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Elizabeth Burton on Liquidity in Pension Funds · Masters in Business

• 0:02
  Speaker 1: This is Master's in Business with Barry rid Holds on
• 0:06
  Speaker 1: Bloomberg Radio. This week on the podcast, I have an
• 0:11
  Speaker 1: extra special guest. Elizabeth Burton is Goldman Sachs's Assets Management's
• 0:17
  Speaker 1: client investment strategist. Previously, she was chief investment officer at
• 0:22
  Speaker 1: various state pension funds, including Maryland and Hawaii. I found
• 0:27
  Speaker 1: this to be really an intriguing conversation with somebody whose
• 0:33
  Speaker 1: investment charge is unconstrained. She can go anywhere do anything.
• 0:38
  Speaker 1: She provides advice to institutions and high net worth investors
• 0:44
  Speaker 1: that isn't limited by the typical buckets or lines or
• 0:51
  Speaker 1: structure that you so often see. Her job is portfolio
• 0:56
  Speaker 1: and product solutions, and that means she could go anywhere
• 0:59
  Speaker 1: in the world than do anything. I thought this conversation
• 1:02
  Speaker 1: was absolutely fascinating, and I think you will also with
• 1:06
  Speaker 1: no further ado, Goman Sachs Asset Managements. Elizabeth Burton, Hi Arry,
• 1:12
  Speaker 1: thank you for having me. That is quite a resume.
• 1:15
  Speaker 1: Let's start a little bit before we get to what
• 1:18
  Speaker 1: you do with Goldman Sachs. Let's talk about your background,
• 1:21
  Speaker 1: which is really kind of fascinating. First, you have a
• 1:24
  Speaker 1: degree in French, how does that lead to a group
• 1:27
  Speaker 1: to a focus on investment management?
• 1:30
  Speaker 2: I do have a degree in French, A little bit
• 1:32
  Speaker 2: of a cheat there, unless you consider English majors cheating
• 1:35
  Speaker 2: as well who speak English. But my grandmother's from Normandy,
• 1:39
  Speaker 2: and so I've been speaking French since like as long
• 1:42
  Speaker 2: as I can remember, and I love French literature. I
• 1:46
  Speaker 2: actually have some relationship far far away to Jules Vernen.
• 1:49
  Speaker 2: So how does that relate to finance?
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  Speaker 3: It doesn't. But my parents told me college is the
• 1:55
  Speaker 3: last time you can.
• 1:56
  Speaker 2: Study in our dime anything you would like, and so
• 2:00
  Speaker 2: they were both in finance, and I decided that must
• 2:04
  Speaker 2: be the absolute last thing I ever wanted to do.
• 2:06
  Speaker 1: So University of Chicago Booth School of Business. Was this
• 2:10
  Speaker 1: just an inevitable, unavoidable thing your parents come from that
• 2:15
  Speaker 1: it seems like you're getting a lot of your focus
• 2:18
  Speaker 1: from your genetics. What led to Booth?
• 2:21
  Speaker 2: Well, so I will this will be the first time
• 2:24
  Speaker 2: I'm telling honestly why I went to Booth Two reasons.
• 2:27
  Speaker 2: One one is true, and I've always said is that
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  Speaker 2: I wanted people to stop asking if I could do math,
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  Speaker 2: And no one asked me if I can do math anymore?
• 2:33
  Speaker 2: With a degree from both, particularly in econometrics and statistics.
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  Speaker 2: But the other reason was Booth rejected me an undergrad.
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  Speaker 1: Oh really, yes, I'll show that of Chicago, so right.
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  Speaker 2: And then the third and final reason was my dad
• 2:47
  Speaker 2: got his PhD in econ from Northwestern, but he's so ancient.
• 2:51
  Speaker 2: Back then it was taught at the University of Chicago,
• 2:53
  Speaker 2: and so I.
• 2:54
  Speaker 1: Wait, so Northwestern grad students took classes at you see.
• 2:59
  Speaker 2: At you Chicago, and my dad lived in the International House.
• 3:01
  Speaker 2: He's from Houston, so I don't know how he pulled
• 3:03
  Speaker 2: that one.
• 3:04
  Speaker 1: Well, it's really like a different a different kind of
• 3:07
  Speaker 1: humidity makes it feel in Houston, makes it feel like
• 3:10
  Speaker 1: you're in the tropics. So it's close totally. That's very amusing.
• 3:14
  Speaker 1: So people really ask you, if you take French, you
• 3:19
  Speaker 1: do math? Is that like still the sort of thing
• 3:23
  Speaker 1: that we ask people.
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  Speaker 2: I think it's because I went into risk management straight
• 3:26
  Speaker 2: out of school, on the risk side of fund of
• 3:30
  Speaker 2: funds and various other industries, and without a formal degree
• 3:35
  Speaker 2: in math and statistics. I think there was some hesitation
• 3:37
  Speaker 2: on whether or not it was capable of doing it,
• 3:39
  Speaker 2: which which may be fair, And I wanted to bolster
• 3:42
  Speaker 2: my resume a little bit away from politics and French
• 3:45
  Speaker 2: and so I thought, what better places to go?
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  Speaker 3: And you know it might hurt a little bit.
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  Speaker 2: Chicago's a pretty good place to learn some math.
• 3:51
  Speaker 1: And flance, I'll say for sure. So how do you
• 3:55
  Speaker 1: go from coming out of Booth School in University of
• 3:59
  Speaker 1: Chicago to getting named CIO magazines top forty under forty.
• 4:04
  Speaker 2: So that was kind of a meandering path a little bit.
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  Speaker 2: What ended up happening was I met my husband right
• 4:09
  Speaker 2: before I went to business school.
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  Speaker 3: He was living in Maryland.
• 4:12
  Speaker 2: My boyfriend during business school and he was living in Maryland,
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  Speaker 2: and so after school, I decided I should probably move there,
• 4:19
  Speaker 2: not back to New York, not back to California. And
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  Speaker 2: the hedge funds down there looked like Post made off
• 4:25
  Speaker 2: post GFC that they were really.
• 4:27
  Speaker 3: Going to struggle. So I had to switch industries.
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  Speaker 2: So I actually went to work in M and A
• 4:30
  Speaker 2: in payments, and I enjoyed that.
• 4:34
  Speaker 3: After three years, I decided I don't.
• 4:36
  Speaker 2: Love payments enough to continue to do consulting in M
• 4:38
  Speaker 2: and A and payments, so I actually went and worked
• 4:41
  Speaker 2: in economics. I was an econometrician. And then when my
• 4:44
  Speaker 2: second child was born, I needed a little bit of
• 4:48
  Speaker 2: a different lifestyle. I had two kids, they were both young.
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  Speaker 2: My father had worked with public pensions and he said,
• 4:55
  Speaker 2: this is a pretty good place to be in finance
• 4:56
  Speaker 2: if you want to raise kids. It's a little bit better,
• 4:59
  Speaker 2: better of a lifestyle. Well, so I applied to Maryland
• 5:03
  Speaker 2: State Retirement. I actually think I interviewed there a couple
• 5:07
  Speaker 2: of days after my child was born because they were
• 5:09
  Speaker 2: cutting off the application. And I luckily, thankfully got the job.
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  Speaker 3: Got to work for one.
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  Speaker 2: Of the most amazing CIOs in the businesses and a
• 5:16
  Speaker 2: close friend, Andy Palmer. But how I got the award,
• 5:18
  Speaker 2: I'm not sure. I think, you know, I was in
• 5:20
  Speaker 2: my main thirties at the time, and I think I
• 5:24
  Speaker 2: was a little bit outspoken. And I also believe that
• 5:28
  Speaker 2: I have never really believed in bucketing very much in investments,
• 5:32
  Speaker 2: and so I often look at investments in my portfolio
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  Speaker 2: that may be different from what most other people put
• 5:38
  Speaker 2: in their portfolios.
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  Speaker 1: So I have like a half a dozen questions that
• 5:43
  Speaker 1: has led me to But let's start with bucketing, or
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  Speaker 1: what some people call silos, different types of investing. When
• 5:50
  Speaker 1: you say you haven't been much for bucketing. Tell us
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  Speaker 1: what you mean by that.
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  Speaker 3: Well, let me give you an example.
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  Speaker 2: I don't know if you're in the market for a
• 5:57
  Speaker 2: house currently, but let's say you're real at her goes
• 6:00
  Speaker 2: and says, I talk to you, and you say I
• 6:03
  Speaker 2: love Cape CODs, And he's like, okay, okay, I've also
• 6:06
  Speaker 2: got this amazing condo that overlooks all of Central Park
• 6:09
  Speaker 2: and it's only a one million dollars, right, or it's
• 6:12
  Speaker 2: only two hundred thousand dollars. And you say, wow, two
• 6:15
  Speaker 2: hundred thousand dollars for a condo overlooking Central Park. That
• 6:18
  Speaker 2: sounds great. But I only have spots in my portfolio
• 6:21
  Speaker 2: for a Cape Cod. How ridiculous is that?
• 6:23
  Speaker 1: Right?
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  Speaker 2: So it's a problem that institutions often suffer from that
• 6:27
  Speaker 2: Retail investors do not like you and me, we probably
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  Speaker 2: don't have this bucketing issue. And so I always felt
• 6:34
  Speaker 2: an institutional management that we were hamstrung by these bucketing
• 6:37
  Speaker 2: issues because we weren't able to invest in things because
• 6:40
  Speaker 2: of these prescribed rules, which I'm not saying are bad,
• 6:43
  Speaker 2: but they can be limiting. Anytime you have a rule,
• 6:46
  Speaker 2: you limit your availability of option.
• 6:49
  Speaker 1: So let's stay with this. So when I think of bucketing.
• 6:54
  Speaker 1: I think of a large institution that says, well, we're
• 6:58
  Speaker 1: gonna we like this space, pick a space, private credit,
• 7:03
  Speaker 1: venture capital, real estate doesn't matter, and we want to
• 7:06
  Speaker 1: allocate ten percent of our portfolio to that particular space.
• 7:12
  Speaker 1: What you're suggesting is regardless of whether they're fantastic deals
• 7:17
  Speaker 1: elsewhere or this space is pricey. You think that that
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  Speaker 1: sort of bucket very much hamstrings the CIO to make
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  Speaker 1: the best decisions.
• 7:29
  Speaker 2: I believe it can. I believe it can save you
• 7:32
  Speaker 2: from making poor decisions outside of your mandate. But here's
• 7:36
  Speaker 2: a good example that's come up in recent years. Real
• 7:38
  Speaker 2: estate that has been something in recent years that is
• 7:41
  Speaker 2: something that we're seeing in institutional portfolios. So does that
• 7:44
  Speaker 2: go in real estate or does that go in debt?
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  Speaker 3: It can be a tricky problem.
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  Speaker 1: Well, it depends on how it's financed.
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  Speaker 3: It could It.
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  Speaker 2: Could also depend on the bogie or the target return
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  Speaker 2: for either of the If the person managing those two
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  Speaker 2: portfolios are different, they may have different objectives, so it
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  Speaker 2: may slip the cracks even though it's a good investment.
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  Speaker 2: There's also some sort of some hedge fund structures that
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  Speaker 2: have private equity, like investments. If the private equity team
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  Speaker 2: doesn't feel that the return.
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  Speaker 3: Is high enough, they will pass.
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  Speaker 2: But if the hedge fund team feels like it has
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  Speaker 2: too high of inequity beta, right, they may pass on that.
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  Speaker 3: So you may miss.
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  Speaker 2: Out on a good investment. So I always try to
• 8:20
  Speaker 2: find a way to not miss out on those investments. Plus,
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  Speaker 2: often those investments are some of the better investments because
• 8:26
  Speaker 2: a lot of people have these constraints, right, so there's
• 8:29
  Speaker 2: not as much capital flying flying in there, and when
• 8:31
  Speaker 2: you have limited capital chasing you know these really amazing deals,
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  Speaker 2: you can often earn a higher return.
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  Speaker 1: So before you said perhaps it was because you were
• 8:40
  Speaker 1: outspoken and I was going to say, how do people
• 8:43
  Speaker 1: work in public pensions? Not spoken, but I get the
• 8:47
  Speaker 1: sense of what you're saying. You're pushing back at established
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  Speaker 1: assumptions of investing, that we can create these broad categories
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  Speaker 1: regardless of whether it helps our performance or not. In fact,
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  Speaker 1: it sounds like you think these rigid rules get in
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  Speaker 1: the way of good investors making good decisions.
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  Speaker 3: I think sometimes.
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  Speaker 2: But you could also take that and apply it to
• 9:13
  Speaker 2: a company, right, So you could say that if you
• 9:17
  Speaker 2: have a company that has people working there for twenty
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  Speaker 2: five years. They all have seen the same thing for
• 9:21
  Speaker 2: twenty five years. When you get one person that comes
• 9:23
  Speaker 2: in and has a year of experience in that industry,
• 9:26
  Speaker 2: they're going to bring a new vision to it. And
• 9:28
  Speaker 2: it may be wrong, but there might be parts of.
• 9:30
  Speaker 3: That that are really interesting.
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  Speaker 2: And I feel that because I was only there for
• 9:33
  Speaker 2: a year when I won that award, there might have
• 9:35
  Speaker 2: been flaws in my argument. But because I hadn't grown
• 9:38
  Speaker 2: up in the public pension spase, I had a different
• 9:40
  Speaker 2: perspective of what might work, and that's what I applied.
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  Speaker 1: Right, So not only diversity as we tend to think
• 9:47
  Speaker 1: of it broadly, but diversity of experience, diversity of ideas,
• 9:50
  Speaker 1: just different ways of looking at things. So let's talk
• 9:53
  Speaker 1: about your prior experience. You worked at a South African
• 9:57
  Speaker 1: based hedge funds or fund of funds.
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  Speaker 2: But fund of funds, and they did have an F
• 10:02
  Speaker 2: three product as well, if you can believe it, a
• 10:04
  Speaker 2: fund of fun to funds.
• 10:05
  Speaker 1: Oh so that's fun to fun squared. Tell us about
• 10:10
  Speaker 1: that experience. Were you actually in South Africa? Are you
• 10:12
  Speaker 1: working in the States.
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  Speaker 3: I was working.
• 10:15
  Speaker 2: So they had four offices, one in Switzerland, one in Johannesburg,
• 10:20
  Speaker 2: one in Cape Town, and one in New York. And
• 10:22
  Speaker 2: so the New York team was the Diligence team, and
• 10:26
  Speaker 2: we had a couple of products. I had originally started
• 10:28
  Speaker 2: out on the multi strategy product. I had gone to
• 10:31
  Speaker 2: work there because I'd previously worked in mortgages, in mortgage backs,
• 10:34
  Speaker 2: and as you know, that was around seven and eight
• 10:37
  Speaker 2: tricky time.
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  Speaker 3: Wanted to diversify this.
• 10:39
  Speaker 1: Something happened, Something happened.
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  Speaker 2: So I wanted to try other strategies, and multi strat
• 10:45
  Speaker 2: sounded like a good place to learn about a bunch
• 10:47
  Speaker 2: of different types of strategies. I was really interested in
• 10:49
  Speaker 2: hedge funds. Our clientele was mostly x US, almost exclusively
• 10:54
  Speaker 2: x US, and it was great.
• 10:57
  Speaker 3: It was the best part about that job.
• 10:58
  Speaker 2: Actually, it wasn't even the investing and the meeting funds.
• 11:01
  Speaker 2: It was actually that I worked on a team across
• 11:03
  Speaker 2: multiple continents and like just trying to stay in touch
• 11:06
  Speaker 2: and trying to work together on this portfolio and coordinate meetings.
• 11:10
  Speaker 2: And we all had different backgrounds and different investment ideas
• 11:13
  Speaker 2: and different clients. Like US clients are very different from
• 11:16
  Speaker 2: clients in other countries, so it was really a unique experience.
• 11:19
  Speaker 2: I still keep in touch with them. I eventually moved
• 11:22
  Speaker 2: over to the global macro CTA type side of the business,
• 11:26
  Speaker 2: a little bit of a diversifier, which is funny because
• 11:28
  Speaker 2: later at Maryland and then Hawaii, that was a big
• 11:32
  Speaker 2: part of our investment strategy was investing in macro or
• 11:35
  Speaker 2: CTA and trend type funds.
• 11:37
  Speaker 3: So it was a great learning ground for me.
• 11:39
  Speaker 1: Was there a lot of travel? You were back and
• 11:41
  Speaker 1: forth at Geneva or London or Johannesburg, Zurich.
• 11:45
  Speaker 2: Johannesburg and Cape Town the majority of the trips, and
• 11:50
  Speaker 2: we tried to go a couple times a year to
• 11:52
  Speaker 2: each of the different offices. They would come here as well,
• 11:57
  Speaker 2: but at that point I was still fairly young, and
• 11:59
  Speaker 2: it wasn't as much client faxing x US, not as
• 12:02
  Speaker 2: much explaining, and because I was on the diligence team,
• 12:04
  Speaker 2: so more research base.
• 12:07
  Speaker 1: That flight to South Africa is thy.
• 12:10
  Speaker 2: Two hours with a layover in Dakar, and I remember
• 12:12
  Speaker 2: before the airline rules, I got stuck on the tarmac
• 12:15
  Speaker 2: once for five hours.
• 12:16
  Speaker 1: Wow, no fun. So you end up going from the
• 12:22
  Speaker 1: fund of funds to pension funds and what was first
• 12:28
  Speaker 1: Maryland or why so Maryland's first.
• 12:32
  Speaker 2: I had two brief jobs between the Fund of Funds
• 12:36
  Speaker 2: in Maryland and business school in between there, Maryland was first,
• 12:39
  Speaker 2: and I never intended to leave Maryland. It was one
• 12:41
  Speaker 2: of my favorite jobs. Probably my current job is probably
• 12:43
  Speaker 2: my favorite job, but that is a very close, good safe.
• 12:48
  Speaker 3: For very similar reasons.
• 12:49
  Speaker 1: Actually, But well, tell us why why was Maryland and
• 12:53
  Speaker 1: Goldman your favorite jobs?
• 12:55
  Speaker 2: I think number one the team my team at Goldman
• 12:58
  Speaker 2: and the broader team even and the team at Maryland
• 13:01
  Speaker 2: are some of my favorite people. Just really wonderful, smart,
• 13:05
  Speaker 2: fun human beings to work with with a very clear mission.
• 13:08
  Speaker 2: I also really like the access talking to really smart
• 13:12
  Speaker 2: people at Golman. It's the internal access, talking to the
• 13:14
  Speaker 2: traders and the pms and the CIOs. And we have
• 13:17
  Speaker 2: so many offices across the world that are.
• 13:19
  Speaker 1: A unique vision of what's going on in the world, right,
• 13:21
  Speaker 1: I mean, I have to think the intelligence that comes
• 13:25
  Speaker 1: from that team in what they see everywhere has to
• 13:30
  Speaker 1: be incomparable. It's just about anything else.
• 13:33
  Speaker 3: It is amazing.
• 13:34
  Speaker 2: I sometimes wonder if I would have rather having started
• 13:37
  Speaker 2: with this experience and then got what I would have
• 13:39
  Speaker 2: been better at Maryland having known what I know now,
• 13:42
  Speaker 2: or am I better now having learned how things work
• 13:44
  Speaker 2: on the clients. So I go back and forth. But
• 13:47
  Speaker 2: I'm lucky to have had both. And at Maryland it
• 13:50
  Speaker 2: was a giant pool capital fifty five billion back then.
• 13:53
  Speaker 2: I'm not sure exactly what it is now. But you
• 13:55
  Speaker 2: could talk to pretty much whoever you wanted to talk
• 13:57
  Speaker 2: to if you had a question. If you had a
• 13:58
  Speaker 2: question on high yield, It's not conceivable one day you
• 14:01
  Speaker 2: might get to talk to Milkin about it, and that
• 14:04
  Speaker 2: is just so cool. And I learned a lot because
• 14:08
  Speaker 2: remember I majored in French and politics. I did go
• 14:10
  Speaker 2: to Chicago, but they teach more finance less about like
• 14:14
  Speaker 2: these esoteric strategies. And that's one of the things I
• 14:17
  Speaker 2: love about Goldman, and I also loved about Maryland is
• 14:20
  Speaker 2: like good people and you're constantly learning and it never
• 14:23
  Speaker 2: is boring.
• 14:24
  Speaker 1: That sounds fascinating. Let's talk a little bit about your
• 14:27
  Speaker 1: time as CIO at Hires. Is that how that's pronounced, Yes,
• 14:32
  Speaker 1: the acronym for the Hawaii Investment Employt Retirement System or
• 14:38
  Speaker 1: where it's to that effect. How did that come about?
• 14:41
  Speaker 1: That seems like such a fascinating position and so far
• 14:45
  Speaker 1: away from Maryland's.
• 14:48
  Speaker 3: It is interesting how it happened. I guess I got lucky.
• 14:51
  Speaker 2: In January or February of twenty eighteen, Hawaii HA parted
• 14:55
  Speaker 2: ways with their then chief investment officer and there was
• 14:58
  Speaker 2: an article in a magazine for institutional allocators about it
• 15:02
  Speaker 2: and how they were hiring. And I still have the
• 15:04
  Speaker 2: email I sent to my husband and I said, ha, ha,
• 15:06
  Speaker 2: want to move to Hawaii. And I forwarded it to
• 15:09
  Speaker 2: him and I was very happy at Maryland. Wasn't planning
• 15:12
  Speaker 2: on leaving, and I had a lot of ties to
• 15:16
  Speaker 2: Maryland that I didn't think I wanted to break. But
• 15:18
  Speaker 2: on a whim, I applied, and at the same time
• 15:21
  Speaker 2: had mentioned to a friend of mine that I had applied,
• 15:24
  Speaker 2: And it turns out the recruiter had called my friend
• 15:26
  Speaker 2: about the job and he said, I'm not interested, but
• 15:29
  Speaker 2: I know someone who applied and she's got a risk background,
• 15:31
  Speaker 2: and I know you at.
• 15:32
  Speaker 3: How I care about risk, and so he put me
• 15:35
  Speaker 3: in contact with a recruiter.
• 15:36
  Speaker 2: They reached out and they said, look, you're one of.
• 15:38
  Speaker 3: One hundred and forty. It's unlikely.
• 15:41
  Speaker 2: So I actually went on vacasion. I went to work
• 15:44
  Speaker 2: in Asia. It was gone for a couple of months
• 15:46
  Speaker 2: here and there. When I got back, they said, okay,
• 15:49
  Speaker 2: that's STI unlikely, but you're down to about forty.
• 15:51
  Speaker 3: I was like, oh, oh, well, I like those odds.
• 15:53
  Speaker 3: Thos are okay.
• 15:54
  Speaker 2: And then by June I was telling my husband I'm
• 15:56
  Speaker 2: in the final four. We got to fly out there,
• 15:58
  Speaker 2: and he said, I moving to Hawaii. He had he
• 16:01
  Speaker 2: had a great job. He's very senior in his career.
• 16:05
  Speaker 2: Both our families are on the Ease coast. She went
• 16:07
  Speaker 2: out there for about a week and at the end
• 16:09
  Speaker 2: of the week that I interviewed, got the job and
• 16:12
  Speaker 2: we accepted by the.
• 16:13
  Speaker 3: End of the week.
• 16:13
  Speaker 1: Really, so what changed to make your husband say, yeah,
• 16:17
  Speaker 1: I could live in tropical paradise if I have to.
• 16:20
  Speaker 3: I think, you know, he's a really good guy.
• 16:22
  Speaker 2: I basically said, I've been working in my whole life
• 16:25
  Speaker 2: for something like this. I was thirty four, I was
• 16:28
  Speaker 2: a female. It was, you know, a Hawaii pension. There's
• 16:31
  Speaker 2: only so many pensions take pensions in the US. I said,
• 16:34
  Speaker 2: who knows what the next one to crop up will be.
• 16:36
  Speaker 3: This is unique.
• 16:37
  Speaker 2: There's just there aren't that many young or females cee
• 16:40
  Speaker 2: Ia is I have got to try this, And I
• 16:43
  Speaker 2: think he could tell how badly I wanted it, and
• 16:45
  Speaker 2: he sweetly gave up his job of fifteen years and
• 16:49
  Speaker 2: wow followed me out there.
• 16:51
  Speaker 1: Wow. So, how long did you stay in Hawaii?
• 16:53
  Speaker 3: For four years?
• 16:54
  Speaker 1: You lived on the islands? We did, so part of
• 16:56
  Speaker 1: me thinks of Hawaii as his tropical paradise. But I've
• 17:00
  Speaker 1: spent time on other islands, and I know at a
• 17:03
  Speaker 1: certain point you get a little island fever. You're stuck
• 17:07
  Speaker 1: with your seeing the same things. How long did it
• 17:10
  Speaker 1: take before it was no longer tropical paradise? It's just
• 17:13
  Speaker 1: where we lived.
• 17:15
  Speaker 2: Well, I think COVID sped up the process a little bit.
• 17:19
  Speaker 2: I also, I don't know if you've ever experienced this.
• 17:22
  Speaker 2: There's like one day when your parents are really young,
• 17:24
  Speaker 2: and then within thirty minutes they all of a sudden
• 17:26
  Speaker 2: mamede and you miss them and you've got to take
• 17:29
  Speaker 2: care of them. And so my parents, if they listen
• 17:30
  Speaker 2: to this, are going to kill me for calling them old.
• 17:32
  Speaker 2: But you know, I had little kids had when I
• 17:35
  Speaker 2: moved there. My daughter was two, my son was four,
• 17:37
  Speaker 2: and I think they saw them two three times, right,
• 17:40
  Speaker 2: and I was realizing I was sacrificing my family to
• 17:43
  Speaker 2: live in this beautiful location. I also really missed being
• 17:48
  Speaker 2: in New York. It's an island too, and that's an island, right,
• 17:53
  Speaker 2: And I missed being around the buzz of finance. It's
• 17:55
  Speaker 2: very easy in Hawaii to get wrapped up in the
• 17:58
  Speaker 2: water and surfing in the mountains and the hiking and
• 18:01
  Speaker 2: all of that is lovely. But I run it about
• 18:03
  Speaker 2: one hundred and sixty miles an hour, and I'd like
• 18:05
  Speaker 2: to be at a place where people run at least
• 18:07
  Speaker 2: at that And I have to say Goldman Sachs definitely
• 18:09
  Speaker 2: runs at one hundred and sixty miles an hour, and
• 18:12
  Speaker 2: I just I wanted to go back to finance and
• 18:15
  Speaker 2: being more like in the middle of all the frenzy.
• 18:20
  Speaker 1: I totally get that. I know this is sort of
• 18:24
  Speaker 1: old school, but it's true. Once you leave New York,
• 18:28
  Speaker 1: you've left town. You really have And it's and I
• 18:31
  Speaker 1: don't just mean waiting twenty minutes for an egg McMuffin
• 18:34
  Speaker 1: in Richmond, Virginia. I mean I leave New York, I
• 18:39
  Speaker 1: make a concerted effort to like take it down a
• 18:42
  Speaker 1: gear because the rest of the world has a very
• 18:44
  Speaker 1: different pace than New York City, and I imagine places
• 18:48
  Speaker 1: like London and Hong Kong and other financial capitals where
• 18:52
  Speaker 1: it's pedal to the metal. Did it take you a
• 18:55
  Speaker 1: while to get back into the rhythm here or like
• 18:57
  Speaker 1: riding a bike, you were just right back into.
• 18:59
  Speaker 2: It's funny that Hong Kong's my second favorite city in
• 19:01
  Speaker 2: the world. New York is number one. No, it took
• 19:04
  Speaker 2: all of thirty seconds. In fact, I very much wanted
• 19:06
  Speaker 2: to live in Manhattan. I wanted to go back to
• 19:07
  Speaker 2: the West Village where I lived in my twenties.
• 19:10
  Speaker 3: But my husband was.
• 19:11
  Speaker 2: Like, well, with two kids and a dog and a cat,
• 19:13
  Speaker 2: maybe we should not do that. But no, I actually
• 19:17
  Speaker 2: pretty long commute. I love coming in the city every day.
• 19:20
  Speaker 2: I don't think for me personally, there's no better city
• 19:22
  Speaker 2: in the world.
• 19:22
  Speaker 1: I love. Well, your commute is not bad. There are
• 19:25
  Speaker 1: much worse commutes.
• 19:25
  Speaker 3: Than It's about an hour forty five.
• 19:27
  Speaker 1: Oh really, because you have to go down to Yes,
• 19:30
  Speaker 1: that's why. See, they need to move into the space
• 19:34
  Speaker 1: between right between Penn Station and Grand Central knock a
• 19:38
  Speaker 1: half hour off your commute each other. Oh. Absolutely, So
• 19:41
  Speaker 1: let's talk a little bit about risk management. How does
• 19:46
  Speaker 1: that come into play when you're looking at a big
• 19:51
  Speaker 1: pension fund that has all of these obligations for employees
• 19:56
  Speaker 1: in perpetuity.
• 19:57
  Speaker 2: Right First, management is tough a pension and Goldman Sachs
• 20:02
  Speaker 2: provides itself on being a good manager of risk. But
• 20:04
  Speaker 2: Goldman Sachs has fewer constraints. We actually have a budget
• 20:08
  Speaker 2: for risk management and technology and tools. That is not
• 20:11
  Speaker 2: something your typical pension is able to do. And it's
• 20:14
  Speaker 2: a critical need and they often have to find multiple
• 20:18
  Speaker 2: tools that they can use, some free, some not free
• 20:22
  Speaker 2: to try to make a good and robust risk management system.
• 20:26
  Speaker 2: But it's definitely a challenge and it's really important because
• 20:29
  Speaker 2: to your point, especially now, it's always been important, but
• 20:32
  Speaker 2: I think post COVID, the industry is starting to realize
• 20:35
  Speaker 2: that liquidity for pension funds is extremely important. It affects
• 20:41
  Speaker 2: almost everything they do and the lack of it could
• 20:43
  Speaker 2: have really dire outcomes for the pensioners and for the
• 20:46
  Speaker 2: system itself and have a host of other consequences.
• 20:50
  Speaker 1: Is it something that can be outsourced or does it
• 20:52
  Speaker 1: have to be managed in house?
• 20:54
  Speaker 2: I think it would be tough to outsource all of
• 20:56
  Speaker 2: it unless also the investment team was partially outsourced.
• 20:59
  Speaker 3: I think there needs to be.
• 21:00
  Speaker 2: Some marriage between the two. But I do think that
• 21:03
  Speaker 2: you can outsource certain functions of it, or you can
• 21:06
  Speaker 2: have a consultant assist with the risk management. But I
• 21:09
  Speaker 2: think the most important thing that you have to do
• 21:10
  Speaker 2: at a pension fund for that is get a hold
• 21:12
  Speaker 2: on your You have to have good lawyers and good contracts.
• 21:15
  Speaker 2: You have to have a clear view of your liquidity
• 21:18
  Speaker 2: and your cash flows.
• 21:19
  Speaker 3: It's critical.
• 21:20
  Speaker 1: So let's talk a little bit about that, because that's
• 21:22
  Speaker 1: kind of fascinating. When when I think of a pension fund,
• 21:25
  Speaker 1: I think of existing employees contributing into the funds a
• 21:29
  Speaker 1: source of liquidity, and retirees drawing down on the fund,
• 21:33
  Speaker 1: which is the liability or the future obligations. When when
• 21:39
  Speaker 1: the pandemic shuts everything down, does this mean the current
• 21:43
  Speaker 1: employees are not making contributions? What happened during that period.
• 21:47
  Speaker 2: So we actually never fully shut down. We were always
• 21:50
  Speaker 2: in operations, and we were I was in the office
• 21:53
  Speaker 2: pretty much full time. But one thing I want to
• 21:56
  Speaker 2: point out is that not all employees at all.
• 21:58
  Speaker 3: Pension funds contribute. Some don't.
• 22:00
  Speaker 2: There are certain types of employer sponsor plans where some
• 22:04
  Speaker 2: portion of the employees are potentially all are part of
• 22:06
  Speaker 2: non contributory plans. Now, their multipliers are different, their payouts
• 22:10
  Speaker 2: are different. But that's a tough situation when you're not
• 22:13
  Speaker 2: paying in and you're only receiving, right, but what you
• 22:16
  Speaker 2: did mention So in COVID, a bunch of pension funds
• 22:22
  Speaker 2: experienced or thought they were going to experience furloughs or
• 22:25
  Speaker 2: cuts in their work week, which are essentially cuts into wages. Right,
• 22:28
  Speaker 2: So fifty percent furloughed, you're also fifty percent wage cut.
• 22:31
  Speaker 2: Those would slow contributions into the system, but it depends
• 22:35
  Speaker 2: on how you calculate the multiplier going out. So if
• 22:38
  Speaker 2: it's based on their highest wage, ever, it could be
• 22:42
  Speaker 2: your contribution to actually stay constant while the incoming cash
• 22:44
  Speaker 2: flows are not. Also, in many pension funds, while there
• 22:49
  Speaker 2: are technically penalties for employers not contributing to the system,
• 22:53
  Speaker 2: it's very politically unpopular for a pension fund to go
• 22:56
  Speaker 2: after it's counties or teachers or police for payments, So
• 23:00
  Speaker 2: it's very unlikely that would happen.
• 23:01
  Speaker 1: Especially in the middle of a crazy pandemic with everything
• 23:05
  Speaker 1: associated there too.
• 23:06
  Speaker 2: So it's a very precarious position. Luckily it actually, as
• 23:10
  Speaker 2: you probably know, the market turned around rather sharply. There
• 23:13
  Speaker 2: was a good equity rebound. A lot of this didn't
• 23:16
  Speaker 2: end up happening. In fact, state revenues were often at
• 23:18
  Speaker 2: all time highs from taxes when this happened, so that
• 23:23
  Speaker 2: the worst was somewhat avoided in the US, I will say,
• 23:27
  Speaker 2: but it did shed a light on the fact that,
• 23:30
  Speaker 2: you know, you still can have equities and bonds right
• 23:32
  Speaker 2: down at the same time, you can have a challenging
• 23:34
  Speaker 2: liquidity environment, just like we had No eight, which I
• 23:37
  Speaker 2: don't think you know, they're not the same thing, but
• 23:40
  Speaker 2: similar challenges in some respects.
• 23:42
  Speaker 1: So how do you think about I'm still looking at
• 23:45
  Speaker 1: the liquidity issue. How do you think about under normal
• 23:49
  Speaker 1: circumstances matching future liabilities with liquidity or cash flows. I'm
• 23:57
  Speaker 1: sure there are all sorts of actuarial tables that you
• 23:59
  Speaker 1: were working with, but you have to think, what are
• 24:03
  Speaker 1: obligations going to be five years, ten years, twenty years out.
• 24:07
  Speaker 1: Most investors don't think in those times, No.
• 24:11
  Speaker 2: They probably don't unless they're investing in private markets or
• 24:14
  Speaker 2: in your house. You're probably thinking about how to afford
• 24:17
  Speaker 2: those payments, So in the US and Europe or abroad,
• 24:20
  Speaker 2: they're actually two separate things. So in the US, corporate
• 24:24
  Speaker 2: pensions other than public pensions, right, corporate pensions tend to
• 24:28
  Speaker 2: focus more on the liability driven side, meaning they're matching
• 24:31
  Speaker 2: their cash flows very carefully. On the public side, usually
• 24:34
  Speaker 2: it's not an LDI type format, they are monitoring their liquidity.
• 24:38
  Speaker 2: So they might have a coverage ratio, so they might
• 24:40
  Speaker 2: say how many times can we meet our pension payments
• 24:44
  Speaker 2: and private market private equity capital commitment pacing over a
• 24:48
  Speaker 2: certain ratio with no contributions over a certain umbur of years.
• 24:51
  Speaker 2: So maybe they say, okay, we want it to be quarters,
• 24:53
  Speaker 2: we want it to be twenty times, and then they
• 24:56
  Speaker 2: can manage to that or something like that. And they
• 24:58
  Speaker 2: often have models for modeling the on corporate pensions or
• 25:02
  Speaker 2: European pensions. They most likely are involved in either liability
• 25:07
  Speaker 2: driven investing or this cash flow matching. But I will
• 25:10
  Speaker 2: say of the top ten questions I get from allocators
• 25:13
  Speaker 2: this year, one of them is can we implement cash
• 25:16
  Speaker 2: flow matching to try to help our liquidity issues? Because
• 25:20
  Speaker 2: of the denominator effect right now, a lot of pension
• 25:22
  Speaker 2: funds in the US are still suffering from some liquidity
• 25:26
  Speaker 2: issues since they're super overweight private equity and the equity
• 25:29
  Speaker 2: markets had stumbled right.
• 25:30
  Speaker 1: So that means while the value of the fund is
• 25:33
  Speaker 1: where they wanted to be, the liquidity in the ability
• 25:36
  Speaker 1: to send out cash is somewhat compromise.
• 25:39
  Speaker 2: It's challenging, especially because private equity funds are not distributing
• 25:43
  Speaker 2: as much as they used to because there haven't been
• 25:46
  Speaker 2: as many sales in the market or exits, so they're
• 25:49
  Speaker 2: getting hit on sort of both ends.
• 25:51
  Speaker 1: So in twenty twenty two, when equities were down and
• 25:55
  Speaker 1: fixed income were down, they were both down double digits.
• 25:58
  Speaker 1: Were you saying to yourself, I'm glad I'm not running
• 26:01
  Speaker 1: a state pension fund this year, or like, what was
• 26:04
  Speaker 1: that experience like from your perspective where you are now?
• 26:09
  Speaker 2: No, so, I you know Hawaii, It should have done
• 26:14
  Speaker 2: probably quite well during that time. It depends on your
• 26:16
  Speaker 2: asset allocation. I also don't think you should ever really
• 26:19
  Speaker 2: beat yourself up for sticking to your acid allocation.
• 26:22
  Speaker 3: And your beliefs.
• 26:24
  Speaker 2: I also think that was a great learning experience. But
• 26:26
  Speaker 2: more importantly, I have always struggled with why there seems
• 26:32
  Speaker 2: to be some belief that equities and bonds will be
• 26:34
  Speaker 2: negatively correlated throughout time.
• 26:35
  Speaker 3: Oh, it's simply not the case.
• 26:37
  Speaker 1: Go back to nineteen eighty one, you've had both stocks
• 26:40
  Speaker 1: and bonds down. I believe double digits that year, and
• 26:44
  Speaker 1: the year before was pretty close as well.
• 26:46
  Speaker 2: Right, And if you look at inflationary environments, a positive
• 26:50
  Speaker 2: correlation between the two.
• 26:51
  Speaker 3: It's also not uncommon.
• 26:52
  Speaker 2: And I think, sitting back in twenty twenty, twenty twenty one,
• 26:56
  Speaker 2: I was adamant that inflation was not transitory, adamant and
• 26:59
  Speaker 2: super public about it. I had many people, super famous
• 27:03
  Speaker 2: people telling me I was completely wrong. It's the one
• 27:05
  Speaker 2: good call I made ever my entire life. But so
• 27:09
  Speaker 2: I felt confident that I had prepared myself for this
• 27:12
  Speaker 2: type of environment. It's tricky, though, because one of the
• 27:14
  Speaker 2: things that can help you in this sort of environment
• 27:17
  Speaker 2: is a diversifier. It could be head friends, it can
• 27:19
  Speaker 2: be commodities, it could be cash, right, but commodities were
• 27:23
  Speaker 2: often taken out of institutional portfolios a decade or so ago,
• 27:26
  Speaker 2: because really they so there was at one point right
• 27:30
  Speaker 2: after I think actually the Gonzex Commodities Index came into
• 27:33
  Speaker 2: existence commodities actually struggled right after that index came out
• 27:37
  Speaker 2: for a while, right, And also the makeup of that
• 27:39
  Speaker 2: index has changed over time. It used to be I believe,
• 27:43
  Speaker 2: mostly like cattle features, but in commodities and disease. So
• 27:48
  Speaker 2: a lot of institution investors got tired of like the
• 27:51
  Speaker 2: challenging returns and the volatility and commodities. Also, it can
• 27:54
  Speaker 2: be challenging to invest in something without like an you
• 27:57
  Speaker 2: know that's based on supply and demand and.
• 27:58
  Speaker 3: Not some sort of like intrinsic value.
• 28:00
  Speaker 2: And they took it out of their asset allocation in
• 28:02
  Speaker 2: favor of other strategies. So when the pandemic came, they
• 28:05
  Speaker 2: didn't have that as a diversifier outright. They might have
• 28:08
  Speaker 2: had it through it's also hard to invest in start.
• 28:10
  Speaker 1: It would have been a good inflation diversified but it
• 28:13
  Speaker 1: wasn't there.
• 28:13
  Speaker 2: And once you start looking for something when the ship's
• 28:16
  Speaker 2: already sinking, right, it's.
• 28:17
  Speaker 3: A little late. So I was what I was most curious.
• 28:20
  Speaker 2: About actually in twenty twenty two, if when we saw
• 28:23
  Speaker 2: asset liability studies come out in twenty twenty three for
• 28:25
  Speaker 2: pension funds, where we going to see people putting commodities
• 28:28
  Speaker 2: back into their portfolio. And no, but out of the
• 28:31
  Speaker 2: cash allocations at some endowments and foundations, at some pensions
• 28:36
  Speaker 2: there's gold allocations like the outright gold allocations, but they're
• 28:40
  Speaker 2: not they're not in the investment policy statement. The interesting yes,
• 28:45
  Speaker 2: in for the most part, this is not you know, ubigodius.
• 28:47
  Speaker 2: But so that was an interesting play. And then but
• 28:51
  Speaker 2: another question I got in twenty twenty three that I
• 28:53
  Speaker 2: haven't heard in a long time is people asking for
• 28:56
  Speaker 2: information on CTA's trend following importable alpha to have diversified
• 29:01
  Speaker 2: buyers and try to ease cash in this environment.
• 29:03
  Speaker 1: That's intriguing. Let me stick with either gold or commodities
• 29:07
  Speaker 1: or both. How much of the large allocators a voidance
• 29:12
  Speaker 1: of that has to do with the fact that academia
• 29:16
  Speaker 1: is not a big fan of commodities. They are not
• 29:20
  Speaker 1: just gold. But when you look at Kamali's general as
• 29:23
  Speaker 1: opposed to trend following and specific trading systems, the academics
• 29:29
  Speaker 1: I always look at it and say, we don't see
• 29:31
  Speaker 1: a real return here over longer periods of time. There
• 29:34
  Speaker 1: are specific short periods of time where they do spectacular,
• 29:38
  Speaker 1: but over long time and eventually mean reverts. Is the
• 29:41
  Speaker 1: allocator issue with commodities a function of, Hey, we just
• 29:45
  Speaker 1: don't have the white papers to show this is a
• 29:47
  Speaker 1: good long term investment or is it something else? And
• 29:50
  Speaker 1: I know I'm calling on you to speculate because it's
• 29:53
  Speaker 1: a goofy question.
• 29:54
  Speaker 3: Well I'm not.
• 29:56
  Speaker 2: I would love to agree with you that it is
• 29:57
  Speaker 2: the academia, But academia a and always predict the best
• 30:01
  Speaker 2: outcomes in I can say this because my dad's an
• 30:03
  Speaker 2: academic don't always have the best outcomes in terms of investing.
• 30:07
  Speaker 2: I do think there's some merit in staying that. But
• 30:09
  Speaker 2: I would also point out that risk parity doesn't have
• 30:11
  Speaker 2: a deep history in academia and doesn't have a ton
• 30:14
  Speaker 2: of support. And yet risk parity was historically very popular.
• 30:18
  Speaker 1: And it's done fairly well recently.
• 30:20
  Speaker 2: Great So I don't know if it's purely academic based.
• 30:23
  Speaker 2: I think part of it is a volatility, and part
• 30:25
  Speaker 2: of it is that it is genuinely unless you're doing
• 30:27
  Speaker 2: it through a hedged vehicle or a hedge fund or
• 30:29
  Speaker 2: an alternative investment, it is hard to get access to commodities. Typically,
• 30:34
  Speaker 2: it's just not the easiest thing to invest in. And
• 30:36
  Speaker 2: a lot of funds historically were prohibited from investing in alternatives.
• 30:39
  Speaker 1: Meaning they can't invest in futures or anything with the
• 30:42
  Speaker 1: liability components of it. So let's talk a little bit
• 30:45
  Speaker 1: about what you do at Goldman Sachs's asset management, starting
• 30:48
  Speaker 1: with how did you end up at Goldman? It sounds
• 30:51
  Speaker 1: like things were delightful on the island of Oahu where
• 30:55
  Speaker 1: you were working in Hawaii. Is that where you were
• 30:57
  Speaker 1: living or yes? Uh huh not a terrible place to
• 31:02
  Speaker 1: set up shop, right, No, it was.
• 31:04
  Speaker 3: A wonderful place to live. Yes.
• 31:07
  Speaker 2: I would have bet you money I wouldn't have ended
• 31:09
  Speaker 2: up at Goldman Sachs two years ago.
• 31:11
  Speaker 1: So you weren't going to leave Maryland. You were never
• 31:14
  Speaker 1: going to end up in a while. You weren't going
• 31:15
  Speaker 1: to go in Goldman. I'm taking the other side of
• 31:17
  Speaker 1: your trade, your career. So how did this come about?
• 31:21
  Speaker 4: Well?
• 31:22
  Speaker 2: I decided to leave Hawaii, believe in about maybe March
• 31:27
  Speaker 2: April May of twenty twenty two, and I gave a
• 31:31
  Speaker 2: couple months notice and I did not have another job
• 31:33
  Speaker 2: lined up.
• 31:34
  Speaker 1: I did not know what I wanted to do. Wow.
• 31:36
  Speaker 3: So that is a common trend with me.
• 31:38
  Speaker 1: I usually yes, something will come up.
• 31:41
  Speaker 2: I just can't quiet quit, so I need to just say, hey,
• 31:44
  Speaker 2: this isn't the right fit.
• 31:45
  Speaker 3: Something will happen.
• 31:47
  Speaker 2: And I evaluated what I wanted to do next, and
• 31:50
  Speaker 2: I sort of just assumed, Okay, I'll go be a
• 31:52
  Speaker 2: CIO somewhere else. We'll see what happens. And I was
• 31:56
  Speaker 2: close to taking another role. And when I started thinking
• 31:59
  Speaker 2: about we're at Goldman Sachs, I thought, this is again
• 32:03
  Speaker 2: just like Chicago. This may hurt, this may be really hard.
• 32:06
  Speaker 2: It's going to be a lot of very smart people.
• 32:08
  Speaker 2: But I really, like I said earlier, I missed running
• 32:10
  Speaker 2: at like one hundred and sixty miles an hour.
• 32:12
  Speaker 3: I wanted a challenge.
• 32:13
  Speaker 2: I was, you know, forty, and I figured I have
• 32:18
  Speaker 2: a couple more moves in me and I wanted something different,
• 32:22
  Speaker 2: and I thought, let's see if I can do this.
• 32:24
  Speaker 2: And most importantly, like I said before, I loved the team.
• 32:26
  Speaker 2: Some of my favorite investors right now are people that
• 32:30
  Speaker 2: came out of Goldman Sachs, mostly hedge funds, because I
• 32:33
  Speaker 2: love hedge funds. But to me, it was like joining
• 32:36
  Speaker 2: the Yankees, like I had followed their versions of Derek
• 32:39
  Speaker 2: Jeter and I was like, Wow, I could I could
• 32:41
  Speaker 2: go work for these people that I idolized.
• 32:43
  Speaker 3: This would be amazing.
• 32:43
  Speaker 1: And I'm assuming you know a lot of these people
• 32:45
  Speaker 1: through both Maryland and Hawaii, CIO, you're interacting with them
• 32:49
  Speaker 1: on a regular basis. What made you think, Hey, I
• 32:53
  Speaker 1: can I can keep up with these guys. I want
• 32:56
  Speaker 1: to play on this team.
• 32:59
  Speaker 2: I think was the one that said you can keep
• 33:01
  Speaker 2: up with us, you can play on this team. And
• 33:02
  Speaker 2: the amount that they letting me come here and do
• 33:05
  Speaker 2: this interview, the amount that Goldman believes in me every day.
• 33:08
  Speaker 2: I had to tell you, it's it's like the best
• 33:10
  Speaker 2: feeling in the world to wake up and put on
• 33:11
  Speaker 2: the Goldman jersey, like they believe in me.
• 33:13
  Speaker 3: And it's crazy. I think they believe more than my family.
• 33:17
  Speaker 1: I'm going to tell you right now, I don't think
• 33:19
  Speaker 1: it's crazy at all, given your history and your your
• 33:22
  Speaker 1: track record. But at what point in the process was
• 33:26
  Speaker 1: it who was interviewing, who were they recruiting you, or
• 33:30
  Speaker 1: had you kind of quietly reached out How did this
• 33:34
  Speaker 1: specific position come about?
• 33:36
  Speaker 2: You know, I don't even know if the position it self,
• 33:39
  Speaker 2: Huven came about till very late in the summer until
• 33:42
  Speaker 2: you know, I started in September, and I don't even
• 33:44
  Speaker 2: know that it was fully ironed out like much before then.
• 33:48
  Speaker 2: I think for me though, the opportunity to join the group.
• 33:52
  Speaker 3: That I was joining.
• 33:54
  Speaker 2: I have so much respect for this group and to
• 33:57
  Speaker 2: be part of what they wanted to do, which was,
• 33:59
  Speaker 2: you know, reignite their asset management business. I really like,
• 34:04
  Speaker 2: I really like to join places that have something they
• 34:06
  Speaker 2: need to get.
• 34:06
  Speaker 1: Done and that you can help contribute to making that happen.
• 34:11
  Speaker 2: Yes, And I thought, you know, why don't I try
• 34:13
  Speaker 2: something different? And if you look at my career and
• 34:14
  Speaker 2: all the next steps, they're all a little different and
• 34:16
  Speaker 2: in some cases very different. And I think actually all
• 34:20
  Speaker 2: those different careers I had led me to be a
• 34:22
  Speaker 2: really good CIO. So I thought, if I add this in,
• 34:25
  Speaker 2: what does that make me next?
• 34:26
  Speaker 3: I don't know.
• 34:27
  Speaker 1: So let's talk a little bit about what you do
• 34:29
  Speaker 1: with the team you work with at Goldman Sachs. Are
• 34:34
  Speaker 1: the clients primarily retail? Are they institutional? Is it a mix?
• 34:38
  Speaker 1: What does that group focus on it is?
• 34:41
  Speaker 2: Well, the whole group of the client Solutions group is
• 34:44
  Speaker 2: a mix of all different kinds of clients, right, But
• 34:46
  Speaker 2: I mostly step in with the institutional clients. I don't
• 34:49
  Speaker 2: own the client relationships, but I do help advise from
• 34:52
  Speaker 2: the perspective as a former institutional allocator and occasionally have
• 34:56
  Speaker 2: comments on the retail side that may be tangential. But
• 34:59
  Speaker 2: it's mostly institutions.
• 35:01
  Speaker 1: So this sounds like this is a very unconstrained position.
• 35:04
  Speaker 1: You can help clients work on setting goals, put together
• 35:08
  Speaker 1: an investment policy statement, like you've done all the stuff
• 35:11
  Speaker 1: from the from the client side, and now you're saying
• 35:15
  Speaker 1: what can we what can we do for you?
• 35:17
  Speaker 2: They can ask confidential questions. They can say, do you
• 35:19
  Speaker 2: think we should sell part of this portfolio? Do you
• 35:22
  Speaker 2: like this private equity fund, do you like that? Do
• 35:24
  Speaker 2: you like this equity in this country? Do you like
• 35:28
  Speaker 2: emerging markets right now? Do you like local bonds? They
• 35:30
  Speaker 2: can ask me anything, And because I'm not running my portfolio,
• 35:34
  Speaker 2: I can have a more honest position on what I
• 35:37
  Speaker 2: would do if I were them in that environment.
• 35:39
  Speaker 1: Huh. So this is much broader than the typical relationship
• 35:43
  Speaker 1: with a client, So that sounds quite fascinating. You mentioned
• 35:47
  Speaker 1: you really like hedge funds. Let's talk a little bit
• 35:50
  Speaker 1: about alternative investments within a portfolio. What do you think
• 35:54
  Speaker 1: of those various I'm gonna use a dirty word, buckets
• 35:58
  Speaker 1: of different types of investments.
• 36:02
  Speaker 2: So I want to qualify that I don't know that
• 36:04
  Speaker 2: everyone should be invested in alternative investments, and I don't
• 36:07
  Speaker 2: mean you and me, I mean institutions as well. But
• 36:10
  Speaker 2: I have to say I think their alternatives are the
• 36:12
  Speaker 2: most fascinating part of the investment landscape to me, and
• 36:14
  Speaker 2: it's why I love them.
• 36:15
  Speaker 1: So tell us a little bit. Why why are alternatives
• 36:18
  Speaker 1: so fascinating? Here's the pushback? Let's start with this. The
• 36:22
  Speaker 1: pushback is, alternatives are great. If you're in the top
• 36:25
  Speaker 1: death style of hetche funds, venture capital funds, private equity,
• 36:29
  Speaker 1: that stuff is awesome. But there's so much competition, so
• 36:32
  Speaker 1: much delution of talent, so many people chasing so few deals,
• 36:37
  Speaker 1: that unless you're really in the best funds, it's a
• 36:41
  Speaker 1: challenge to generate alpha. How do you respond to that
• 36:44
  Speaker 1: sort of criticism?
• 36:45
  Speaker 2: Well, I think that's true in the public equity markets
• 36:47
  Speaker 2: as well, in the mid large.
• 36:48
  Speaker 1: Gap, right, it's certainly true in individual stocks. Rites what
• 36:53
  Speaker 1: was it a best in Binders research? Two point three
• 36:56
  Speaker 1: percent of equities or responsible for all the returns. It's
• 37:00
  Speaker 1: not even top death style. That's a teeny tiny percentage.
• 37:03
  Speaker 1: So you're saying that, hey, if you can be in
• 37:06
  Speaker 1: a better fund, you want to be in a better fund.
• 37:09
  Speaker 2: I think that's true across everything. You always want to
• 37:11
  Speaker 2: be in the best possible fund. Picking funds is very challenging.
• 37:14
  Speaker 2: I think it is most challenging in the private market space.
• 37:18
  Speaker 2: There's an information gap which makes it pretty challenging. But
• 37:22
  Speaker 2: I think what I love most about it is so
• 37:25
  Speaker 2: I think I've always loved credit, and part of that
• 37:28
  Speaker 2: is that I love contracts.
• 37:29
  Speaker 3: I should have been a.
• 37:29
  Speaker 2: Lawyer, and for me, private equity, private credit, and some
• 37:33
  Speaker 2: other liquid strategies real estate included, they have a complexity
• 37:38
  Speaker 2: component to it and a lot of that is contract
• 37:40
  Speaker 2: related and you have to get very Like my favorite
• 37:43
  Speaker 2: class in.
• 37:43
  Speaker 3: Business school is taxes. I should tell you I like
• 37:45
  Speaker 3: loopholes and I like figuring out unique.
• 37:49
  Speaker 1: Ways to structure its supposals right.
• 37:51
  Speaker 2: But for private equity, private credit, private real estate, for me,
• 37:54
  Speaker 2: those make sense. Those are complex deals and there's ways
• 37:57
  Speaker 2: to derive value out of them, and if you can
• 37:59
  Speaker 2: get access to those, I think it's brilliant. If you
• 38:02
  Speaker 2: can't get access to those. The other way I think
• 38:04
  Speaker 2: it's interesting to play in those markets is to play
• 38:07
  Speaker 2: the discrepancy and value between public equity and private equity,
• 38:10
  Speaker 2: public real estate and private real estate, public infrastructure private infrastructure.
• 38:15
  Speaker 2: So for those reasons, I just think they're the most
• 38:17
  Speaker 2: interesting place to look. And in terms of hedge funds,
• 38:20
  Speaker 2: specifically where I started my career, they invest in every
• 38:23
  Speaker 2: asset class, So if you want to learn about commodities,
• 38:25
  Speaker 2: fixed income, rates, equities, bonds, they're all there, right, And
• 38:29
  Speaker 2: so I think it's a really great proving ground, and
• 38:31
  Speaker 2: it also teaches you to understand relative value in which
• 38:35
  Speaker 2: trades are better relatively speaking, not absolutely speaking. In an
• 38:39
  Speaker 2: environment like today and probably the next ten years, relative value.
• 38:43
  Speaker 3: Is going to be critical.
• 38:44
  Speaker 1: Huh. That's really interesting. Let's stay focused on the complications
• 38:48
  Speaker 1: of the private side, because you're touching on something that's
• 38:51
  Speaker 1: really fascinating and a little bit contrarian to the consensus view,
• 38:56
  Speaker 1: which is complications tend to be expanded and very often
• 39:01
  Speaker 1: simple is better. What you're saying on the private side
• 39:05
  Speaker 1: is if you have an ability and correct me if
• 39:08
  Speaker 1: I'm getting this wrong, if you have an ability to
• 39:12
  Speaker 1: manage through that complexity in a way that doesn't disadvantage
• 39:17
  Speaker 1: you as an investor. There's potential upside from complexity because
• 39:23
  Speaker 1: most investors aren't finding that thread that really leads you
• 39:29
  Speaker 1: to Hitchcock used to call it the McGuinty, but that's
• 39:35
  Speaker 1: whatever everybody is chasing, that's driving the action. You're looking
• 39:39
  Speaker 1: through complexity to define where is the piece of alpha
• 39:42
  Speaker 1: that everybody is missing.
• 39:44
  Speaker 3: If that is.
• 39:45
  Speaker 2: Your edge, and that is the one thing I want
• 39:47
  Speaker 2: to be very clear on. You should not be investing
• 39:49
  Speaker 2: in complex issues that you do not understand. So if
• 39:51
  Speaker 2: you do not understand technology, do not go do a
• 39:54
  Speaker 2: technology co investment.
• 39:55
  Speaker 1: Right, we shouldn't all be piling my money into AI startups.
• 39:58
  Speaker 1: You don't think that's that's a savvy thing to do today.
• 40:01
  Speaker 2: I have Plowing money into anything is usually a good idea.
• 40:04
  Speaker 2: But I mean to use an example. So I did
• 40:07
  Speaker 2: Killimanjaro a year ago, and I didn't get altitude sickness.
• 40:09
  Speaker 2: And so to do hiking at high elevations when something
• 40:13
  Speaker 2: isn't a challenge for you, it is a challenge for
• 40:15
  Speaker 2: other people. That's not a terrible idea and experience that
• 40:18
  Speaker 2: you get that's unique, right, And so I think that
• 40:20
  Speaker 2: if there are managers you can find, or if you
• 40:22
  Speaker 2: yourself are good at certain parts of these markets, then
• 40:25
  Speaker 2: I do think you in any investment, if you have
• 40:27
  Speaker 2: an edge, you should lean into that edge, right, And
• 40:30
  Speaker 2: I think that is why, or I believe that's why alternatives.
• 40:34
  Speaker 2: There are people who have edges, there are people who don't,
• 40:36
  Speaker 2: and they raise money, and that's the world, right, right.
• 40:39
  Speaker 2: But if you can find when you find a good
• 40:41
  Speaker 2: manager or you find a good investment, I mean, I
• 40:44
  Speaker 2: think that's one of the best feelings in life. And
• 40:46
  Speaker 2: when it comes to fruition is incredible and unique and
• 40:49
  Speaker 2: you learn so much, and you learn so much about
• 40:51
  Speaker 2: the industry you're investing in.
• 40:52
  Speaker 1: Huh, know your skill set, know your blind spot, know
• 40:55
  Speaker 1: your edge.
• 40:56
  Speaker 3: Right.
• 40:56
  Speaker 1: That sounds like very savvy advice. Let's talk little bit
• 41:00
  Speaker 1: about institutional investing. What's happening these years. We had rates
• 41:04
  Speaker 1: and yields on fixed income shoot up in twenty twenty
• 41:08
  Speaker 1: two and twenty twenty three, and pension funds, especially in Europe,
• 41:13
  Speaker 1: seemed to stumble around. That tell us a little bit
• 41:17
  Speaker 1: what's been going on with institutions as you see it
• 41:20
  Speaker 1: from the thirty thousand foot view. Why was last year
• 41:25
  Speaker 1: into this year so challenging for many large institutions.
• 41:30
  Speaker 2: Well, I think in Europe it was some of what
• 41:32
  Speaker 2: we mentioned earlier with the liability driven investing. They had,
• 41:36
  Speaker 2: you know, rates go up precipitously as well for various
• 41:40
  Speaker 2: reasons twice in a very short amount of time. And
• 41:45
  Speaker 2: you know, because they had leveraged in some casions, bomb
• 41:49
  Speaker 2: portfolio has been rates to go up as you know,
• 41:50
  Speaker 2: prices go down. They had margin calls because they were
• 41:53
  Speaker 2: trading on margin in a world.
• 41:55
  Speaker 1: Were their duration issues? Also because I know some areas
• 41:59
  Speaker 1: seem to be in did very long and they're much
• 42:01
  Speaker 1: more sensitive to rate moves than others. Is that part
• 42:05
  Speaker 1: of the issue where they mandated to have longer dated bonds.
• 42:08
  Speaker 1: What's to happen in Europe?
• 42:10
  Speaker 2: It's part of the liability matching, right, So if you
• 42:12
  Speaker 2: have an infinitely lived asset or a very long lived asset,
• 42:15
  Speaker 2: you're going to want to match your investments to that.
• 42:18
  Speaker 2: So that's why they had some of these longer term bonds.
• 42:22
  Speaker 2: US pension funds also had a fair degree of long
• 42:25
  Speaker 2: bond exposure and they hurt you know, I think in
• 42:29
  Speaker 2: the two thousand and eight crisis, a lot of pension
• 42:32
  Speaker 2: fund boards struggled with the fact that their equity portfolio
• 42:36
  Speaker 2: and their bond portfolio and credit portfolio all stumbled around
• 42:39
  Speaker 2: the same time. And it's why you saw in ten,
• 42:42
  Speaker 2: twenty eleven, twenty twelve a lot of the investment policy
• 42:46
  Speaker 2: statements of pension funds changed from saying equity and fixed
• 42:48
  Speaker 2: income to saying growth risk and diversifying risk. And I
• 42:53
  Speaker 2: don't know that anyone really noticed that and this they
• 42:54
  Speaker 2: were working in it, but that is what changed in
• 42:57
  Speaker 2: a large part, because if you have your growth bucket
• 43:00
  Speaker 2: drawn out, so credit and equity, it feels less bad
• 43:04
  Speaker 2: than if you thought something that was diversifying all of
• 43:05
  Speaker 2: a sudden wasn't diversifying, right. So I think last year
• 43:10
  Speaker 2: potentially we still hadn't quite learned the lesson as we
• 43:13
  Speaker 2: were discussing earlier, that these things can all kind of
• 43:15
  Speaker 2: suffer at the same time. And that's true diversifying strategies too.
• 43:18
  Speaker 2: That's two of alternatives. It's true of CTAs. Unless you
• 43:21
  Speaker 2: have a short term trend follower, usually in the instant
• 43:24
  Speaker 2: the market drops, you're going to get all those things
• 43:25
  Speaker 2: to kind of drop too. Beauty about alternatives they're not
• 43:28
  Speaker 2: going to mark, so you might just not notice it
• 43:31
  Speaker 2: for quite a bit of time, so you have some
• 43:33
  Speaker 2: cushion there, and by that time they may have rebounded.
• 43:35
  Speaker 1: Right.
• 43:36
  Speaker 2: But the biggest issue that happened with both Europe and
• 43:39
  Speaker 2: the US, and you can look up a broad elsewhere,
• 43:43
  Speaker 2: was that when these things drop, when your equity portfolio
• 43:47
  Speaker 2: which is supposed to be some return generating mainly, and
• 43:51
  Speaker 2: you're fixing come portfolio which is supposed to be your
• 43:53
  Speaker 2: liquidity provider, but then you don't have a job necessarily
• 43:56
  Speaker 2: in your private markets bucket, you're in a really tricky
• 43:59
  Speaker 2: position for funding new investments, for funding you know, retirement benefits,
• 44:04
  Speaker 2: healthcare benefits, the like. And so they were all kind
• 44:07
  Speaker 2: of in this illiquidity spiral for a little bit of time,
• 44:11
  Speaker 2: and so they actually had to alter a lot of funds,
• 44:14
  Speaker 2: altered their investment policy statements, which are never.
• 44:17
  Speaker 3: Supposed to do.
• 44:17
  Speaker 2: These are supposed to be setting stone reviewed every couple
• 44:19
  Speaker 2: of years in order to allow them to have wider
• 44:22
  Speaker 2: bands in the private markets until things sort of reset.
• 44:25
  Speaker 1: Now, to be fair, you're not really getting marked in
• 44:28
  Speaker 1: private markets what you are in stocks and bonds every tick,
• 44:31
  Speaker 1: so you could kind of ignore that for a while.
• 44:35
  Speaker 2: And they actually might have liked to have been marked
• 44:37
  Speaker 2: down right because it.
• 44:38
  Speaker 4: Would have reseent it would hurt yours as long as reset,
• 44:42
  Speaker 4: but was a loser anyway, you might as well clear
• 44:45
  Speaker 4: the decks, get everything off, and start fresh the following year.
• 44:48
  Speaker 1: You can't really do that with private equity.
• 44:50
  Speaker 3: But it also makes it challenging if you're an investor
• 44:52
  Speaker 3: and you.
• 44:52
  Speaker 2: Decide, well, what do I do about the iniquity I'd
• 44:55
  Speaker 2: like to sell part of my private market book? Well,
• 44:57
  Speaker 2: then where are you pricing it? Because if you go
• 44:59
  Speaker 2: with these inflated asset values and you try to sell them,
• 45:02
  Speaker 2: and they know you're a force seller and they know
• 45:04
  Speaker 2: that the value is likely lower, it actually made it
• 45:06
  Speaker 2: a really tricky environment to kind of close those transactions
• 45:09
  Speaker 2: as well.
• 45:09
  Speaker 1: No one wants to be a distressed seller now, boy.
• 45:12
  Speaker 1: So let's stick with Europe a little bit, and I'm
• 45:14
  Speaker 1: going to ask you to put your econometricians hat on
• 45:17
  Speaker 1: for a second. Us are CPI peaked around nine percent
• 45:22
  Speaker 1: a year and a half ago or so, and the
• 45:25
  Speaker 1: last CPI print was what three point two percent three
• 45:28
  Speaker 1: point three percent year of a year, it seems, and
• 45:31
  Speaker 1: that's with this massive fiscal stimulus, the pig is still
• 45:35
  Speaker 1: working his way through the python. Europe seems to be
• 45:38
  Speaker 1: having a harder time wrestling inflation into submission. Why do
• 45:44
  Speaker 1: we think that is?
• 45:46
  Speaker 3: I think that well.
• 45:47
  Speaker 2: I believe that they our US economics team would say
• 45:50
  Speaker 2: that the wage pressures in Europe are part of the
• 45:53
  Speaker 2: reason they still remain as much.
• 45:55
  Speaker 1: Greater than here in the US, where there seems to
• 45:57
  Speaker 1: be such a shortage in almost every sector of people
• 46:01
  Speaker 1: want to come in and work for a living.
• 46:03
  Speaker 2: We're seeing improvement and I think we're about four or
• 46:05
  Speaker 2: five percent, It could be off on the wage increase
• 46:07
  Speaker 2: number somewhere around there. So we've got stickier inflation still
• 46:12
  Speaker 2: happening in Europe, and in the US we were starting
• 46:16
  Speaker 2: to see signs of improvement. Who knows what could happen
• 46:17
  Speaker 2: between now on the.
• 46:18
  Speaker 3: End of the year.
• 46:18
  Speaker 2: You can't Some of it you can't predict. But we're
• 46:22
  Speaker 2: seeing improvement here and you've got emerging markets. We're seeing
• 46:26
  Speaker 2: more improvement on the inflation front than you're seeing in
• 46:28
  Speaker 2: the US.
• 46:29
  Speaker 1: Huh. Just kind of interesting that that's what's taking place there.
• 46:33
  Speaker 1: So let's stay with the concept of we had inflation.
• 46:36
  Speaker 1: We now have higher FED funds rates, and we have
• 46:40
  Speaker 1: what a number of people have been calling very attractive yields,
• 46:45
  Speaker 1: certainly much higher than they've been in decades. One of
• 46:49
  Speaker 1: the ag funds of I want to say about seven
• 46:52
  Speaker 1: years duration is five percent for investment grade. We haven't
• 46:56
  Speaker 1: seen that in you know, ten fifteen years. What how
• 47:00
  Speaker 1: do you work around those sort of numbers? What does
• 47:04
  Speaker 1: that do to the sort of advice you give to clients.
• 47:07
  Speaker 2: So if we just take the US public pension market
• 47:10
  Speaker 2: and kind of separate it from the corporates and other
• 47:12
  Speaker 2: institutional investors for a moment, five percent is still below
• 47:16
  Speaker 2: most target returns. Most target returns are still around on average,
• 47:19
  Speaker 2: like let's call it seven percent. It might be six
• 47:21
  Speaker 2: and three quarters, but it's not five. So in order
• 47:25
  Speaker 2: to take advantage of some of those, so like agency
• 47:28
  Speaker 2: mortgages may be a good trade right now, right, but
• 47:31
  Speaker 2: you probably want to even that's what the thirties at
• 47:33
  Speaker 2: seven plus rate, So you even want to think about
• 47:36
  Speaker 2: that more in like a credit long short context in
• 47:38
  Speaker 2: and outright by But in terms of a higher rate environment,
• 47:42
  Speaker 2: I still think look, Goman would probably say they're aggressively
• 47:45
  Speaker 2: neutral on on ponds. I love that aggssively right the
• 47:50
  Speaker 2: next three to three to twelve months, because there is
• 47:53
  Speaker 2: still some duration risk. Now the numbers that have been
• 47:56
  Speaker 2: recently coming out that are showing more likely to you know,
• 47:59
  Speaker 2: the economy slowing, we should have avoid a recession. And
• 48:02
  Speaker 2: I will say Goldman's opinion on this is that there's
• 48:04
  Speaker 2: a twenty percent out of a recession in the next
• 48:06
  Speaker 2: twelve months. That is still meaningfully higher than the twelve
• 48:09
  Speaker 2: percent in any given year, right, but it's it's not
• 48:12
  Speaker 2: one hundred percent. It's also not zero. But there's still
• 48:16
  Speaker 2: risk that rates could rise, right. There still could be
• 48:19
  Speaker 2: something that happens we get another rate increase. Our view
• 48:21
  Speaker 2: is that there's not going to be another hike this year,
• 48:23
  Speaker 2: and that in the back half of next year we'll
• 48:25
  Speaker 2: start seeing FED funds comes.
• 48:27
  Speaker 1: Down back half of twenty twenty four. Yeah, So, hypothetically,
• 48:32
  Speaker 1: an investor has listened to you three years ago when
• 48:37
  Speaker 1: you were screaming about inflation is not transitory. It actually
• 48:41
  Speaker 1: turned out to be transitory. Transfory just took a whole
• 48:43
  Speaker 1: lot longer than everybody expected. Everything in life is transitory,
• 48:48
  Speaker 1: all right. So a couple of years ago you had said, Hey,
• 48:53
  Speaker 1: this inflation thing is for real. The Fed's going to
• 48:55
  Speaker 1: raise rates substantially, and given how sensitive dated bonds are
• 49:01
  Speaker 1: too moves up in FED funds, rate investors should be
• 49:06
  Speaker 1: thinking about shortening their duration. Clients who listened to that
• 49:10
  Speaker 1: advice avoided at least some of the bloodshed last year.
• 49:15
  Speaker 1: Now though that rates have gone up five hundred and
• 49:18
  Speaker 1: something basis points and you can actually get five five
• 49:22
  Speaker 1: and a half percent yield. At what point are clients
• 49:26
  Speaker 1: going to want to think about taking advantage and extending
• 49:30
  Speaker 1: duration you mentioned? Goldman says there's a twenty percent chance
• 49:34
  Speaker 1: of recession in the coming twenty twenty four and we
• 49:39
  Speaker 1: may see rate cuts in the back half of twenty
• 49:42
  Speaker 1: twenty four. How do you respond to I have to
• 49:45
  Speaker 1: think clients are asking about duration at this point. What's
• 49:48
  Speaker 1: your response to people who shortened duration a few years ago?
• 49:51
  Speaker 1: And we're very successful because.
• 49:53
  Speaker 2: Of it, right, So I do get asked quite a bit,
• 49:56
  Speaker 2: when can we start adding duration back to the portfolio.
• 49:58
  Speaker 3: It's probably the third biggest.
• 50:00
  Speaker 2: Question that I have been getting In twenty twenty three.
• 50:03
  Speaker 2: A lot of clients weren't able to shorten their duration,
• 50:06
  Speaker 2: some were, some can take advantage of two years, right,
• 50:09
  Speaker 2: and you could get a pretty good return there. But
• 50:11
  Speaker 2: some couldn't, not in their investment policy or they didn't
• 50:13
  Speaker 2: want the reinvestment risk, right, So some are still holding
• 50:16
  Speaker 2: onto those long bonds portfolio. But what I would say
• 50:18
  Speaker 2: is I would look to see where you could add duration,
• 50:22
  Speaker 2: but I would be cautious. There's still risks to the
• 50:24
  Speaker 2: upside on rates and the other part of that. I
• 50:26
  Speaker 2: would say that let's say inflation is coming down and
• 50:28
  Speaker 2: it's moderating, it's coming down from a very high level,
• 50:31
  Speaker 2: but it's not coming down to zero, right, so we
• 50:34
  Speaker 2: could see a three percent level for a while.
• 50:36
  Speaker 3: We could see and that you know, in the grand.
• 50:38
  Speaker 2: Scheme of life, grand scheme of history, maybe that's not exorbitant,
• 50:41
  Speaker 2: but it is a higher cost of capital. Right, So
• 50:43
  Speaker 2: if you think about where term premiums might end up
• 50:47
  Speaker 2: off of that number one hundred and fifty two hundred
• 50:49
  Speaker 2: basis points, you're still looking at a pretty high cost
• 50:52
  Speaker 2: of capital compared to the last ten years, right, So
• 50:54
  Speaker 2: for firms and for refinancing risks. So if you can
• 50:58
  Speaker 2: add a duration, then where you can and take your pockets.
• 51:01
  Speaker 2: And yes, but I still think there's still risk to
• 51:03
  Speaker 2: the upside there, and so again I would reiterate that
• 51:06
  Speaker 2: Goldman's views right now are pretty neutral on equities and
• 51:09
  Speaker 2: bonds the next three to twelve.
• 51:10
  Speaker 1: Months, aggressively neutral. I like that. And you know you're
• 51:15
  Speaker 1: pointing out that it's a very different regime today. In
• 51:19
  Speaker 1: the twenty tens, not only did you have cheap capital,
• 51:23
  Speaker 1: but real returns were so low given how low inflation was.
• 51:28
  Speaker 1: So now capital costs more, inflation is higher. So how
• 51:32
  Speaker 1: do we think about real returns when discussing fixed income?
• 51:37
  Speaker 3: Right?
• 51:37
  Speaker 2: Interestingly enough, there's only you know, a handful of valcators
• 51:40
  Speaker 2: actually benchmark themselves to real returns, and I think, really, yeah,
• 51:44
  Speaker 2: it's not as popular as one would think, particularly when
• 51:48
  Speaker 2: they're having to worry about that on the back end
• 51:50
  Speaker 2: and their payouts and their liability side. But I think
• 51:53
  Speaker 2: it's going to becoming increasingly more important, and it might
• 51:57
  Speaker 2: very well to your point, I believe this is where
• 51:58
  Speaker 2: you get It might change what you're looking looking at
• 52:00
  Speaker 2: and what you evaluate in terms of your outcomes. You
• 52:03
  Speaker 2: also probably will see a change in benchmarking if you
• 52:05
  Speaker 2: think about some of the real asset and infrastructure and
• 52:08
  Speaker 2: real estate investments that were benchmarked a CPI plus a
• 52:11
  Speaker 2: spread for example, or even absolute return that likely was
• 52:15
  Speaker 2: challenged in the last couple of years, So you may
• 52:17
  Speaker 2: see portfolios change as a result of a benchmarking. I
• 52:21
  Speaker 2: do believe the next couple of years will probably start
• 52:23
  Speaker 2: to get more questions on deflation what that means for portfolios,
• 52:27
  Speaker 2: and that can be very tricky if you haven't figured
• 52:29
  Speaker 2: out your liabilities, because that can hurt the liability side
• 52:32
  Speaker 2: of your balance sheet. And if your liabilities are really struggling,
• 52:37
  Speaker 2: then the ability of what you can invest in will
• 52:39
  Speaker 2: be truncated.
• 52:40
  Speaker 1: All right, So you said the duration question is the
• 52:44
  Speaker 1: third most asked question you get from institutional investors. I'm
• 52:50
  Speaker 1: curious what are questions one and two?
• 52:53
  Speaker 2: So number one would be give me ideas on how
• 52:55
  Speaker 2: to raise liquidity in my portfolio.
• 52:58
  Speaker 1: And this is mostly from institutions.
• 53:00
  Speaker 3: Mostly from institutional investment.
• 53:02
  Speaker 1: So when someone says I want more liquiditly is this
• 53:05
  Speaker 1: because they're kind of tied up with long dated bonds
• 53:08
  Speaker 1: or is it more because they're tied up with ill
• 53:11
  Speaker 1: liquid investments looking for the illiquidity premium.
• 53:16
  Speaker 2: Typically it's because they're tied up in inliquid investments and
• 53:18
  Speaker 2: they don't want to miss out on a vintage cycle,
• 53:21
  Speaker 2: or they want to out they see good deals that
• 53:22
  Speaker 2: they want to get done. Another option is that their
• 53:26
  Speaker 2: pension is finite, and so they are not able in
• 53:31
  Speaker 2: certain cases to make the same investments that they used
• 53:33
  Speaker 2: to make. But they see interesting deals and they want
• 53:35
  Speaker 2: to find a way to do them without hurting the
• 53:37
  Speaker 2: liquidity of their structure. And those would be the two
• 53:41
  Speaker 2: biggest cases, but usually it's funding other investments or trying
• 53:45
  Speaker 2: to stay within their policy balance. The second most asked
• 53:48
  Speaker 2: question I get is around either crisis position, crisis risk
• 53:52
  Speaker 2: offt set positions or tail risk hedging or diversifying strategies.
• 53:57
  Speaker 2: People are looking for ways investors, I should say, are
• 53:59
  Speaker 2: looking for way to be protected should this happen again.
• 54:04
  Speaker 2: But you know, one interesting statistics I like to mention
• 54:07
  Speaker 2: is if you think of twenty two diversifiers that are
• 54:10
  Speaker 2: typically involved in a sort of crisis portfolio or when
• 54:13
  Speaker 2: you're in a tail hedge, twenty.
• 54:14
  Speaker 3: Two take twenty two of the most common ones.
• 54:16
  Speaker 2: There's a paper that Goldman has done on this, No
• 54:19
  Speaker 2: two in these three periods, So there are no one
• 54:22
  Speaker 2: in these three periods pre twenty twenty from twenty twenty
• 54:25
  Speaker 2: through twenty to twenty twenty one, and then post twenty
• 54:27
  Speaker 2: twenty two were positive. Huh, so you need more options
• 54:31
  Speaker 2: than you think to kind of hedge the risk there,
• 54:33
  Speaker 2: But more than I've heard probably in the last decade,
• 54:36
  Speaker 2: investors are asking I would like to put a tail
• 54:38
  Speaker 2: hedge on.
• 54:39
  Speaker 3: How can I do that? What should I be looking at?
• 54:41
  Speaker 1: Let's jump to our favorite questions that we ask all
• 54:44
  Speaker 1: of our guests, starting with, Hey, what are you streaming
• 54:47
  Speaker 1: these days? What kept you entertained during the pandemic.
• 54:51
  Speaker 3: So I don't.
• 54:52
  Speaker 2: Watch a ton of TV, I will say, I am
• 54:55
  Speaker 2: a shark tank addict. I am a huge fan of
• 54:57
  Speaker 2: Kevin O'Leary, I think the absolute greatest, But that is
• 55:01
  Speaker 2: really the extent of my TV watching, other than, of
• 55:04
  Speaker 2: course blow bird.
• 55:06
  Speaker 1: So let me throw a Kevin O'Leary thing at you
• 55:09
  Speaker 1: that you probably haven't seen, okay, or if you have,
• 55:14
  Speaker 1: I would be surprised. So there's a young watch geek
• 55:18
  Speaker 1: named Teddy I'm gonna get his last name wrong, Balderas
• 55:21
  Speaker 1: or balder Ass say something like that, and he is
• 55:26
  Speaker 1: pretty well known in the time piece of community, and
• 55:30
  Speaker 1: somehow he him and Kevin O'Leary became friendly and the
• 55:35
  Speaker 1: two of them go on these watch shopping for lack
• 55:41
  Speaker 1: of a better word, expeditions and they're just shockingly hilarious.
• 55:46
  Speaker 1: So if you're a Kevin O'Leary fan, it this is
• 55:48
  Speaker 1: him up close and personal talking about why he likes
• 55:52
  Speaker 1: certain things and doesn't. And you know, Teddy's a young guy.
• 55:56
  Speaker 1: Kevin is a different generation and the interaction it's just charming.
• 56:01
  Speaker 1: And if you're a fan of leary's you'll find this
• 56:05
  Speaker 1: absolutely Thank you for the tips, So yeah, you will
• 56:08
  Speaker 1: thank me for sure. Let's talk about mentors who helped
• 56:12
  Speaker 1: shape your career.
• 56:14
  Speaker 3: Number one would be my dad.
• 56:17
  Speaker 2: We are very close, we have had very similar career careers.
• 56:21
  Speaker 1: We look alike.
• 56:22
  Speaker 2: He's my best friend by far. We talk two or
• 56:26
  Speaker 2: three tight times a day. I'm admittedly super codependent.
• 56:28
  Speaker 3: He's awesome. I was joking earlier.
• 56:32
  Speaker 2: I think Goldman believes me more than he does that
• 56:35
  Speaker 2: I am totally joking. He is wonderful and he's the
• 56:37
  Speaker 2: one person I can trust to give me honest advice.
• 56:41
  Speaker 3: Other than that, I think second.
• 56:43
  Speaker 2: Grade soccer coach, a guy named Jeff Easter. He actually
• 56:47
  Speaker 2: told me to read this book. Golf is not a
• 56:48
  Speaker 2: game of perfect, but he he taught me to like
• 56:52
  Speaker 2: it was a good lesson for being a trader. He
• 56:54
  Speaker 2: taught me to like, move on from your last you know,
• 56:57
  Speaker 2: mystical and just stop stressing over it.
• 57:00
  Speaker 3: I finally.
• 57:02
  Speaker 2: Somebody I used to work with Hawaii, my deputy Cio.
• 57:06
  Speaker 2: He has thirty more years probably an investment experience in me,
• 57:09
  Speaker 2: but always treated me as an equal even though it's
• 57:13
  Speaker 2: his boss, and gave me wonderful advice and to this
• 57:15
  Speaker 2: day is a close friend that can ask anything else.
• 57:18
  Speaker 1: Let's talk about books. What are some of your favorites?
• 57:20
  Speaker 1: What are you reading right now?
• 57:22
  Speaker 2: I just finish The Wager and Endurance and wait.
• 57:28
  Speaker 1: So the Wager I'm not familiar with. Endurance is the
• 57:31
  Speaker 1: Shackleton the Stories, which is insane. I can't believe that's
• 57:35
  Speaker 1: made hit into a movie that anyone knows of what's
• 57:39
  Speaker 1: the Wager?
• 57:40
  Speaker 2: The Wager is a shipwreck actually around the same area,
• 57:44
  Speaker 2: but it is a true story of a shipwreck, and
• 57:49
  Speaker 2: similar to the reasons I like the Shackleford story. It's
• 57:51
  Speaker 2: an interesting examination of leadership in crisis. And also it
• 57:56
  Speaker 2: helps me when I'm running in the morning and I'm tired.
• 57:58
  Speaker 2: I'm like, well I have and I've had water and
• 58:02
  Speaker 2: not covered in lice.
• 58:04
  Speaker 1: Right or sub sub zero temperature with leopard seals.
• 58:08
  Speaker 2: Trying to use I know, it's incredible story.
• 58:11
  Speaker 1: I think I just read not too long ago that
• 58:13
  Speaker 1: they found the Shackleford ship the uh No Way and
• 58:21
  Speaker 1: it's the water is so cold, everything is preserved. Normally
• 58:25
  Speaker 1: the wood would have wrought it away a long time ago,
• 58:27
  Speaker 1: but nothing eats it away because it's barely of a
• 58:32
  Speaker 1: phreezing most It's Unloubal.
• 58:33
  Speaker 2: The Shackleling story really struck me because if you look
• 58:36
  Speaker 2: at the wager, I won't this is not a spoiler.
• 58:38
  Speaker 2: They're mostly negative in this story and he is just
• 58:40
  Speaker 2: like continually positive and it's incredible. It's just it's a
• 58:44
  Speaker 2: great story in leadership.
• 58:45
  Speaker 1: Like if you would have told me, hey, you're gonna
• 58:48
  Speaker 1: lose your ship and you're stuck somewhere in the Antarctic,
• 58:51
  Speaker 1: my assumption is you're gone or you have no chance
• 58:54
  Speaker 1: of survival. Yes, like the fact that if you if
• 58:57
  Speaker 1: you've never read the book Endurance, it's just one of
• 59:01
  Speaker 1: the most amazing. It couldn't be fiction because it just
• 59:04
  Speaker 1: wouldn't be believable. The fact that it's a true story
• 59:07
  Speaker 1: makes it really amazing, right right, Yeah, So two books,
• 59:11
  Speaker 1: The Wager and Endurance. I'm going to have to check
• 59:13
  Speaker 1: out The Wager. Our final two questions, what sort of
• 59:17
  Speaker 1: advice would you give to a recent college grad interested
• 59:20
  Speaker 1: in a career in either investment or risk management, or
• 59:24
  Speaker 1: public pensions or anything else in finance.
• 59:27
  Speaker 2: I think I would encourage them to know the full
• 59:30
  Speaker 2: scope of what jobs you can have investments. You can
• 59:32
  Speaker 2: be in marketing, you can be in communications. We need writers.
• 59:35
  Speaker 2: Everybody needs good writers these days. We need good public speakers.
• 59:39
  Speaker 2: We also need traders, we need pms, we need leaders,
• 59:42
  Speaker 2: we need hr need legal So it always strikes me
• 59:46
  Speaker 2: how the young people seem to think you're just a
• 59:49
  Speaker 2: banker or a trader.
• 59:50
  Speaker 3: Nope, there's a lot of other things.
• 59:52
  Speaker 1: And our final question, what do you know about the
• 59:54
  Speaker 1: world of investing today? You wish you knew let's say,
• 59:58
  Speaker 1: twenty years ago when you first got it started.
• 1:00:03
  Speaker 2: Then no one knows all the right answers all the time.
• 1:00:06
  Speaker 2: They all act like they do, but they don't. And
• 1:00:08
  Speaker 2: if you get it wrong, they've gotten it wrong too.
• 1:00:10
  Speaker 1: Really interesting, Elizabeth, Thank you for being so generous. With
• 1:00:13
  Speaker 1: your time. This was absolutely fascinating.
• 1:00:15
  Speaker 3: Thank you for having me.
• 1:00:16
  Speaker 1: We have been speaking with Elizabeth Taylor Slash Elizabeth Burton
• 1:00:21
  Speaker 1: of Goldman Sachs's Asset Management. If you enjoy this conversation,
• 1:00:25
  Speaker 1: be sure and check out any of the five hundred
• 1:00:27
  Speaker 1: previous conversations we've had over the past eight years. You
• 1:00:31
  Speaker 1: can find those at iTunes, Spotify, YouTube, wherever you get
• 1:00:35
  Speaker 1: your favorite podcast. Sign up from my daily reading list
• 1:00:39
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• 1:00:42
  Speaker 1: Holts or at Barry Underscore Ridults. Follow all of the
• 1:00:46
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• 1:00:51
  Speaker 1: be remiss if I did not thank the craft team
• 1:00:53
  Speaker 1: that helps us put these conversations together each week. Ana
• 1:00:57
  Speaker 1: Luke is my producer, Sean Russo is my researcher. Attica
• 1:01:03
  Speaker 1: of albron is my project manager. Sam Danziger is my
• 1:01:07
  Speaker 1: audio engineer. I'm Barry Hults. You've been listening to Masters
• 1:01:12
  Speaker 1: in Business on Bloomberg Radio.