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Goldman Sachs Ashish Shah on Reading the Market With AI and Technology · Masters in Business

0:02
Speaker 1: This is Master's in Business with Barry rid Holds on
0:06
Speaker 1: Bloomberg Radio.
0:08
Speaker 2: This week on the podcast, I have another extra special guest. A. C.
0:13
Speaker 2: Shaw is COHED and CIO of Public Investing at Goldman
0:17
Speaker 2: Sachs's asset Management. He helps to oversee two point three
0:21
Speaker 2: trillion dollars of assets at g SAM. He has a
0:26
Speaker 2: fascinating background both in technology and innovation, in equity, and
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Speaker 2: perhaps most importantly, in credit and fixed income. He just
0:36
Speaker 2: has a unique set of experiences that have placed him
0:42
Speaker 2: in the right place at the right time, doing the
0:44
Speaker 2: exact right job. There aren't a lot of people in
0:47
Speaker 2: the world of asset management who have such a broad
0:52
Speaker 2: and round set of skills and experiences that have led
0:57
Speaker 2: him to this position. Fascinating bund Aliance Barnstein and Lehman Brothers,
1:02
Speaker 2: as well as a couple of Silicon Valley tech startups.
1:06
Speaker 2: I found his discussion about what went on during the
1:11
Speaker 2: financial crisis at Lehman Brothers and the sort of leadership
1:16
Speaker 2: that you didn't really hear about at the time. You
1:19
Speaker 2: only saw the criticism of the c suite executives who
1:24
Speaker 2: at various companies had kind of run into problems, but
1:29
Speaker 2: underneath that, it's just a whole layer of people doing
1:33
Speaker 2: their jobs for themselves, their clients, their staff. And I
1:38
Speaker 2: just found that conversation to be fascinating and I think
1:41
Speaker 2: you will also, So, with no further ado, my discussion
1:45
Speaker 2: with Goldman Sachs asset manager's CIO a cease shot.
1:50
Speaker 1: Thanks so much for having me.
1:51
Speaker 2: So let's talk a little bit about your background. You
1:54
Speaker 2: come out of the Wharton School at University of Pennsylvania
1:57
Speaker 2: with a BS in economics. What was the career plan?
2:00
Speaker 1: Look, I had no plan. This whole world was completely
2:04
Speaker 1: new to me, but I knew two things. First, I
2:08
Speaker 1: knew I loved markets. You know, I'd worked for Jeremy
2:11
Speaker 1: Siegel as a research assistant when I was at Wharton,
2:15
Speaker 1: and that really kind of embedded in me this love
2:19
Speaker 1: of macro and love of markets. And the second thing
2:23
Speaker 1: was I knew I didn't want to go into an
2:25
Speaker 1: investment banking track. I wanted something where I could work
2:29
Speaker 1: on interesting problems that would allow me to cast the
2:34
Speaker 1: career that I wanted without being kind of showed into
2:39
Speaker 1: like this, you know, analyst associate kind of fixed career track.
2:44
Speaker 2: And you have some really interesting and unusual experience, both
2:49
Speaker 2: both as a trader and working as an entrepreneur, innovator
2:53
Speaker 2: and start up. Let's talk about some of that. First,
2:57
Speaker 2: you were a trader at a hedge fund that was
2:59
Speaker 2: funded by Soros. Is it Blue Border? What's the name
3:02
Speaker 2: of the funds, Blue Border Partners?
3:04
Speaker 1: Uh huh?
3:04
Speaker 2: And what was it like being a trader in that space?
3:08
Speaker 1: Yeah, So I had joined that organization right after nine
3:13
Speaker 1: to eleven and right after I had come back to
3:16
Speaker 1: New York City, and you know, it was a fantastic experience.
3:21
Speaker 1: The markets were all over the place, but it was
3:23
Speaker 1: a very small organization. There were five or six of us,
3:28
Speaker 1: and we were spread all across the world. It was
3:31
Speaker 1: nice because I got to work with Greg Coffee, who
3:34
Speaker 1: was one of the partners there and obviously has gone
3:37
Speaker 1: on to fantastic things. But I basically sat in a
3:40
Speaker 1: cubicle by myself, trying to come up with investment ideas
3:44
Speaker 1: and realize that that is not my best best place.
3:48
Speaker 1: My performance wasn't the best. But I learned a lot
3:52
Speaker 1: from that experience and knowing that I'm very much a
3:55
Speaker 1: team player and I work well in kind of mid
3:58
Speaker 1: to larger size organizations.
4:00
Speaker 2: And you said, you came back to New York. I
4:02
Speaker 2: know you were on the West coast working in a
4:04
Speaker 2: few startups. Tell us a little bit about Level three
4:07
Speaker 2: and some of the other work you did out west.
4:10
Speaker 1: Yeah. So, you know, go back to the late nineties
4:13
Speaker 1: and the Internet was all the rage. I had a
4:17
Speaker 1: brother in law that had joined a company called Level
4:19
Speaker 1: three Communications that was literally building out the internet. Calls
4:23
Speaker 1: me one day he's like, Hey, we're looking for people.
4:26
Speaker 1: They have the following profile. I think you meet it.
4:29
Speaker 1: Come visit and meet with our folks. And I was like,
4:32
Speaker 1: this is my opportunity to really build out my skill sets.
4:35
Speaker 2: Right.
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Speaker 1: I was a head of a prop trading desk at
4:38
Speaker 1: Banker's Trust. I had a series of skill sets. But
4:42
Speaker 1: I was really interesting in kind of going to business school.
4:45
Speaker 1: But without going to business school. I saw this as
4:47
Speaker 1: a fantastic opportunity to do that. So I go out.
4:50
Speaker 1: I learned the telecom industry at work one hundred and
4:53
Speaker 1: twenty hour weeks helping Level three raise money, build out
4:59
Speaker 1: its business plan, and I learned a tremendous amount of
5:03
Speaker 1: about business, about startups, about innovation in that period of time.
5:07
Speaker 2: And what was the other startup that you helped to
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Speaker 2: co found.
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Speaker 1: Yeah, so once I left there, you know, I left
5:14
Speaker 1: there because I saw that the industry needed a greater
5:17
Speaker 1: level of transparency and financial discipline. So I went on
5:21
Speaker 1: to found Sage Logics, which was really meant to be.
5:26
Speaker 1: It was a software ASP in the telecom space, focused
5:30
Speaker 1: on telecom providers, and my thesis was, Hey, if these
5:34
Speaker 1: organizations don't get their head around their cost structure, that
5:37
Speaker 1: they're all going to go bankrupt. Reality is I should
5:40
Speaker 1: have come back to Wall Street and expressed that view
5:43
Speaker 1: in two thousand and one, because that's essentially what ended
5:47
Speaker 1: up happening.
5:47
Speaker 2: Right, betting against docks instead of trying to advise people, Hey,
5:51
Speaker 2: you better get your act together or else there's going
5:52
Speaker 2: to be trouble exactly. So you come back to New York.
5:57
Speaker 2: Eventually you get into credit and asset management at Alliance Bernstein.
6:03
Speaker 2: I'm going to hold off your Lehman experience for a
6:06
Speaker 2: few moments, just I know we can spend a lot
6:08
Speaker 2: of time talking about that. So eventually you go to Leman,
6:11
Speaker 2: then to Alliance Bernstein. Tell us what you did at
6:14
Speaker 2: Alliance where you were CFO and portfolio manager.
6:17
Speaker 1: Yes, so I was brought in by Doug People's and
6:21
Speaker 1: Peter Krause to lead the credit organization. And I think
6:25
Speaker 1: that when I think back to that period of time,
6:28
Speaker 1: what they were trying to accomplish is that they had
6:30
Speaker 1: really strong credit capabilities, but they needed to unify a
6:33
Speaker 1: team and they needed to build an investment process that
6:37
Speaker 1: was going to be scalable. They had some of the
6:39
Speaker 1: most talented portfolio managers and kind of investors the world.
6:43
Speaker 1: They really understood how to construct portfolios, which were things
6:47
Speaker 1: that I learned from those portfolio managers, portfolio managers like
6:51
Speaker 1: Grishaun Distenfeld that leads income at AB today. What I
6:56
Speaker 1: brought to the table was an ability to kind of
6:59
Speaker 1: bring the team together or to operate to singular set
7:02
Speaker 1: of incentives, ie. Delivering performance right, not being distracted by things,
7:07
Speaker 1: and to be able to do that at scale. I
7:11
Speaker 1: brought the hedge fund skills, the derivative skills that you
7:14
Speaker 1: kind of learn in operating in hedge fund and prop
7:17
Speaker 1: desks to that traditional asset management. And what I learned
7:21
Speaker 1: was how do you construct portfolios in a way where
7:24
Speaker 1: you can stick with your bets over long haul but
7:27
Speaker 1: at size right where you are the market and so
7:30
Speaker 1: you don't have the ability to kind of increase risks
7:33
Speaker 1: decrease risk, but rather that you are building your portfolio
7:37
Speaker 1: so you can stick with the risks that you think
7:38
Speaker 1: makes sense over time.
7:40
Speaker 2: What you're describing sounds like a set of challenges that
7:44
Speaker 2: faces any large asset manager. The ability to scale, the
7:49
Speaker 2: ability to make sure all members of the team are
7:51
Speaker 2: pulling in the same direction, to make sure the incentives
7:55
Speaker 2: are aligned properly. How universal are the things that you
8:00
Speaker 2: did at Alliance Bernstein credit to any large asset manager.
8:05
Speaker 1: Look, those are absolutely critical elements. And it's amazing how
8:10
Speaker 1: as the asset management industry has consolidated and these investment
8:15
Speaker 1: organizations have grown, how difficult it is for those organizations
8:20
Speaker 1: to pivot into those things.
8:21
Speaker 2: Why is that? Is it just legacy systems that people
8:25
Speaker 2: can't get past the sung costs? Or is it something no?
8:28
Speaker 1: Or I think it ends up being cultural. I think
8:31
Speaker 1: that investing requires focus and very similar to a lot
8:36
Speaker 1: of organizations. You are built around these teams that are
8:40
Speaker 1: small and agile, right because you have to adapt to
8:43
Speaker 1: the market. Sure, but how do you pull those teams
8:46
Speaker 1: together into larger organizations to be able to do bigger things.
8:50
Speaker 1: And I think, you know, that's where the innovation experience
8:53
Speaker 1: that I had within technology and within software really came
8:57
Speaker 1: in handy because I not only understood markets and investment process,
9:02
Speaker 1: but I was able to take kind of how do
9:05
Speaker 1: you invest at scale? How do you bring technology as
9:09
Speaker 1: a force multiplier for your investors so that your investors
9:13
Speaker 1: can focus, they can be and operate in smaller or
9:16
Speaker 1: teams make decisions quickly, but at the same time that
9:20
Speaker 1: you can build large scale customization on behalf of your clients.
9:25
Speaker 2: So let's talk about a little innovation. You found ab
9:30
Speaker 2: Labs in twenty fifteen. Tell us a little bit about
9:34
Speaker 2: what ab labs did and what it allowed you to
9:39
Speaker 2: express within that project.
9:41
Speaker 1: Yeah. So when I go back to that period of time,
9:44
Speaker 1: I think there were four of us at Align Spurn
9:47
Speaker 1: scene that realized there was something maturely changing in the market,
9:52
Speaker 1: which was fintech was really changing and accelerate the changes
9:58
Speaker 1: within the broader asset management system. And so myself and
10:02
Speaker 1: you know, Vicky Waally, Matt bass carled Sprouls CTO, decided
10:07
Speaker 1: that in order to get our organization ready, that we
10:11
Speaker 1: needed to build that muscle, not just set the top
10:14
Speaker 1: down as an initiative, but actually at as a bottom
10:18
Speaker 1: up engagement tool for the organization, and so we tackled
10:22
Speaker 1: topics like robo advisors, crypto blockchain within that construct as
10:29
Speaker 1: a way to educate the organization much more rapidly and
10:33
Speaker 1: get people leaning forward into innovation.
10:36
Speaker 2: So was this a pure research group or was this
10:39
Speaker 2: a bit of a venture fund that's focused on fintech.
10:42
Speaker 1: So it ended up leading to both, right, it ended
10:46
Speaker 1: up leading to venture investments, But in large part, most
10:49
Speaker 1: of that effort was a really around building organizational readiness
10:53
Speaker 1: to innovate. And you know, a lot of the things
10:57
Speaker 1: that spun out of that effort really to continue to
11:01
Speaker 1: impact that organization today in terms of the forward lean
11:05
Speaker 1: when it comes to innovation and the overall operating stack
11:09
Speaker 1: that allows them to be able to again allow the
11:14
Speaker 1: portfolio managers to focus on markets and yet to be
11:18
Speaker 1: able to deliver scalable solutions.
11:21
Speaker 2: You mentioned culture earlier. How important is it for an
11:26
Speaker 2: organization to have the right mindset to lean into technology,
11:32
Speaker 2: to be aware of the fact that, hey, if you're
11:34
Speaker 2: not caunabilizing yourself, someone else will look.
11:38
Speaker 1: I think that culture defines success in investing and particularly
11:44
Speaker 1: in investing organizations, that you have to set in an
11:47
Speaker 1: investment culture where your investors, first of all, are very
11:51
Speaker 1: aligned to delivering performance and the type of performance that's
11:55
Speaker 1: going to end up making your clients happy. I think
11:58
Speaker 1: that you need to have a culture where people collaborate.
12:02
Speaker 1: If you don't, it's going to be really tough to
12:04
Speaker 1: have scaled performance.
12:07
Speaker 2: Right.
12:07
Speaker 1: You can succeed in one area, but you're only going
12:10
Speaker 1: to be as good and have as much insight is
12:13
Speaker 1: that any one, you know, small group, which is going
12:16
Speaker 1: to limit your success if you try to do other things.
12:19
Speaker 1: And the final point, you know exactly the one you
12:22
Speaker 1: brought up, which is around innovation. The world is moving
12:26
Speaker 1: really rapidly. The way you do research, the way you
12:29
Speaker 1: put together portfolios, the way you execute in the market
12:32
Speaker 1: is changing. And frankly, what end advisors want right for
12:37
Speaker 1: their clients and what we as an asset manager have
12:40
Speaker 1: to deliver is changing very rapidly. Everyone wants mass customization
12:46
Speaker 1: but delivered with the quality of institutional asset management, and
12:51
Speaker 1: I think it's really requires innovation and technology in order
12:56
Speaker 1: to do that well. And frankly, that's why I joined
13:00
Speaker 1: Goldman Sacks because I felt that you needed the scale
13:04
Speaker 1: resources that come with a firm like Goldman Sacks in
13:09
Speaker 1: the analytics and the ability to really invest in technology
13:14
Speaker 1: and in data. If we were going to succeed in
13:18
Speaker 1: going to market in the RIA and wirehouse community and
13:23
Speaker 1: delivering to you know, institutional quality portfolios that really meet
13:29
Speaker 1: the individual needs of every individual at minimum sizes of
13:35
Speaker 1: one hundred thousand dollars.
13:38
Speaker 2: It's interesting because in the past what you're describing has
13:42
Speaker 2: been somewhat mutually exclusive. It's very hard to deliver institutional size,
13:49
Speaker 2: asset management and mass customization together. I'm going to assume
13:55
Speaker 2: innovation and technology is what bridges that gap absolutely. So
14:01
Speaker 2: let's talk about a couple of related quotes that you
14:05
Speaker 2: have that caught my ear because it relates to where
14:11
Speaker 2: we are on this market adoption cycle of technology and
14:17
Speaker 2: how the world is changing. Quote. As a long term investor,
14:21
Speaker 2: all you do is worry. But it's not about what
14:25
Speaker 2: you're thinking. It's about how you react. Explain.
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Speaker 1: Yeah, So I think that the most successful investors, the
14:35
Speaker 1: way they invest is they decide what works, what they
14:38
Speaker 1: believe works over time, and they're simply trying to stick
14:42
Speaker 1: with it. And so what is the worry about. The
14:45
Speaker 1: worry is about, first of all, is that thing that
14:49
Speaker 1: I believe works over the long haul to what extent
14:53
Speaker 1: is it wrong? Because where I'm really going to underperform
14:57
Speaker 1: is if I get a long term trend. And so
15:00
Speaker 1: you should be constantly challenging your core thesis. But inside
15:06
Speaker 1: of that, you know, I think it's really critical to
15:08
Speaker 1: be humble and to understand that that core thesis you
15:12
Speaker 1: have to stick with it over time. And so the
15:15
Speaker 1: other aspect of this is, Okay, what can you do
15:18
Speaker 1: to make it so that you stick with your core
15:22
Speaker 1: core thesis? Because if you have an environment where your
15:27
Speaker 1: core thesis, whatever it is you do, whether it's investing
15:30
Speaker 1: in growth, investing in in companies that are lined up
15:36
Speaker 1: with a long term trend like technology, you know you're
15:41
Speaker 1: going to be challenged, right, And so the question is
15:44
Speaker 1: how do you construct portfolios? How do you look out
15:47
Speaker 1: for the challenges that are going to cause your clients
15:50
Speaker 1: to fire you? Right? And if you can tilt out
15:55
Speaker 1: of whatever it is that works over the long haul
15:58
Speaker 1: in those periods of time when maybe it's gotten crowded
16:01
Speaker 1: or over extended, you're going to be much more successful
16:04
Speaker 1: in capturing those periods of when the opportunity is the
16:09
Speaker 1: best i e. Buying low and selling high rather than
16:13
Speaker 1: having to sell low because your investors essentially have lost patience.
16:21
Speaker 2: So you raise a really interesting point about constantly having
16:25
Speaker 2: to reevaluate your underlying thesis. But it makes me think
16:30
Speaker 2: of one of the biggest challenges there, which is how
16:35
Speaker 2: can you tell whether or not an underlying thesis is
16:40
Speaker 2: no longer true or if you're just in a period
16:43
Speaker 2: of Hey, this style is out of favor. And this
16:46
Speaker 2: is what happens on a regular basis. Value underperforms growth
16:50
Speaker 2: for a while, or international underperforms domestic. How can you
16:54
Speaker 2: identify when you have a giant secular shift versus simply hey,
17:00
Speaker 2: this has fallen out of favor these days.
17:02
Speaker 1: Yeah, So that's where doing research and developing an investment
17:06
Speaker 1: process are absolutely critical. Right. Your investment process makes it
17:10
Speaker 1: so that when you know there might be a challenge,
17:15
Speaker 1: that use other tools like momentum, like you know, risk
17:20
Speaker 1: analytics to be able to like not question whether your
17:24
Speaker 1: thesis is out there, but actually reduce your risks before
17:27
Speaker 1: the market has questioned your thesis. Right, so nothing may
17:31
Speaker 1: have changed, but if the market is changing, the pricing
17:34
Speaker 1: of that risk, right, it matters to your portfolio. So
17:38
Speaker 1: I think that first point is really critical, which is
17:42
Speaker 1: you need to have things that actually diversify you out
17:45
Speaker 1: of that long term right, and they have to kind
17:49
Speaker 1: of take place before you've already lost money. I think
17:53
Speaker 1: the second thing is that you want to be doing
17:56
Speaker 1: the research and developing your process so that when your
18:00
Speaker 1: style has gone out of favor, that you know when
18:03
Speaker 1: to double down, right, that you know when to lean in,
18:06
Speaker 1: and you have confidence to do it. And so that's
18:09
Speaker 1: a lot of what investment process design is is how
18:13
Speaker 1: do you stick with the long term bets? How do
18:15
Speaker 1: you tilt out and tilt in rather than you know,
18:19
Speaker 1: being kind of and reacting being backfooted or reacting that
18:23
Speaker 1: you're actually front footed and you're able to kind of,
18:26
Speaker 1: you know, shallow out the drawdowns and lean into the opportunities.
18:32
Speaker 2: So we've mostly been talking about things that apply to equities,
18:35
Speaker 2: things like momentum and value and growth. Let's talk about
18:38
Speaker 2: the other side of a balanced portfolio, which is fixed income.
18:43
Speaker 2: How you thinking about fixed income, be it corporate's treasury
18:48
Speaker 2: or even tips. In what's been a pretty wild environment
18:52
Speaker 2: where the Central Bank has raised rates five hundred and
18:56
Speaker 2: twenty five basis points in about eighteen months. How do
18:59
Speaker 2: how do you process that?
19:00
Speaker 1: Yeah, so from a long term perspective, this seems trite
19:04
Speaker 1: to say, but fixed income is about income, right, And
19:08
Speaker 1: so the starting point is evaluating income, evaluating the likelihood
19:12
Speaker 1: that you actually can capture and hang on to the
19:15
Speaker 1: income because a lot of the credit instruments, if you
19:19
Speaker 1: have losses in your portfolio, that gives up the income. Right,
19:22
Speaker 1: So starting point is income. Shape of curves matter, So
19:27
Speaker 1: spread curves historically most of the time are steep. Interest
19:31
Speaker 1: rate curves most of the time are steep. That happens
19:34
Speaker 1: not to be the case today, right.
19:36
Speaker 2: What have we been inverted for two years?
19:38
Speaker 1: Just about almost?
19:40
Speaker 2: That's a pretty unusual set of circumstances, at least in
19:43
Speaker 2: the modern era.
19:44
Speaker 1: Well, it's also very very unusual to see an inversion
19:48
Speaker 1: like this and not see a material slow down in growth.
19:52
Speaker 2: Right.
19:52
Speaker 1: Part of the reason why twelve months ago people were
19:55
Speaker 1: forecasting with high probability that we be in a recession
19:59
Speaker 1: is because historically, yield curve inversions really kind of announce
20:04
Speaker 1: that we're slowing down.
20:06
Speaker 2: Pretty good track record historically too, I.
20:08
Speaker 1: Think that what's changed this time around is that you know,
20:12
Speaker 1: real rates and nominal rates are high enough that they
20:16
Speaker 1: are slowing the economy down, but there's enough offsetting fiscal
20:21
Speaker 1: impulse within the US economy at least that you know
20:26
Speaker 1: you have growth continuing on. And so you have this
20:29
Speaker 1: interesting situation where inflation has been coming down, right. It
20:34
Speaker 1: maybe not in a straight line, and certainly the last
20:37
Speaker 1: couple of data points that we've had haven't haven't really
20:41
Speaker 1: pleased the market in terms of the FED being able
20:44
Speaker 1: to ease aggressively. But inflation has come down from its peak,
20:48
Speaker 1: but growth continues. And I think that you know, for
20:52
Speaker 1: for fixed income and the income piece, you're better off
20:57
Speaker 1: in the front end. Now if you look at value
21:01
Speaker 1: in the curve and from a longer term perspective, look
21:05
Speaker 1: at what are the real rates relative to the real
21:07
Speaker 1: ability for the economy to grow, we're pretty attractive here, right.
21:13
Speaker 1: And the one thing we do know is that if
21:15
Speaker 1: growth does slow down in a way that like cascades
21:19
Speaker 1: into inflation, that bonds are going to do their job
21:22
Speaker 1: on the price side, which is they're going to diversify
21:25
Speaker 1: the equities that you hope.
21:26
Speaker 2: So falling inflation still robust growth and a decent yield
21:32
Speaker 2: on fixed income. Dare I use the word goldilocks? Is
21:37
Speaker 2: this a pretty decent investing environment for relative to what
21:41
Speaker 2: we've seen over the past few years.
21:43
Speaker 1: Look, certainly on a year to day basis, if you
21:45
Speaker 1: look at your full portfolio, you've done pretty well, right,
21:49
Speaker 1: and that that really comes from the starting point, which is,
21:54
Speaker 1: you know, you have high nominal yields and you have
21:57
Speaker 1: economic growth and earnings growth on the equity side. Those
22:01
Speaker 1: two things were working together to generate a pretty good
22:04
Speaker 1: return in absolute terms.
22:06
Speaker 2: Really quite quite intriguing. So let's talk a little bit
22:09
Speaker 2: about your experience in the two thousands. You came back
22:14
Speaker 2: to New York from the West Coast and you ended
22:18
Speaker 2: up at Lehman Brothers working on the credit strategy side.
22:22
Speaker 2: Tell us a little bit about what brought you to
22:24
Speaker 2: Lehman and what were your experiences like.
22:26
Speaker 1: Yeah, so I was a client of Lehman's back in
22:31
Speaker 1: the early nineties, mid nineties, and so I had a
22:34
Speaker 1: lot of relationships there, and you know, I had always
22:39
Speaker 1: loved fix income as an investor. Unfortunately, fix income became
22:43
Speaker 1: a lot less interesting in the later nineties, and so
22:47
Speaker 1: my team had really pivoted towards more equity strategies. And
22:51
Speaker 1: so when I was coming back looking to get back
22:56
Speaker 1: into Wall Street from the technology and space, Lehman was
23:02
Speaker 1: one of the phone calls I made. Tom Corkran and
23:05
Speaker 1: Rick Reader were people that knew me, that had done
23:08
Speaker 1: business with me, and they said, hey, you know, what
23:12
Speaker 1: would you think about trading prop within Lehman Brothers? And
23:16
Speaker 1: I said, look, I haven't traded fix income markets for
23:19
Speaker 1: coming up on five or six years. I don't think
23:22
Speaker 1: I should be managing capital right away. But there was
23:26
Speaker 1: a real change going on within fixed income markets and
23:30
Speaker 1: specifically within credit markets, which is derivatives were coming into
23:34
Speaker 1: the space. Hedge funds were coming into the space. And
23:38
Speaker 1: so when you looked inside of the credit business at Lehman,
23:42
Speaker 1: the people that understood derivatives didn't understand credit. The people
23:46
Speaker 1: that understood credit didn't understand derivatives. And I happened to
23:50
Speaker 1: be one of the rare individuals that had grown up
23:54
Speaker 1: understanding credit, understanding derivatives, and understanding what a hedge fund
24:00
Speaker 1: types of trades a hedge fund would be interested in doing.
24:03
Speaker 1: And so I came into the role, you know, with
24:06
Speaker 1: ostensibly the title of hedge fund strategist, and my job,
24:11
Speaker 1: my day job was really to work with the traders
24:14
Speaker 1: and the salespeople to come up with trade ideas for
24:18
Speaker 1: hedge funds. And so all I was doing was looking
24:21
Speaker 1: for ideas for myself that I found was interesting, and
24:25
Speaker 1: so that cascaded into people realize that, wait, this person
24:29
Speaker 1: understands credit, they understand rivers, they understand these alternative strategies,
24:36
Speaker 1: and so I was able to cascade that into running
24:40
Speaker 1: all of credit strategy, including kind of some of the
24:43
Speaker 1: prop prop research analysts that work within the organized.
24:46
Speaker 2: So let's set the stage a little bit. What year
24:49
Speaker 2: do you come back to Lehman Brothers two thousand and three,
24:52
Speaker 2: So it's post dot com implosion. Technology had fallen about
24:57
Speaker 2: eighty percent if you look at the NASDAC peak to
24:59
Speaker 2: try suddenly had become very attractive as the Gulf War
25:04
Speaker 2: was beginning. What was that era like at Lehman Brothers
25:09
Speaker 2: in the early to mid two thousands, What what were
25:11
Speaker 2: you seeing and what was the general energy like at
25:16
Speaker 2: that shop? Because I remember that trading floor as being
25:20
Speaker 2: just a monster sort of noise machine.
25:23
Speaker 1: Yeah, it was super high energy. This was the world
25:28
Speaker 1: of fix income right, fix income was booming. The growth
25:32
Speaker 1: of structured credit of you know, mortgage credit, you know,
25:37
Speaker 1: was really kind of expanding the opportunity set and every
25:42
Speaker 1: there was a lot of credit being borrowed right, you know,
25:46
Speaker 1: to fund companies in the aftermath of two thousand, two
25:51
Speaker 1: thousand and two, that credit cycle, there were secondary opportunities
25:55
Speaker 1: from a distressed debt perspective. It was just a high
25:59
Speaker 1: end energy, rapid growth area, and so it was exciting
26:03
Speaker 1: to be there watching what was going on, helping to
26:07
Speaker 1: influence what was going on in terms of product creation
26:10
Speaker 1: and client education.
26:12
Speaker 2: I don't know if people realize, oh three was still
26:15
Speaker 2: fairly early days of the ramp up of mortgage backed securitization,
26:20
Speaker 2: and it had already been underway, but no way near
26:23
Speaker 2: the numbers we saw a few years later. What was
26:26
Speaker 2: that experience like, watching this machine start to develop some momentum.
26:32
Speaker 1: Yeah, So I didn't directly watch the mortgage side of
26:36
Speaker 1: the business. I was on the corporate credit side of
26:38
Speaker 1: the business. But without question, the overall fixed income franchise
26:43
Speaker 1: was growing, and so we were able to cascade that
26:47
Speaker 1: into you know, growth in our franchise and product innovation.
26:51
Speaker 1: That really was serving our clients, which were largely both
26:56
Speaker 1: hedge funds and asset managers.
26:57
Speaker 2: So you were Leman during what probably was the five
27:02
Speaker 2: most exciting years in the company's one hundred and eighty
27:06
Speaker 2: year history. Any stories stand out from that period, I
27:10
Speaker 2: would imagine you saw a lot of things happen there.
27:14
Speaker 1: Yeah, so I tell you that, you know the number
27:17
Speaker 1: of stories I have around the fall of Lehman in
27:21
Speaker 1: two thousand and eight. You know, that was a period
27:23
Speaker 1: of time that you know, obviously a very difficult time
27:26
Speaker 1: for the economy, for everyone involved at the human level,
27:31
Speaker 1: but you know, it was a tremendous leadership kind of
27:35
Speaker 1: experience because you really got to understand what you were
27:39
Speaker 1: made of, who you were about, and you got to
27:41
Speaker 1: develop a reputation. You know, from my standpoint, you know,
27:46
Speaker 1: the story that stands out to me. So, you know,
27:48
Speaker 1: I had taken over from Rick Reader doing the weekly
27:52
Speaker 1: credit call, so on a weekly basis, myself, you know,
27:57
Speaker 1: or Eric Felder would do a call really surveilling from
28:01
Speaker 1: a macro perspective what was going on in markets and
28:04
Speaker 1: specifically credit markets. And so Lehman had failed on Sunday
28:10
Speaker 1: right gone bankrupt, had gone in taken my box in
28:13
Speaker 1: and cleaned up.
28:14
Speaker 2: My desk, literally like walking out with the banker box
28:17
Speaker 2: full of personalized and.
28:18
Speaker 1: Being interviewed on, you know, on the outside by the media.
28:22
Speaker 1: But Monday morning, I walk in, I'm wearing a suit,
28:26
Speaker 1: ready to go and saying and we're all standing around
28:29
Speaker 1: not knowing what to do, and post bankruptcy, post bankruptcy,
28:34
Speaker 1: we don't know if we have salaries or head or
28:37
Speaker 1: healthcare for that matter. And my team and I are
28:41
Speaker 1: sitting down. Everyone's kind of, you know, at different stages
28:46
Speaker 1: of what do we do. And we have this call
28:50
Speaker 1: that we do every week that is the following morning.
28:55
Speaker 1: And so Mike, wait, just let me make sure I
28:57
Speaker 1: understand this.
28:58
Speaker 2: So Sunday Leman files. Yeah, Monday, it's front page news
29:03
Speaker 2: all over the world. And what time is your call?
29:06
Speaker 2: Eight am?
29:07
Speaker 1: It's it was at seven five am.
29:10
Speaker 2: So you have to get on the horn and speak
29:13
Speaker 2: to the entire sales team and and.
29:17
Speaker 1: All of our clients, right. And I sat with my
29:22
Speaker 1: team and I said, look, I want to do this
29:27
Speaker 1: because it's the right thing to do. And I don't
29:30
Speaker 1: know what our outcome is here, but you know, I
29:33
Speaker 1: don't want to go out this way. I want to
29:35
Speaker 1: go out with everyone knowing that the last thing we
29:38
Speaker 1: did in our jobs was we tried to serve them right.
29:42
Speaker 1: And and so, you know, one of my team members
29:46
Speaker 1: got by name of Krishna hag Day and I worked
29:50
Speaker 1: till probably eleven thirty or midnight that night, put together
29:54
Speaker 1: the presentation the next morning.
29:56
Speaker 2: That's till Sunday night midnight.
29:58
Speaker 1: Sorry, that's Monday night midnight. Call goes on on Tuesday.
30:04
Speaker 1: We show up on Tuesday morning and we're going over
30:07
Speaker 1: the internal hoot and there's you know, probably three hundred
30:11
Speaker 1: four hundred clients styled in however many more right, and
30:16
Speaker 1: everyone looks up and they're like, we can't believe these
30:20
Speaker 1: guys are still going right. And and in fact, I
30:24
Speaker 1: think it was about an hour later that over the hoot,
30:28
Speaker 1: the CEO of Barclays comes over and you know, announces
30:33
Speaker 1: that Barclays is buying Lehman Brothers right the US operations,
30:38
Speaker 1: and someone in Equities has the you know, hilarity of
30:43
Speaker 1: playing God's Save the Queen over the hoot. But the
30:47
Speaker 1: number of emails that I got around from clients saying, wow,
30:53
Speaker 1: you know, we've always respected your work, but to go
30:57
Speaker 1: on and to do your job in servicing your clients
31:03
Speaker 1: on this day of all days, is like hats off
31:05
Speaker 1: to you, And so I think that like that was
31:08
Speaker 1: one of the things that I think it's lost in
31:11
Speaker 1: all the stories and the media is that you had
31:13
Speaker 1: a group of people here that really did care about
31:16
Speaker 1: clients and went out of their way even when the
31:21
Speaker 1: chips were down, to keep doing their jobs.
31:23
Speaker 2: So Barclays takes over Lehman us with I think there
31:29
Speaker 2: was a FED backing of that, if I remember correctly,
31:31
Speaker 2: or there was some Was there a guarantee or did
31:33
Speaker 2: there no backing? But it was post bankruptcy, so all
31:38
Speaker 2: the prior liabilities would go away without a FED banking,
31:42
Speaker 2: without a FED backing, and you end up in I
31:46
Speaker 2: guess it's a fairly similar role at Barclays, right. How
31:51
Speaker 2: similar was the transition? How smooth was that?
31:54
Speaker 1: It was quite a bumpy transition. It's a pretty awkward
31:58
Speaker 1: position to be interviewing for your own job. We had
32:02
Speaker 1: a fantastic franchise, right, you know, the Lehman franchise was
32:07
Speaker 1: really known for research and for it was very very
32:11
Speaker 1: strong in credit and in the derivative space, and we
32:16
Speaker 1: were known for serving clients right within that space, and
32:19
Speaker 1: so that transition happened. It was messy, as you can imagine,
32:26
Speaker 1: but also we kind of very quickly got back to
32:29
Speaker 1: work because there were opportunities in markets, clients needed advice
32:34
Speaker 1: in markets, and we needed to figure out what was
32:38
Speaker 1: going to happen to the financial system.
32:40
Speaker 2: So Barclays had, if i I'm sure I'm getting this wrong,
32:43
Speaker 2: they had a small US presence before the.
32:46
Speaker 1: Purchase, pretty limited US purchase, and.
32:48
Speaker 2: This gave them a fairly substantial footprint in the United States.
32:52
Speaker 2: Were there a lot of redundancies or did you pretty
32:54
Speaker 2: much just pick up your whole corporate fixed income team
32:58
Speaker 2: and slought them into Barclay's.
32:59
Speaker 1: Yeah, so, so there was a good amount of redundancy,
33:04
Speaker 1: which was painful. But it was literally the fifth round
33:07
Speaker 1: of layoffs that we went through at the time, and
33:11
Speaker 1: again we said goodbye to a lot of really good
33:14
Speaker 1: people who you know, thankfully most of the people ended
33:17
Speaker 1: up landing well over time, but it really told you
33:21
Speaker 1: a lot about the people that you worked with and
33:24
Speaker 1: how they operated. And you know, for me, it was
33:28
Speaker 1: definitely formative as a leader to be able to go
33:31
Speaker 1: through that difficult period of time to try to do
33:34
Speaker 1: my best to support my team and to serve my clients.
33:39
Speaker 2: It really looks like Barclays stole you guys, stole the
33:45
Speaker 2: crown jewels of Lehman Brothers post bankruptcy when everybody was terrified, like, hey,
33:51
Speaker 2: we can't figure out what's going on there. Post bankruptcy,
33:55
Speaker 2: the assumption is all the risk has attenuated and you're
33:59
Speaker 2: just left with searched through the rubble of the collapse,
34:03
Speaker 2: and here's some really spectacular assets, great teams and a
34:08
Speaker 2: long history of making money. Uh, what was the experience, like,
34:13
Speaker 2: what was the transition like to Barclays?
34:16
Speaker 1: Look, you know, I think that it was surreal to
34:20
Speaker 1: go from one firm to another, and it's an experience
34:24
Speaker 1: that most people won't have.
34:26
Speaker 2: Right literally in the same building, right you just change
34:29
Speaker 2: the sign on the front door.
34:30
Speaker 1: In the same building, although we moved around, but you know,
34:35
Speaker 1: it was real. But you know, I think when you
34:37
Speaker 1: work in financial services, you're used to change, You're used
34:42
Speaker 1: to disruption, probably not at that scale and at that speed.
34:46
Speaker 1: But you know, the the other thing I would tell
34:49
Speaker 1: you is that you know what the organization was able
34:52
Speaker 1: to accomplish and what we as individuals learned from that
34:58
Speaker 1: experience was just like priceless. I mean, once you've been
35:02
Speaker 1: through an environment like that, everything else kind of pales
35:05
Speaker 1: by comparison. You kind of wake up and you know
35:09
Speaker 1: you're able to deal with any sort of crisis, right
35:13
Speaker 1: Like I'll contrast that with the pandemic, where which was
35:20
Speaker 1: equally kind of a it was a much more massive
35:23
Speaker 1: crisis at both the personal level, you know, operational level.
35:27
Speaker 1: But you know, we've been through crisis, and I think
35:30
Speaker 1: for managers that have been through crisis, have had to
35:34
Speaker 1: manage risk through crisis, that you get used to it,
35:38
Speaker 1: You learn the lessons, you're able to roll them forward.
35:42
Speaker 1: And frankly, it's one of the things that I think
35:45
Speaker 1: I do really well is in these periods of difficulty
35:48
Speaker 1: and crisis that you know, I'm able to zoom out
35:52
Speaker 1: and understand how to deal with the crisis, kind of
35:56
Speaker 1: slow things down, get people to pull people together, to
36:00
Speaker 1: communicate and to solve things as if there are problems.
36:04
Speaker 2: That baptism of fire is unique to our generation. I'm
36:09
Speaker 2: gonna imagine the previous generation went through the eighty seven
36:14
Speaker 2: crash and the two thousand dot Com implosion sort of
36:17
Speaker 2: was the bridge between the two. I'm curious how long
36:22
Speaker 2: did it take before you were standing up that weekly
36:25
Speaker 2: credit call at Barclays that used to do at Lehman Brothers.
36:30
Speaker 1: I think it was as soon as we.
36:32
Speaker 2: Were allowed to, like a couple of months.
36:36
Speaker 1: It was more weeks.
36:37
Speaker 2: Oh really?
36:38
Speaker 1: Yeah?
36:39
Speaker 2: And you continue doing that at Barclays for how long?
36:43
Speaker 1: It was about eighteen months until a Lin spurn Steen
36:46
Speaker 1: gave me a call and said, Hey, we're looking for
36:49
Speaker 1: ahead of credit. Any interest in talking to us?
36:52
Speaker 2: Huh? Really really quite fascinating. So what's the big takeaway
36:59
Speaker 2: from that experience? We've talked about innovation and culture. Now
37:03
Speaker 2: you bring up the issue of leadership. What did that
37:07
Speaker 2: entire experience leave you with?
37:09
Speaker 1: Yeah? So, so look, I think there are a couple
37:12
Speaker 1: of different things that I took away. The first and
37:15
Speaker 1: foremost is you take care of your people, and you
37:18
Speaker 1: t take care of your clients, and everything else is
37:21
Speaker 1: going to take care of itself. Right. I think that
37:25
Speaker 1: that period of time for me, because I was very
37:28
Speaker 1: involved in working with the New York Fed around what
37:32
Speaker 1: do we do to stabilize things? And provided despite having
37:37
Speaker 1: gone bankrupt, provided a lot of insight and ideas around
37:42
Speaker 1: actions that could be taken to really stabilize the US
37:46
Speaker 1: financial system. And for me, it was a calling around,
37:52
Speaker 1: you know, making sure that I didn't just operate within
37:56
Speaker 1: an organization and with narrow goals, but rather that the
38:00
Speaker 1: importance that the financial system plays when it comes to
38:04
Speaker 1: the US economy and the strength of the nation is
38:09
Speaker 1: absolutely critical, and that we can't take that for granted.
38:12
Speaker 1: And you know, there's a higher calling for anyone that
38:15
Speaker 1: works in a seat like I do today, which is
38:20
Speaker 1: you have a responsibility to make sure that the country
38:23
Speaker 1: benefits from the work that you're doing. And so I've
38:27
Speaker 1: always through that period of time one of my biggest
38:30
Speaker 1: takeaways was any policy and maker calls, I'm going to
38:34
Speaker 1: provide them the best advice I can, the best insights
38:37
Speaker 1: I can, so that they can do the best job
38:40
Speaker 1: they can for the US economy. And it's that economy
38:44
Speaker 1: that impacts so many people in the country, both their wealth,
38:49
Speaker 1: their wellbeing, as well as the country's national security. And
38:54
Speaker 1: I think that, you know, a lot of folks look
38:56
Speaker 1: at our industry and they question, you know, whether or
39:00
Speaker 1: whether why we exist, whether we need to exist. You know,
39:05
Speaker 1: I think that, you know, history has shown that the
39:10
Speaker 1: you know, the the ability to grow the country and
39:15
Speaker 1: invest in innovation and infrastructure is really subject to the
39:21
Speaker 1: ability to finance that infrastructure. And so one of the
39:24
Speaker 1: things I find amazing about working at Coleman Sachs is
39:28
Speaker 1: that that is very much our purpose, right, We're here
39:31
Speaker 1: to help fund, you know, the the growth in the economy.
39:38
Speaker 1: You know, yes, we do that to to make money
39:41
Speaker 1: as an organization, but ultimately that benefits so many people
39:47
Speaker 1: from their longer term kind of growth.
39:50
Speaker 2: So you mentioned you frequently were responding to various policymakers.
39:56
Speaker 2: I'm trying to remember was was Tim Geithner new York
39:59
Speaker 2: Fed she when you were a Lehman or did he
40:02
Speaker 2: come in afterwards?
40:03
Speaker 1: No, Geitner was head of the New York festal.
40:06
Speaker 2: So you must have had a lot of back and
40:08
Speaker 2: forth with him over that time. There were some people
40:11
Speaker 2: working both in the Treasury Department and in the New
40:16
Speaker 2: York Fed and the Federal Reserve clearly paying very close
40:20
Speaker 2: attention at that point to what was going on.
40:23
Speaker 1: Yeah, I spent more of my time with the New
40:25
Speaker 1: York Markets team, so Haley Bowski and her team, because
40:30
Speaker 1: I was a technical individual, right, like I'm a market expert,
40:34
Speaker 1: I'm not a policy expert, but I would say that
40:39
Speaker 1: some of the work that I did ended up turning
40:41
Speaker 1: into some of the programs that the FED actually launched,
40:45
Speaker 1: including the TALF where I can trace back through some
40:51
Speaker 1: of the books that have been written, including the one
40:53
Speaker 1: where I'm a small character that you know some of
40:56
Speaker 1: the work I did turned into policy, which was you're
41:00
Speaker 1: reassuring to know that I did work that helped students
41:04
Speaker 1: get student loans through that period of time when banks
41:08
Speaker 1: weren't able to finance those loans.
41:11
Speaker 2: Huh, really really fascinating when everything was frozen. Hey, the
41:16
Speaker 2: policymakers go to the experts because they don't have that expertise.
41:20
Speaker 2: So let's talk a little bit about your role as
41:23
Speaker 2: a CIO. First. What is public investing we referring to
41:30
Speaker 2: public stocks and bonds or what does this include?
41:33
Speaker 1: Yeah, it includes public stocks and bonds managed both fundamentally
41:37
Speaker 1: and through our quint business and in individual sleeves, as
41:42
Speaker 1: well as multi asset portfolios.
41:43
Speaker 2: So multi asset could be a hedge fund or is
41:47
Speaker 2: that internal?
41:47
Speaker 1: Is that outside it's all internally managed, but it could
41:52
Speaker 1: include a hedge fund, it could include more traditional mutual
41:57
Speaker 1: fund or a ETF.
41:58
Speaker 2: So prior to this, you were co cio with fixed
42:02
Speaker 2: income at Goldman for a couple of years. First question,
42:06
Speaker 2: co cio always seems like that's challenging when there's multiple heads.
42:12
Speaker 2: How do you run as co CIOs?
42:13
Speaker 1: Yeah, I would say rather than challenging, it's actually fantastic
42:17
Speaker 1: because you have a partner. Obviously, it takes effort. When
42:21
Speaker 1: you have a partner, you have to invest in a relationship,
42:24
Speaker 1: you have to communicate and over communicate. But it's fantastic
42:27
Speaker 1: what you can accomplish where you have different perspectives, different
42:31
Speaker 1: points of view, and the geographic and kind of resource
42:36
Speaker 1: span of two individuals. So my cohad and cocio when
42:42
Speaker 1: I was leading fixed income, sat in London and because
42:45
Speaker 1: of that we were able to cover more of our
42:47
Speaker 1: investment leaders, gather more perspectives, wider set of perspectives on
42:53
Speaker 1: investing markets. He came from more of an emerging markets background.
42:57
Speaker 1: I have from more of a develop market credit background.
43:01
Speaker 1: We mixed kind of macro and bottoms up and we're
43:05
Speaker 1: able to do I felt a really good job, but
43:08
Speaker 1: it requires investing in the relationship. You have to make
43:11
Speaker 1: sure you're communicating all the time. You're doing a lot
43:14
Speaker 1: of kind of weekend calls to make sure you're caught up,
43:17
Speaker 1: but it can be quite powerful and it prevents you
43:21
Speaker 1: from missing.
43:21
Speaker 2: Things, especially they're starting out six or eight hours ahead
43:25
Speaker 2: of us, you're ending a couple hours after them. It
43:29
Speaker 2: allows pretty much almost a full day of coverage that
43:34
Speaker 2: you wouldn't necessarily get if both of you in the
43:37
Speaker 2: New York of both of you in London. Absolutely, So
43:40
Speaker 2: let's talk about your current role CIO of public investing.
43:45
Speaker 2: That's kind of an unusual title. I don't know a
43:47
Speaker 2: lot of firms that break the world down that way.
43:50
Speaker 2: Tell us a little bit about the thinking behind public investing.
43:55
Speaker 2: Why did Goldman structure it that way?
43:57
Speaker 1: Yeah, so we have a very large effort to invest
44:01
Speaker 1: in private assets across credit and equity. In order to
44:07
Speaker 1: make sure that we were also investing in our public
44:10
Speaker 1: investment strategies, we felt it was important to kind of
44:14
Speaker 1: unify those strategies under public investing structure. I think that
44:20
Speaker 1: when you think about and look at the evolution of
44:25
Speaker 1: public markets, there's a lot of change going on, and
44:28
Speaker 1: both from a trading perspective, a market structure perspective. You know,
44:33
Speaker 1: hedge funds, non hedge funds, ETFs, passive, active, and in
44:38
Speaker 1: order to really leverage the capabilities we have from a
44:42
Speaker 1: data analytics perspective across all these strategies, we felt bringing
44:46
Speaker 1: these historically kind of completely independent strategies together to deliver
44:54
Speaker 1: better performance for clients made a lot of sense.
44:57
Speaker 2: That's really kind of intriguing. As opposed to saying fixed
45:00
Speaker 2: income public and private, equity public and private, you guys
45:04
Speaker 2: are using the divining line as public versus private. Obviously
45:09
Speaker 2: very different asset classes and different structures, so I kind
45:12
Speaker 2: of get a better sense of that structure. Tell us
45:16
Speaker 2: a little bit about what is the day in the
45:19
Speaker 2: life of Goldman Sachs, chief investment Officer of public Investing
45:24
Speaker 2: for the Asset Management Group. What does that look like?
45:27
Speaker 1: Yeah, so I think like a lot of investors, like Frankly,
45:30
Speaker 1: a lot of advisors, you know, I wake up every day,
45:34
Speaker 1: get in and the first thing I'm looking at is
45:36
Speaker 1: markets in the prior days worth of performance. Right, performance
45:41
Speaker 1: is job one for any investor, and so that's exactly
45:44
Speaker 1: what I'm kind of focusing my time. And then from
45:48
Speaker 1: there it's really going to go around three things that
45:51
Speaker 1: deliver performance over the long haul, which is people, process
45:55
Speaker 1: and platform.
45:56
Speaker 2: Say that again, people, process, platform, Okay.
45:59
Speaker 1: Got it? And people as obvious, your investors. Making sure
46:03
Speaker 1: you're checking in on them, investing in them, catching up
46:07
Speaker 1: with them on what they're focused on, what needs they have,
46:11
Speaker 1: what resources they need. Process. We're constantly doing performance and
46:16
Speaker 1: process reviews across our different strategies, and really the goal
46:19
Speaker 1: there is to make sure that our team members are
46:22
Speaker 1: learning from best practices across the entire platform, and that
46:26
Speaker 1: we're bringing the insights across not just public but public
46:31
Speaker 1: and private into our portfolios and our portfolio decision making.
46:37
Speaker 1: The final thing really goes back to that story around innovation,
46:42
Speaker 1: which is I don't think a lot of asset managers
46:45
Speaker 1: out there are like, oh, we have systems, We've outsourced
46:48
Speaker 1: our systems. That's a good way to fall behind the
46:51
Speaker 1: evolution in the marketplace. If you look at innovations like
46:55
Speaker 1: what's happening in AI. The only way to keep up
46:59
Speaker 1: and deliver strong performance going forward is going to be
47:03
Speaker 1: to be investing in your data and analytics, and that
47:06
Speaker 1: requires a scale and a focus that very few CIOs
47:11
Speaker 1: actually put in. And so from my perspective, you know,
47:15
Speaker 1: all those things come together in delivering strong performance. But
47:19
Speaker 1: but you know, I think the other dimension of this
47:23
Speaker 1: is that clients are looking for more than just a
47:25
Speaker 1: return number, right, They're increasing looking for customization so that
47:30
Speaker 1: the returns match up with their needs and that they're
47:34
Speaker 1: delivered in a tax efficient manner and delivered customized specifically
47:39
Speaker 1: for them. And so when it comes to direct indexing,
47:43
Speaker 1: you know, when it comes to a SMA of communis
47:47
Speaker 1: and taxable fixed income, those are things that we're able
47:50
Speaker 1: to deliver with the quality of institutional quality, portfolio construction
47:57
Speaker 1: and insight, but all the way down as I mentioned before,
48:01
Speaker 1: to one hundred thousand dollars minimum size, and we're able
48:05
Speaker 1: to kind of take all this knowledge, all this investment expertise,
48:11
Speaker 1: and really use it to solve client problems, which is
48:14
Speaker 1: the solutions dimension of our business.
48:17
Speaker 2: Really interesting. Your recent background was more credit and fixed income.
48:23
Speaker 2: Lier in your career a little more on the equity side.
48:26
Speaker 2: What's it like being responsible for the whole public investing side,
48:33
Speaker 2: especially given how much things have changed on the equity side.
48:37
Speaker 1: I got to say I have the best job in
48:39
Speaker 1: the world, right. I get to see every investment process,
48:43
Speaker 1: every investment decision. I get to interact with the smartest
48:47
Speaker 1: people that genuinely care about delivering performance to their clients
48:52
Speaker 1: and solving helping their clients solve their problems. Like every
48:55
Speaker 1: day I wake up and I can't believe how lucky
48:58
Speaker 1: I am to be able to walk in and learn
49:01
Speaker 1: something new from my investors every single day, And that, frankly,
49:06
Speaker 1: is one of the things that I think differentiates our organization.
49:09
Speaker 1: Every organization has smart people, but the density of smart
49:13
Speaker 1: people and their humility and willingness to learn from each
49:17
Speaker 1: other and willingness to teach other people and particularly newcomers.
49:22
Speaker 1: But even for me as a CIO, you know, one
49:25
Speaker 1: of the most senior people within the investment work. Every
49:28
Speaker 1: day I'm learning from my team.
49:30
Speaker 2: And we keep coming back to culture, which you talked
49:33
Speaker 2: about earlier. How important is culture towards those sort of values.
49:38
Speaker 1: Look, culture is foundational. You can't succeed without it. And
49:43
Speaker 1: every day we wake up we ask ourselves what we
49:46
Speaker 1: can be doing to improve our culture, to continue to
49:49
Speaker 1: invest in our culture and our people, because that's the
49:52
Speaker 1: only way we keep up. This is a competitive environment, right,
49:56
Speaker 1: It's one of the most competitive games in the world.
49:59
Speaker 1: Is markets, and so if you're not always training to
50:04
Speaker 1: get better, you're going to fall behind. And we've seen
50:07
Speaker 1: plenty of players do that, their performance WANs and you know,
50:11
Speaker 1: suddenly you wake up they've been gobbled up by someone else,
50:14
Speaker 1: or you know, they're out of business.
50:17
Speaker 2: So we mentioned that your focus is on public investing,
50:21
Speaker 2: but Goldman has a very substantial private investing side where
50:26
Speaker 2: it's either private credit or private equity or a lot
50:31
Speaker 2: of different things that on the equity side as well
50:33
Speaker 2: on that are privates. How how do you interact with
50:37
Speaker 2: your peers on the private side and how does that
50:41
Speaker 2: integrate into Goldman sax asset management in total.
50:44
Speaker 1: Yeah, So one of the cores to our culture, core
50:46
Speaker 1: values of our culture is around collaboration and so on
50:50
Speaker 1: a regular basis, i e. You know, weekly and monthly,
50:55
Speaker 1: we have collaboration across public and private investing where we
50:59
Speaker 1: share again you know, with appropriate governance around it, so
51:04
Speaker 1: that we're not sharing things we're not supposed to, but
51:06
Speaker 1: we share insights around what's going on in markets for
51:11
Speaker 1: the benefit and broader benefit of our investment teams and
51:16
Speaker 1: ultimately our clients that were investing on behalf of So.
51:21
Speaker 2: I would not be doing my job if I didn't
51:24
Speaker 2: ask you a few questions about stocks and bonds, and
51:27
Speaker 2: especially some quotes of yours. One thing that leapt out
51:32
Speaker 2: you had said late last year, I think twenty twenty
51:36
Speaker 2: four is going to be the year of the bonds.
51:38
Speaker 2: Explain sure.
51:39
Speaker 1: So we had seen late late last year really started.
51:44
Speaker 1: I think that quote was from either late October or
51:48
Speaker 1: early November. We had seen kind of a steady pace
51:52
Speaker 1: of inflation coming down, so the FED hikes were working,
51:55
Speaker 1: the economy was normalizing, and we felt that rates were
51:58
Speaker 1: too high relative to what was necessary to continue to
52:02
Speaker 1: see inflation come down. I think in six weeks of
52:06
Speaker 1: twenty twenty three we ended up seeing the rally that
52:09
Speaker 1: we were hoping to see in twenty twenty four.
52:11
Speaker 2: That was huge, and it was like the last couple
52:14
Speaker 2: of months of the year, just a giant one hundred
52:17
Speaker 2: bases point move in yields, which is kind of unusual,
52:21
Speaker 2: isn't it.
52:22
Speaker 1: It's a reminder of when the coast is clear, everyone's
52:26
Speaker 1: going to go for yield and it's going to be
52:28
Speaker 1: too late. And so you know, since then, we've seen
52:32
Speaker 1: kind of the data revert a bit. Growth has been strong,
52:37
Speaker 1: which is good, right. We want growth to be strong,
52:40
Speaker 1: you know, for our overall portfolio. But inflation has ticked
52:44
Speaker 1: up a little bit, so it broke its its nearer
52:48
Speaker 1: term pathy. Every data point that we end up seeing
52:51
Speaker 1: kind of confirms that the long term trend is still
52:55
Speaker 1: towards inflation normalizing. And so, you know, our our ethos,
53:00
Speaker 1: our focus has been, Look, you're going to get these
53:03
Speaker 1: periods of time of retlacement. You want to make sure
53:07
Speaker 1: you have room to add into those because you don't
53:10
Speaker 1: want to miss it, because you know when inflation turns,
53:13
Speaker 1: it's going to turn quickly and everyone is going to
53:16
Speaker 1: jump in.
53:17
Speaker 2: That kind of reminds me of another quote of yours.
53:19
Speaker 2: The market still has runway. Explain what you mean by that?
53:23
Speaker 2: How much runway is left?
53:25
Speaker 1: We have been watching growth very carefully. As I mentioned,
53:29
Speaker 1: central banks outside the US are actually becoming more accommodative
53:33
Speaker 1: with the exception of Japan, and underlying growth is actually
53:37
Speaker 1: looking pretty good and diverse. Right. Economies are growing and
53:41
Speaker 1: companies are being very disciplined on the cost side, which
53:44
Speaker 1: is leading to earnings growth that's out outpacing kind of
53:47
Speaker 1: nominal growth. And so for those reasons, we do think that,
53:52
Speaker 1: you know, equity markets have continued runway. Having said that,
53:56
Speaker 1: you know, the other thing we have realized is that
53:58
Speaker 1: parts of the market, you know, particularly around technology and AI,
54:03
Speaker 1: have run up so fast right that the risk return
54:06
Speaker 1: is setting up for potential for corrections.
54:11
Speaker 2: And so they're definitely ahead of themselves.
54:14
Speaker 1: And so there are these long term trends in places
54:17
Speaker 1: like Japan and India, and you know, a lot of
54:21
Speaker 1: value even in other parts of the market that we
54:24
Speaker 1: think represent you know, nearer and longer term opportunities to
54:28
Speaker 1: diversify your portfolio. And and so we one of the
54:33
Speaker 1: things we think a lot about is when something has
54:36
Speaker 1: gotten overdone, when it's crowded, right, how do you tilt
54:39
Speaker 1: out of that area and into places that are going
54:44
Speaker 1: to work for you either in the short term in
54:46
Speaker 1: the long term. And we see that as material opportunities,
54:51
Speaker 1: particularly in India and Japan that are going to be
54:54
Speaker 1: long term and even more broadly in the industrial space.
54:59
Speaker 1: When it comes to to global equities.
55:01
Speaker 2: And let's talk about an area that's had some challenges.
55:06
Speaker 2: Some of the Treasury auctions have been pretty mediocre over
55:09
Speaker 2: the past couple of sessions. You mentioned, hey, at a
55:13
Speaker 2: certain point auction buyers just you know, shrug their shoulders
55:17
Speaker 2: at the whole process. Tell us you're thinking about what's
55:20
Speaker 2: going on with treasury auctions.
55:22
Speaker 1: Yeah, so I think the comment was more around, and
55:26
Speaker 1: it probably came from the fall around. We will get
55:30
Speaker 1: these times. The Treasury has to auction off a lot. Right,
55:34
Speaker 1: the deficit is quite large and structural, and so to
55:39
Speaker 1: the extent the curve doesn't represent value, it is going
55:43
Speaker 1: to cause auctions to tail right. This is not going
55:47
Speaker 1: to be the first time that we've seen it, and
55:50
Speaker 1: it's really critical for both the US government right US
55:56
Speaker 1: Treasury to focus on kind of managing its its liability side,
56:01
Speaker 1: as well as investors to be thinking about whether there's
56:05
Speaker 1: good value or not. I think that, you know, a
56:08
Speaker 1: lot of investors are very concerned about the long term
56:11
Speaker 1: stability of running deficits at the pace that we are,
56:16
Speaker 1: and that's going to require political solutions and choices over
56:21
Speaker 1: the coming years. A lot of this is tied to demographics,
56:24
Speaker 1: social security, you know, medicare you know, and frankly, these
56:29
Speaker 1: were things that we were looking at thirty forty years
56:32
Speaker 1: ago when I was in school and are finally taking place,
56:37
Speaker 1: which is we're having the baby boomers retire and the
56:41
Speaker 1: fiscal you know, costs of that are now have to
56:45
Speaker 1: get charged the economy, and so I think in the
56:49
Speaker 1: near term, you know, we're in pretty good shape because
56:52
Speaker 1: duration does represent value on a real basis, right, and
56:57
Speaker 1: we are growing, which is a big big deal. To
57:00
Speaker 1: grow nominally actually is a fantastic thing for debt load.
57:04
Speaker 1: But it's something that we're going to have to be
57:07
Speaker 1: very focused on. As debt investors. We talk a lot
57:10
Speaker 1: about within our fixed income or debt sustainability and the
57:15
Speaker 1: types of things that would worry us.
57:17
Speaker 2: So when rates were zero, nobody really seemed to be
57:20
Speaker 2: worrying too much about debt. You had the usual suspects
57:24
Speaker 2: come out and say, oh, debt's unsustainable, but they've been
57:28
Speaker 2: saying that for forever. Five hundred and twenty five basis
57:32
Speaker 2: points higher. Suddenly, hey, the interest income on this is substantial.
57:37
Speaker 2: Is there any pressure on the Fed despite a slight
57:41
Speaker 2: uptick in inflation, to say, hey, we got to bring
57:45
Speaker 2: rates down a little bit just to make the fiscal
57:48
Speaker 2: side more sustainable or is that just not part of
57:51
Speaker 2: their charge.
57:51
Speaker 1: I don't think that's part of their charge. They do
57:54
Speaker 1: look to liquidity and treasury markets, which is absolutely critical.
57:58
Speaker 1: But I think with this level of debt and this
58:02
Speaker 1: cost of debt, if we don't grow, if growth slows down,
58:06
Speaker 1: it can slow down really hard, and that can cascade
58:09
Speaker 1: into a real problem for the FED, which is employment, right,
58:13
Speaker 1: And so you know, I think the FED is watching
58:16
Speaker 1: very carefully the evolution of some of the debt stacks
58:20
Speaker 1: where you know, in commercial real estate, let's say, where
58:24
Speaker 1: rates are very high and it's impacting the value of
58:27
Speaker 1: that commercial real estate as it sits in the banking
58:29
Speaker 1: system and other financial institutions. And were that to become
58:34
Speaker 1: even more problematic and spill into growth and you know,
58:39
Speaker 1: cause deflation, then I think you would see or disinflation.
58:44
Speaker 1: I think you would see the FED moved pretty rapidly.
58:48
Speaker 2: Let me ask you one curveball question before we get
58:51
Speaker 2: to our favorite questions, which is you're on the board
58:54
Speaker 2: of directors for Minds Matter, a nonprofit that focuses on
58:59
Speaker 2: hell being to prepare young people from low income families
59:03
Speaker 2: to become ready for college. Tell us a little bit
59:06
Speaker 2: about the organization and how you got involved with them.
59:09
Speaker 1: I got involved with Minds Matter because I followed a
59:13
Speaker 1: girl that I really liked she was volunteering every Saturday.
59:18
Speaker 1: And this May is going to be the thirtieth anniversary
59:22
Speaker 1: of me being married to that young woman. So, you know,
59:26
Speaker 1: my wife introduced me to minds Matter. I've always cared
59:30
Speaker 1: about education as a path for people to be able
59:33
Speaker 1: to better themselves. And you know, Minds Matter serves over
59:38
Speaker 1: one thousand students in fourteen cities across the country. It
59:43
Speaker 1: helps those students get into college, it helps them believe
59:46
Speaker 1: that they belong in college and succeed in college, and
59:50
Speaker 1: then it helps them post college build the network that
59:54
Speaker 1: they need to to succeed in life.
59:56
Speaker 2: Huh. Really really interesting. All right, let's jump to our
59:59
Speaker 2: favorite questions that we ask all of our guests, starting
1:00:02
Speaker 2: with who were some of your mentors who helped shape
1:00:06
Speaker 2: your career?
1:00:07
Speaker 1: Yeah, so three that stand out to me early in
1:00:11
Speaker 1: my career. Doctor Jeremy Siegel at the Wharton School, who
1:00:16
Speaker 1: I worked for three years, was just fantastic in terms
1:00:21
Speaker 1: of educating me, in terms of frankly feeding me with
1:00:24
Speaker 1: the pay he gave me. And you couldn't find a
1:00:29
Speaker 1: better person to learn about markets and macro than doctor Siegel.
1:00:37
Speaker 2: And he's probably the person that got this inflation cycle
1:00:42
Speaker 2: more right than anybody else out there. When the first
1:00:45
Speaker 2: Cares Act passed, he was the first person saying, you
1:00:48
Speaker 2: realize how inflationary this fiscal stimulus is going to be.
1:00:52
Speaker 2: And everybody looked at him like he had two heads.
1:00:55
Speaker 2: Turned out to be dead right.
1:00:56
Speaker 1: He's such a fantastic individual. I own a lot of
1:01:02
Speaker 1: my career of success, so others. The two others I
1:01:05
Speaker 1: would call out Eddie Raja, who is my first trading
1:01:08
Speaker 1: boss ex Solomon Brothers trader uh is out there in
1:01:12
Speaker 1: Duncan Hennis who ran markets at at Banker's Trust, ended
1:01:18
Speaker 1: up being one of the CIOs at Soros Group, you
1:01:21
Speaker 1: know three kind of really early mentors, and then more
1:01:24
Speaker 1: more recently you know at and my former employer was
1:01:29
Speaker 1: Peter Kraus for giving me the opportunity. Learned a lot
1:01:32
Speaker 1: about leadership from from Peter as well as Doug. People's
1:01:36
Speaker 1: learned a lot about investing and and asset management from Doug.
1:01:41
Speaker 1: So really really appreciative of of There's a long, much
1:01:46
Speaker 1: longer list of people that I would love to shout
1:01:48
Speaker 1: out because I've learned from pretty much everyone I've ever
1:01:53
Speaker 1: worked for.
1:01:53
Speaker 2: So let's talk about books. What are some of your favorites.
1:01:56
Speaker 2: What are you reading right now?
1:01:57
Speaker 1: I would say I read a lot outside of industry,
1:02:01
Speaker 1: but things that are going on and then I love
1:02:05
Speaker 1: me a good like you know, Navy seal that is
1:02:08
Speaker 1: going and taking down the terrorists and defending a country
1:02:11
Speaker 1: kind of book. So in that genre, I read a
1:02:14
Speaker 1: lot about Brad Taylor, Brad thor, Vince Flynn. You know,
1:02:19
Speaker 1: give me anything that's like a techno thriller and I'm
1:02:22
Speaker 1: there when it comes to reading for content. One of
1:02:27
Speaker 1: my favorite books I've read kind of more recently in
1:02:30
Speaker 1: the last twelve months has been Chip War. I think
1:02:33
Speaker 1: the history of the chip is amazing. The gene was
1:02:36
Speaker 1: like eye opening around you how genetics really works. And
1:02:40
Speaker 1: there are a lot of There are a lot of
1:02:43
Speaker 1: implications to investing and the way you design investing systems,
1:02:47
Speaker 1: particularly with AI. The Hard Thing About Hard Things by
1:02:51
Speaker 1: Horowitz is a great kind of leadership and startup book
1:02:55
Speaker 1: and how to think about kind of running an organization.
1:02:59
Speaker 1: And I'd also throw in that the latest Elon Muss
1:03:02
Speaker 1: book is is fantastic. It's a really interesting read, kind
1:03:07
Speaker 1: of an interesting personal dissection, but a great read around
1:03:11
Speaker 1: how to think about value engineering in a physical sense,
1:03:15
Speaker 1: not in a computer sense. So so those are those
1:03:19
Speaker 1: are a couple that, uh, that's best.
1:03:22
Speaker 2: And our final two questions, what sort of advice would
1:03:26
Speaker 2: you give to a recent college grad interested in a
1:03:29
Speaker 2: career in either investing or asset management.
1:03:32
Speaker 1: Yeah, so the first thing I tell you is read
1:03:36
Speaker 1: voraciously about markets and then build yourself a model portfolio,
1:03:40
Speaker 1: because the best way to learn is to actually be
1:03:43
Speaker 1: doing things. To use that to figure out your style,
1:03:48
Speaker 1: and from a style investing style perspective, read about other investors.
1:03:55
Speaker 1: You know, every investor has a tail of how they've
1:03:57
Speaker 1: lost money and the lessons they've learned through that. It's
1:04:01
Speaker 1: a lot easier to learn from someone else's mistakes than
1:04:04
Speaker 1: from your own. You'll make plenty of your own, but like,
1:04:07
Speaker 1: make sure you're reading about how others failed and really
1:04:11
Speaker 1: try to get to the core of it, not the
1:04:13
Speaker 1: the kind of polished version. And then the third thing
1:04:17
Speaker 1: I would recommend them do is be process oriented, right,
1:04:22
Speaker 1: build a process, say, you be really conscious about how
1:04:26
Speaker 1: you're making decisions and why you're making decisions and what
1:04:29
Speaker 1: is going into each of those decisions.
1:04:32
Speaker 2: And our final question, what do you know about the
1:04:35
Speaker 2: world of investing in asset management today you wish you
1:04:39
Speaker 2: knew thirty or so years ago when you were first
1:04:42
Speaker 2: getting started.
1:04:42
Speaker 1: I'd leave you with kind of three observations that strike
1:04:47
Speaker 1: me or you know that that have really kind of
1:04:49
Speaker 1: accumulated over the last thirty years. So three things you know.
1:04:54
Speaker 1: The first is discipline works over smarts, So the smartest
1:04:58
Speaker 1: people loose the most money. You know, the most disciplined
1:05:02
Speaker 1: people actually generate strong returns over time. The second thing is,
1:05:08
Speaker 1: when in doubt, do what works over time. Don't try
1:05:11
Speaker 1: to time the market, just you know, be humble in
1:05:14
Speaker 1: what you understand about what's going on, and then do
1:05:18
Speaker 1: what works over time, because that's the highest likelihood you
1:05:22
Speaker 1: are to deliver returns. And then the final thing I
1:05:26
Speaker 1: wish I had learned this one earlier in life, is that,
1:05:30
Speaker 1: particularly as an individual investor, that if you don't think
1:05:35
Speaker 1: about after tax returns when you're making investment decisions, you're
1:05:40
Speaker 1: missing the whole game. Is the highest hit ratio, the
1:05:44
Speaker 1: lowest cost that you will ever face, is to really
1:05:49
Speaker 1: align your investing approach to be low, to be tax efficient.
1:05:55
Speaker 1: And I think your taxes change over time, particularly given
1:05:59
Speaker 1: the fiscal situation. If you're earning good money, your tax
1:06:04
Speaker 1: rates are likely to rise, right and you should be
1:06:08
Speaker 1: happy to pay them. That you're successful enough to pay them,
1:06:12
Speaker 1: but you know, make sure you're investing your money through
1:06:16
Speaker 1: a tax efficient lens.
1:06:18
Speaker 2: Huh really quite fascinating, A cise, thank you for being
1:06:21
Speaker 2: so generous with your time. We have been speaking with
1:06:25
Speaker 2: A c Shah Cohaed and CIO of public Investing at
1:06:30
Speaker 2: Goldman Sachs's Asset Management. If you enjoy this conversation, well
1:06:34
Speaker 2: check out any of the previous five hundred or so
1:06:37
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1:06:40
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1:06:44
Speaker 2: find your favorite podcasts, check out my new podcast at
1:06:49
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1:06:54
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1:06:58
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1:07:01
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1:07:05
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1:07:09
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1:07:13
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