaker 1: take eight to ten years to get to, you know,

561
00:29:43,240 --> 00:29:47,160
Speaker 1: the ideal size. I don't think you can build asset managers.

562
00:29:47,400 --> 00:29:50,200
Speaker 1: You know, over a short period of time. We're committed

563
00:29:50,240 --> 00:29:53,120
Speaker 1: to this business. We generally and I are committed to

564
00:29:53,120 --> 00:29:57,160
Speaker 1: this business over the long run. I've I've been lucky

565
00:29:57,240 --> 00:30:00,320
Speaker 1: enough to head two asset managed organizations and both basis

566
00:30:00,320 --> 00:30:03,200
Speaker 1: it took eight plus years to either stabilize them or

567
00:30:03,200 --> 00:30:05,000
Speaker 1: grow them to scale. I don't really think this will

568
00:30:05,000 --> 00:30:08,560
Speaker 1: be any different. Um, I think that we will have

569
00:30:09,720 --> 00:30:12,960
Speaker 1: ten to fifteen managers over long periods of time. So

570
00:30:13,000 --> 00:30:15,520
Speaker 1: over ten years, you know, if we're lucky enough to

571
00:30:15,560 --> 00:30:18,600
Speaker 1: have three to five billion dollars per manager, you know,

572
00:30:18,760 --> 00:30:21,600
Speaker 1: you can do the math, call it, you know, billion.

573
00:30:22,040 --> 00:30:23,880
Speaker 1: We don't need to be a hundred billion dollar or

574
00:30:23,920 --> 00:30:26,520
Speaker 1: two hundred or five hundred or trillion dollar company. In fact,

575
00:30:26,600 --> 00:30:29,760
Speaker 1: I think that you probably can't produce the alpha at

576
00:30:29,800 --> 00:30:34,120
Speaker 1: that basis. I think what the industry needs is lots

577
00:30:34,160 --> 00:30:37,440
Speaker 1: of apertures out there, and in that way, I think

578
00:30:37,560 --> 00:30:41,240
Speaker 1: that people can control their capacity. They can be specific

579
00:30:41,280 --> 00:30:43,960
Speaker 1: alpha generating engines, and they can produce for the investor

580
00:30:44,240 --> 00:30:47,840
Speaker 1: a much better environment over time. Your investor is interesting.

581
00:30:48,120 --> 00:30:49,920
Speaker 1: You have a large one of the largest, you know,

582
00:30:49,960 --> 00:30:53,000
Speaker 1: insurers in the world, Generalize, one of the largest Italian

583
00:30:53,040 --> 00:30:55,960
Speaker 1: insure that's also been looking to expand their asset management base.

584
00:30:56,200 --> 00:31:00,440
Speaker 1: Why an insurance company to build an asset manager need

585
00:31:00,640 --> 00:31:02,840
Speaker 1: two things. One is far more important than the other.

586
00:31:03,080 --> 00:31:05,400
Speaker 1: You need a little bit of capital to run the business.

587
00:31:05,600 --> 00:31:08,440
Speaker 1: So this company has about forty million dollars of initial

588
00:31:08,480 --> 00:31:13,080
Speaker 1: capitalization between myself and generally. That's interesting, but not very

589
00:31:13,160 --> 00:31:16,520
Speaker 1: Which really interesting is the seed capital because what drives

590
00:31:16,640 --> 00:31:21,560
Speaker 1: portfolio managers to actually come to a company is I

591
00:31:21,600 --> 00:31:24,600
Speaker 1: can start you off with a sizeable amount of capital,

592
00:31:25,240 --> 00:31:28,640
Speaker 1: and that means if you perform, you actually can get

593
00:31:28,640 --> 00:31:31,920
Speaker 1: paid a reasonable amount of money. What does an insurance

594
00:31:31,920 --> 00:31:35,160
Speaker 1: company have that most other entities don't have? They have

595
00:31:35,320 --> 00:31:39,239
Speaker 1: very long duration liabilities. You know, people live for long

596
00:31:39,280 --> 00:31:42,760
Speaker 1: periods of time, their insurance premiums are paid over long

597
00:31:42,800 --> 00:31:45,560
Speaker 1: periods of time. Insurance company balance sheets have these very

598
00:31:45,600 --> 00:31:48,240
Speaker 1: long duration liabilities, which means that they can invest over

599
00:31:48,320 --> 00:31:51,160
Speaker 1: long periods of time. So an insurance company is the

600
00:31:51,280 --> 00:31:55,680
Speaker 1: perfect balance sheet to actually provide seed capital. And what

601
00:31:55,800 --> 00:31:58,680
Speaker 1: you need is an innovative insurance company who's willing to

602
00:31:58,760 --> 00:32:02,360
Speaker 1: understand that building the asset manager might in fact be

603
00:32:02,720 --> 00:32:06,240
Speaker 1: cheaper and more attractive over time than buying it. Most

604
00:32:06,320 --> 00:32:09,000
Speaker 1: have bought them. I have bought lots of asset managers.

605
00:32:09,040 --> 00:32:12,040
Speaker 1: I've sold lots of asset managers. Is very difficult to

606
00:32:12,040 --> 00:32:14,680
Speaker 1: buy an asset manager. All kinds of issues plague you,

607
00:32:15,320 --> 00:32:17,120
Speaker 1: and you have to pay for the fair value of

608
00:32:17,120 --> 00:32:19,120
Speaker 1: the asset, which means that in order to get your

609
00:32:19,120 --> 00:32:21,959
Speaker 1: money back, it has to grow faster than it's currently growing,

610
00:32:22,120 --> 00:32:24,200
Speaker 1: and that's not an easy thing to do, particularly in

611
00:32:24,240 --> 00:32:29,080
Speaker 1: today's market. So I think what Generality's insight was that, well,

612
00:32:29,080 --> 00:32:32,760
Speaker 1: this is an innovative, disruptive model. We are an innovative

613
00:32:32,760 --> 00:32:36,120
Speaker 1: and disruptive company. Fits with what we want to do,

614
00:32:36,560 --> 00:32:39,240
Speaker 1: and we have the long duration liability that actually could

615
00:32:39,240 --> 00:32:41,959
Speaker 1: fund it. So that's how it came together. When we

616
00:32:42,000 --> 00:32:44,760
Speaker 1: talk active like your funds and the managers are hiring.

617
00:32:45,120 --> 00:32:48,640
Speaker 1: A huge trend right now is quantitative active, which is

618
00:32:49,400 --> 00:32:52,840
Speaker 1: actually not a human making decisions per se, but a

619
00:32:52,960 --> 00:32:56,400
Speaker 1: system that humans used converted into an index. We call

620
00:32:56,440 --> 00:32:58,760
Speaker 1: it smart beta. Are you going to use any of

621
00:32:58,800 --> 00:33:00,520
Speaker 1: that or you're gonna have are going to be more

622
00:33:00,600 --> 00:33:04,040
Speaker 1: quote like old school where you're discretionary active, you can

623
00:33:04,160 --> 00:33:06,600
Speaker 1: decide what to do on any given day. Is that

624
00:33:06,640 --> 00:33:08,240
Speaker 1: the kind of active you're gonna sell? Are you're gonna

625
00:33:08,320 --> 00:33:12,600
Speaker 1: maybe have a murder of two? Very good Questionnaeric, you

626
00:33:13,080 --> 00:33:16,280
Speaker 1: have very good questions. Really really, I'm way steep in

627
00:33:16,320 --> 00:33:20,720
Speaker 1: this stuff. No, No, you're very good. Um. So I've

628
00:33:20,760 --> 00:33:25,720
Speaker 1: managed quantitative managers over time, M built quantitative systems. Which

629
00:33:25,760 --> 00:33:28,400
Speaker 1: interesting about quantitative systems, and you alluded to this is

630
00:33:28,440 --> 00:33:35,400
Speaker 1: that they are actually just um disciplined and um mechanized

631
00:33:35,720 --> 00:33:40,640
Speaker 1: human research processes, and so they aren't that different than

632
00:33:41,080 --> 00:33:46,320
Speaker 1: what a human does. They're just routinized and they presumably

633
00:33:47,080 --> 00:33:51,680
Speaker 1: exclude human biases in making decisions. I say presumably, because

634
00:33:51,680 --> 00:33:55,080
Speaker 1: that's actually not true, because the research factors that actually

635
00:33:55,160 --> 00:33:57,800
Speaker 1: drive them haven't bedded in them some bias. To begin with.

636
00:33:59,080 --> 00:34:02,479
Speaker 1: The challenge with UH with the quantitative system is they

637
00:34:02,480 --> 00:34:05,479
Speaker 1: have a very hard time seeing inflection points. And so

638
00:34:05,520 --> 00:34:08,360
Speaker 1: if you actually run a quantitative model, the quantitative model

639
00:34:08,400 --> 00:34:11,560
Speaker 1: will say, even though it lost money yesterday, that today

640
00:34:11,719 --> 00:34:14,200
Speaker 1: it's going to make money, and it continues to actually

641
00:34:14,200 --> 00:34:17,120
Speaker 1: execute the way it was the past day. It's hard

642
00:34:17,120 --> 00:34:19,560
Speaker 1: for that quantitative model to actually see an inflection point

643
00:34:19,600 --> 00:34:22,680
Speaker 1: and change and that's the biggest risk in quant models

644
00:34:22,719 --> 00:34:25,200
Speaker 1: in the world. Then they're all basically the same one

645
00:34:25,239 --> 00:34:28,320
Speaker 1: form or another. So sometimes some of the engineers of

646
00:34:28,360 --> 00:34:31,680
Speaker 1: the quant models actually can see the inflection points and

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Speaker 1: change the model, and so effectively they inject into the

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Speaker 1: process a human element that wasn't really supposed to be there.

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Speaker 1: And often and oftentimes they don't get it right, but

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00:34:40,719 --> 00:34:42,560
Speaker 1: sometimes they get it. They do get it right, and

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00:34:42,560 --> 00:34:45,759
Speaker 1: that's what makes some of these you know, unique quantitative

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00:34:45,760 --> 00:34:51,880
Speaker 1: models more successful versus others. I think that's interesting, But

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Speaker 1: my own view of the world is that um the

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00:34:55,680 --> 00:34:59,960
Speaker 1: quantitative models are more likely to not see the inflat

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Speaker 1: action point and take on too much money over time

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00:35:05,000 --> 00:35:09,520
Speaker 1: because the quantitative model also doesn't have a capacity, you know, instinct,

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00:35:09,760 --> 00:35:12,080
Speaker 1: it's just a it's just a machine. It just keeps trading.

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00:35:13,160 --> 00:35:19,160
Speaker 1: So I've concluded that I think the human actually, on balance,

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00:35:19,719 --> 00:35:24,239
Speaker 1: has more to offer than the machine. Wow, that is controversial.

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Speaker 1: I like him. He's going after passive and quants. I

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00:35:29,320 --> 00:35:31,960
Speaker 1: like it. So this is you're taking on two huge trends.

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00:35:32,160 --> 00:35:35,640
Speaker 1: There's a whole discussion about artificial intelligence that AI, you know,

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00:35:35,760 --> 00:35:40,920
Speaker 1: effectively will trump human thinking. And look, that may be

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Speaker 1: true fifty years from now, it is not true today.

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Speaker 1: And so if you wanted to build a investment management

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00:35:46,600 --> 00:35:51,520
Speaker 1: company on AI driven quantitative investing, I don't think that

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00:35:51,520 --> 00:35:56,160
Speaker 1: that's in the cards right now. It's funny, how you know,

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00:35:56,360 --> 00:35:59,640
Speaker 1: all this movement into passive and quant and the news flow,

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Speaker 1: how original saying a human being human being? Fun It's like, Wow,

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00:36:06,640 --> 00:36:11,799
Speaker 1: how novel? SELLI Bazak, Peter Krause, Your church is called

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00:36:11,840 --> 00:36:15,239
Speaker 1: Aperture Investors. Thanks for joining Sun Trillions. Thank you so much.

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00:36:18,600 --> 00:36:21,239
Speaker 1: Thanks for listening to Tricks Until next time. You can

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00:36:21,280 --> 00:36:25,880
Speaker 1: find us on the Bloomberg terminal, Bloomberg dot com, Apple podcast, Spotify,

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Speaker 1: and wherever else you'd like to listen. We'd love to

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00:36:28,560 --> 00:36:31,560
Speaker 1: hear from you on Twitter. I'm at Joel Webber Show.

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Speaker 1: A l I b A s A K. Trillions is

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00:36:41,440 --> 00:36:45,040
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