Hi everyone. Thanks for coming. Today's fireside chat. A little bit before we get started, just please make sure that you fill out the QR code if you want to be checked and for it. But my ansi full class of Blanca, I'm training room analyst at the hue Center for Financial Services and then also the president of the battling investment group. And in a bit I'm going to introduce Professor Sultan, who is the founder and managing director of the trading room. A little bit about today's fireside chat. We're going to have a speaker come in. And so basically, Mr. Angela menu dock has is going to talk to us a little bit about trends in the asset management industry. And basically it's gonna go like he's going to talk a little bit and then you guys have an opportunity to ask questions towards the end. So please make sure that you've perhaps those, It's a great experience to learn from and to be able to ask questions to an industry expert. And so with that, I'll pass it to Professor Zoltan. Thank you, Nicole. Well, welcome everyone. Pleasure to see so many people here, so many students, friends, and just to very quickly fireside chat. It's an informal chat lecture series where we invite industry leaders, experts, professionals. Some of them happened to be alarms like Mr. Angela, money or dark is okay. We're very pleased to have him. They come and talk about the latest trends in the capital markets and whether you're majoring in finance, accounting, economics, Marketing Management, doesn't matter, or political science, history, geography. You have to know capital markets, period. The day you get a job. You have to go and talk to HR, okay. And learn about your 41 Ks and things like that. You have to talk about. If you have to know about this. Let me introduce Angelo money or doc is okay. Angelo's sets investment philosophy and process for more than 1 trillion in assets for Northern Trust asset management. He also plays a key role in establishing strategic and tactical asset allocation. As the chair of the investment policy committee, everything has to go through him. Prior to joining Northern Trust in 2021, Angelo held leadership positions at multiple global investment firms during more than three decades in the investment industry. As Chief Investment Officer for Fidelity Investments Global Asset Allocation Division. He led the growth of assets to $500 billion. More recently, cofounded lantern harbor investment patterns partners, a Boston-based alternative investment firm. Extending his passion for investing to service grows. Angelo chairs the endowment Investment Committee and serves as a trustee at the American College of Greece. He earned a bachelor's degree in finance from Bentley college. It used to be Bentley College and in an MBA from Harvard Business School. So without any delay, it is my pleasure and privilege to welcome Mr. Money, your darkest. Thanks, Jay. It's good to be here at veneer in many, many years. I'm amazed by how much how much has changed. E.g. when I was here and, you know, the eighties, there was no trading room and I just got a tour of it and it was pretty, pretty amazing. I mean, you guys have a reel real asset just to just to date myself when we give you an example of something that happened when I was here in the 80s. I was the very first class that was given a pilot to try something out that was experimental at the time. And that was to give students laptops. You think about how radical that is, alright, So it was like this unbelievable thing where 10% of the incoming students that year were given laptops by the school. Nobody owned them. I mean, there was like a a rare thing and they were they were probably ten pounds each. And it was a trial and this was cutting edge stuff and Bentley was doing that when in other places weren't. So it's it's come a very long way, especially when I sat in that trading room just now and just solve the cool stuff going on there. So I really would like to talk about the asset management industry because I understand that many of you are interested in that. It's gone through unbelievable changes over the year. So I'd like to start by just giving you a flavor for where it was, where it's, where it's been and where it's going to. Because as you think about your career choices and what type of job you may consider an asset management. I think having that context that we very, very important. The history of the business in particular, I think is very interesting. And my guess is, you probably don't learn much about that in school. But let's go back a few years. I want to give you a flavor for what it used to be like. Much of this history that I'm about to recast to you is before my time even. I'll talk about all that and then later on shift and talk about my career progression. Professor Smalltown has asked me to give you a sense of what happened, what choices I made post Bentley as well. And I'll I'll I'll do that and then we'll turn it over to Q&A. So when we think about the industry going back in time, go back to the seventies and eighties and even a little bit of the nineties. But mostly in the seventies and eighties, the money management business was booming. It was an incredible place to be. Virtually anybody who works in the business made a lot of money. Growth was exceptional. People were innovating new products coming out. And there was really one real kind of core reason for that. Which is that at the time, most Americans at this case had their money essentially under the mattress or in banks. Alright, so we think about like all of your parents who own stocks and bonds and accounts at Vanguard and Fidelity, that, that didn't exist back then. Alright. So there was this kind of this, this, this disintermediation that occurred with banks, where the banks were cut out of the picture and higher returning options were now being made available to the public for the first time in the form of equities and bonds and mostly equities. And so people started taking their money out of these bank accounts that were yielding whatever and putting them in stock market. And it became a popular thing that really gave birth to the asset management industry. If you think about those forces at work at the time, those are powerful winds at your back and the industry, right? So any one of you, you graduated in 1975 or 1980 or 95, had gone into the asset management business, even if you've done a mediocre job, probably would've had a wildly successful career. It's not too different from joining Google today or maybe Google ten years ago. It had that kind of a feel to it. So that's the context. So let me give you some characteristics then of what those firms about those firms and about the careers that those firms at the time. So first of all, they were lightly regulated by the SEC was involved, the SEC existed, we had security acts and all that. But for the most part, there wasn't a lot of regulation. Without regulation, you can innovate, move quickly. You can bring a product to market. There's not a lot of scrutiny to it and you watch it and make a killing if it's successful. So that's a key part. It was also very flexible so that because of the lack of regulation, you can innovate in a number of, in a number of different ways. You add new firms that were forming all the time because the money was flowing into these things. So anybody who could start a money management firm did. And they just started spawning. Passive investing was relatively unknown at the time. It basically didn't exist. The whole Vanguard phenomenon, Vanguard was not even just formed. It wasn't even a thing. This idea of passive investing. And as a result of that, we had what I call the glorification of fundamental stock picking and of star managers. So the way it worked was you had a big name on the door, Peter Lynch at fidelity, et cetera. And they made a killing. Markets were somewhat inefficient. So you didn't have the data that you have today in the Bloombergs and all that. It was, hey, if you read Peter Lynch's book, hey, I'm shopping in the store, I see his product, I see everybody buying it. It's a great idea. And you go out and buy it and, you know, it takes a year or two for the market to figure that out today, that's a whole different thing. So the glorification of the star, the star manager quantitative techniques were pretty unknown. There were some early investing shops. Very interesting. Many of them actually started right here in Boston, believe it or not. I think as many of you know, boston is a vibrant and money market community in the entire world. I mean, it is one of the top cities for, for money, money management. I mean, quantitative investing was not particularly known, and there was also much less separation of alpha and beta. So for those of you who haven't taken a finance class yet or have really gotten into the concept of Alpha and Beta. It's really understanding what returns are coming just from market moves and which are coming from actual skill, from making choices in the portfolio that caused you to do better than the market, that's alpha. And that separation is not too clear. Certainly academics knew what Alpha and Beta was the time. But in the general asset management business, it wasn't a thick as it is today. People invested mostly in equities. Fixed income was kind of a sleepy area, wasn't particularly sophisticated. Fees were very high. You bought a stock fund and 1980 and you might pay one-and-a-half percent, which is an astounding number. By the way, that doesn't account for all the trading costs when that stock managers buying and selling stocks in our portfolio that are incurring a lot of transaction costs. And back to the markets were a lot less efficient that they aren't. Today's those trading costs were bit. But nobody, nobody really scrutinize that at the time. A few other pieces here. Tech, technology didn't play much of a role in the way investments happen, like they might today. Sure, these firms use technology for processing payments and so forth and so on, but it didn't have the investment centric role. Then. Finally, what I would say is that the markets were not as global as they, as they are today. If you were to study political science, e.g. and look at globalization, there are all these measures of political sciences. Political scientists use to measure globalization as a thing. You can see that it's been doing this for many, many years until about ten or 12 years ago. And it's actually going the other way, which I'll get to in a minute. But through this whole period of globalization is increasing. So think about that as an investor. Back then, you had all these unknown markets that we're now starting to come online and they're starting to open stock exchanges in parts of the world, they didn't exist before. So there was this rise of international investing. Many of you may have heard back then of Mark Moebius and Templeton invest Templeton, franklin Templeton was like this. And if you think about it, the fact that these other markets have not come online are about to come online with more globalization meant that investors have more diversification, invest in emerging countries, invest in new parts of Europe that were not invested in by most American investors. And all of a sudden, US asset management firms are offering diversified products where you can invest in Sweden and England. And that was like this big thing. And those stocks in those countries behave differently than stocks in the US, which meant you got diversified portfolios. So that's not an insignificant thing, and I'll get to that in a minute. So that's the picture for where the industry used to be. And I feel like it's important to sort of sort of understand that. So let's now fast forward a bit to 01 thing I will say, because this gets to the trading, the trading room. Trading back then was also a manual activity. People picked up phones. There were no screen trading. I mean, it has started to happen in the 90s and 80s. But you picked up a phone, you asked for somebody over Goldman Sachs and you said I'd like to buy this or like the cell that you'd negotiate with them. There'll be a back-and-forth. There might be a few computer screens that were just monochromatic green screens and you would do that train. And he charge you like a whopping condition compared to what happens today happens for pennies today. So think about if you had graduated from Bentley, then what type of jobs you could have happened? You could have been a trade or sitting on a desk picking up those phones, talking to Goldman Sachs and what skills would have made you successful? You would have had to be, you would have had to have been a relationship person, right? Building connections were like a trust. Today. It doesn't happen that way. It's a screen you're like transacting and there's data, and sometimes there's a relationship, sometimes there's not. Okay, So let's fast forward today to think about where we are today in the money management business. First, is that the, the money management business, the asset management business has fully suck all that money. Banks decades ago, right? So it's become its own thing now. And most of your parents and your cells and all of us have money in Fidelity and Vanguard and BlackRock. And it's no longer a growth thing. Important point I'm going to make here, the organic growth of the industry today is close to zero. So think about that. That means that there are no new flows of assets coming into asset management like there were back then. No free for all. If we hit Northern Trust are going to grow our market share, get more assets under management. We got to take them from somebody else. We take them from BlackRock or fidelity or bingo. So again, implications on growth of the industry and on career. Investors have since grown to be much, much more sophisticated today. So what you have today are advanced understandings of the concept of alpha and beta. Not just advanced understanding but measurement. So every investment firm out there is being evaluated from third party providers who are experts in analyzing alpha and beta. They look into your business and they say, hi, this equity manager doesn't exhibit skill. They're basically tracking the index. They're charging you about the same. Charging you more than what that index file gets you. There is no skill there, don't invest in. What that's done is it's put a big scrutiny on us as investors to meet a higher bar. Now, as a Chief Investment Officer, I have to be evaluating my own teams internally on their ability to add real Alpha and not just mimic an index or not just have good returns. They might have a 20% return, but the stock market had a 20% return. I don't need them. That I can do that in index one for close to, close to zero. Much greater use today of data in technology. In some ways, we are becoming technology firms. So a bit of a strong statement, I don't know that I would take it all the way to that, but it's, it's leaning in that direction data and is critical. So understanding the broad amounts of data that are coming out of various areas of the market. Understanding them as soon as everybody else that as a minimum is sort of table stakes. Focus on fees and costs. So remember I was saying earlier how most of the big firms out there back in the day charged big fat fees. Well, that's why everybody in that business was paid a heck of a lot of money. Let's fees were under discrete today. There's a lot of scrutiny on those fees. And it is a tough world, especially when you have zero organic growth, then you're competing for fees. So for some of you who have learned this already in some of your basic accounting and finance classes. This idea of commoditization, parts of our business are becoming commoditized. And if you remember from those classes, what is the definition of a commoditized business? It's lack of differentiation. So parts of our business are lacking in differentiation. Case in point, for most firms, index, ETF index, running, running passive investments. That has become an operational technology game of scale, right? You are processing huge amounts of data, massive amounts of inflows in and out. You have to do it with such low costs and such precision. You make a mistake, just a little mistake, a typo, something goes wrong and an upload of a file somewhere, and you do it on $50 billion overnight. Your firm could be on the hook for that error and you could write a check for $1 million just like that. Clients don't know it, but you're having to deal with it. So it's about hyper efficiency, operational risk, cetera. And those products are less and less differentiated versus competitors. So the definition of a commodity product is lack of differentiation and as a result, what do you have? No pricing power? Those are all that industry indexation, passive business is one where the fees are going to be close to zero single basis points. You have the rise of passing it passive investing in that area. So it's not just commoditization, but more and more big asset owners think of big pension funds, endowments of places like Bentley and other others. They don't really want to take the risk of investing in an active equity fund or an active bond fund, they're concerned that they could get sued if they do that and they lose money or they don't make money and they've paid you hi fi. So many of these big institutional investors that own the big pools of assets that firms like mine invest in. They are saying, I don't want to Peter Lynch anymore. I just want to put it in your index bond at two basis points. And you know what? I sleep well at night and no one's going to sue us and I'm not going to lose my job or lose my seat as a trustee. So these are, these are sort of political realities that are at play here. So active investing now has become less and less prominent in a lot of the big firms as indexation, that's more commodity side of the business grows. So firms like ours now if you notice, if you pay attention, you'll notice There's a lot less about star managers like we almost never emphasize individuals anymore. They used to be in highlights and some firms still do it. But for the most part, we're getting away from that. It's more about Teams or team approach where you don't mean a particular person so that if somebody leaves, you don't have a tough story to tell. A client. Say, well, we've got a team of three or four people, one person left and we've replaced them. That's becoming much less than the ethos. And fundamental analysis is still very important. I don't mean to paint a negative picture and there's a lot of positivity. And what I'm telling you, you just I just haven't told you about it yet, so we'll get to that. But Um, you know, fundamental analysis. A lot of the skills you learned in class is about looking at stocks and looking at bonds is not what it used to be, but it's still going to be very, very important. It's just not as prominent in the business as it used to be. Regulations have increased dramatically and we have our fraudsters to fake for this, you know, all the famous blowups that have happened in the frauds, that fraudulent situations that have happened. You know, they've created more regulation. And so firms like mine are under intense regulation, constant evaluation, committee's risk structures. I was on a call this week with the Federal Reserve and the quiz me on 100 different things and I have to do it every quarter. And that's just part of it. That has an implication on how quickly you can innovate and create new products because you've got this regulation. Again, there's a positive side of this which I'll get to in just a second. So one of the things that let me then pivot to what what's happening going forward and it has some real implications for your, your, your careers. We go into these firms now that are like mine, that are growing in assets, but they're not taking share from other any other companies on average, That's all. There is no organic growth, as I said earlier, how do they make money? Well, they make money because markets generally go up. When markets are going up their assets under management, which is how they calculate their fees. Just keep going up. Even though underneath there's a lot of fee pressure. So firms are really thinking hard strategically about how are we going to either keep our fees from going down or how are we going to hold onto them when markets go back down? So right now with market's going back down, all the asset management firms are feeling some pressure. They're seeing their, their fees go down based on those calculations and nothing's really changed. They're still operating the same business model, but now their expenses look heavier. So it's a beautiful business. And my boss just said this recently, it's a great way of putting it because with market's down so much somebody said, are you second-guessing the asset management business? And he said, this is a really crummy time in a really awesome business. And I say that because think about markets over long periods of time, 581015 years, they always go up. They have blips, they have crushes, but they always go up. So the asset management business has a business model whose revenues just keep escalating as markets go up forever. Think about steel companies can steal company, say that, No, Can airlines say that no. It is a beautiful business model in that regard. And it allows us to grow and grow and grow and make a lot more in profits if you want to think of it that way. Through most markets, it's just where markets are down, then it gets a little bit tough. So let me talk about the six key trends that I think are gonna be crucial going forward. And they all have implications on how you guys should think about your job prospects going forward. The first is alternative investments have been playing a bigger and bigger role in the industry and they will continue to do so. Venture capital, private equity, private credit, secondaries, all of these different alternative products. Why? Well, if you believe what I told you earlier that the industry is becoming commoditized. People are chasing, you know, index passive investment returns at low fees. And all sudden you have this other asset class that says, hey, I can earn you 300, 500, 1,000 basis points more than those public asset classes. Why wouldn't you do it? And the track record is phenomenal in these private asset classes and alternatives. As a result, you've seen institutions and big asset owners putting more and more and more and more into alts for probably, I'm gonna say about 20 years now, roughly, that trend is continuing and it is going to continue, it's gonna go even further. There are some big firms out there who think. And I'm gonna say this as a thought-provoking statement that we could wake up and ten or 20 years and see that for most big institutional asset pools, instead of having 60, 40 bonds stock portfolio, the kind of average that most of these have with maybe a small allocation to alternatives. Those can be mostly alternative portfolios with a little allocation to liquid instruments because they don't need the liquidity. Harvard has $50 billion endowment. Does it need a lot of liquidity? It pays out about 5% every year to fund its operations. Beyond that, what does it need it for? A perpetual pool of assets. So if you put them 70% in alternatives and 30 and public markets for a little bit of cushion and liquidity. That's fine. So there are a lot of players out there who think that's where the businesses going. I don't know if it's going to go that far. But alternatives hugely important and that has implications on the trading of the liquid markets. There's some evidence that liquid market stocks and bonds are becoming less liquid, not across the board. And some of it's due to what's going on with the Fed right now and all that. But, but, you know, if, if, if this trend happens, you could see those markets becoming almost like private markets and of themselves, not as big as liquid as they are today, which is something we've all been used to. Along with the alts, there is one other theme under this one, subheading, which is the democratization volts. So what that means is that we're trying as an industry to find ways to move venture capital, private equity in the lake into smaller and smaller investors hands. And there's a ton of work being done, especially in the FinTech world to do this. That is a golden opportunity. If you are coming out and you're interviewing with a firm that is working on that problem, pay close attention. That's a big problem. Right now. Most of the people investing at all or the big sophisticated institutions that could put it in 100 million or 1 billion and a chunk. But if your mom or dad want to put in $10,000 right now in alts and they shouldn't be able to. Not so easy. There are bunch of firms working on this. Pay attention to that. Second big trend, ESG, I'm sure you've heard all about it. It's huge. It is absolutely critical to how investing will be done. My belief is that there will not be like an ESG version of a stock portfolio without ESG or on and off, it's going to be that, that's just the way investing will be done. At some point in the future. We want even refer to it as its own thing anymore as ESG, it'll just be, that's just the way we invest. We invest for the conscious simply it's part of our, the way we look at stocks and bonds and which ones to pick. I joke about this with somebody in my office the other day. But if you go back and you drive into the countryside, some rural area and you see this motel, right? And there's like a vacancy sign, right? And often says something like free cable television, right? There was a time maybe 25 years ago where you would have been like, wow, I want to go there because there's free cable TV. That's kinda where ESG is today. At some point in the future. Just like with that hotel, you're not selecting that hotel because it's got free cable, right? Everybody's got free cable are free and that's the same thing. It's just going to be the way it, it's going to work. And there's a whole politicization of ESG which will have strategic implications in our business, which I won't get into today. But that's a really big curve ball that's being thrown to the industry. A couple of quick things and then i'll, I'll stop tech and data. Huge. More and more of our investors, The people picking stocks and picking the bonds that go into the portfolios are coming with backgrounds and data science, stats, math, and technology. If you have any intersections of those, wow, that's a big deal where we're having trouble as an industry finding good people is we're having trouble finding people who have that opportunity set and finance and knowledge of markets. So I would urge you to think about that. If you're a finance major and your light on the data stuff, go get brushed up on that. It will greatly improve your chances of getting hired. If you're a data science or technology or stats type person, go learn how markets work. You come into our office with a resume that's got both of these things. It's actually super positive and very hard to find. You can usually find one and not the other. Most of our decision-making is happening that way through large, large bodies of data and processing it and looking for key insights. The fourth big trend is solutions. So we are as an industry, we are providing increasingly solutions to our clients rather than individual products. Go back to the 80s and the 90s. That example I gave you, people would come to his clients who come to us and say, I'm looking for a high-yield bond. Okay, here you go. I'm looking for a growth equity fund. Great. We've got one here. Pretty simple right? Now, what they're saying is, I represent a big pool of IBM pensioners. We have $10 billion in IBM's pension plan. I got a staff of three. I've got to find an investment firm that can handle it and I don't have the staff to do it. So I don't know if I need to high-yield phone and growth equity fund, I wanna give you half of that to manage for me. You put together a solution. Well then either need to understand what's your objective. So what that means is that the asset management business is morphing into almost a consultative arrangement rather than selling product. Where we sit down with our clients, we asked them questions, we iterate with them. The sale cycle is very long. It could be a year, year-and-a-half after that year, year-and-a-half of iterating with them and solving with them. We come up with a solution we presented to them, it may say, okay, and a year-and-a-half later we get half of their pension plan. But we're providing everything. We're doing the high-yield, we're doing the growth, we're doing the buying or selling. We might do asset allocation on top solutions. That's a really big piece. So some of the positions you may see coming out of school will be an asset allocation. Or in multi-asset investing. That's the area that is very hot for the solutions. Piece to other trends. Personalization, that is similar to the democratization. Try and I talked about earlier where their technology needs to be used to personalize the investments so that we can give you exactly what you want and what you want. So you go to a fidelity now, fidelity would say, Well, what do you need? Why need income in retirement? What are you going to retire in five years, okay. How much income do you need? Great, and they figured out, and then they use technology and AI to figure all that out and then put together a portfolio of for you. And increasingly that's all automated. And so you're getting customers, you're getting personalization. But the firms like Fidelity doing this are doing it in a mass customization way. That to you it's not really obvious that it's just being done by technology, but the technology needs to be behind that in order to enable our clients want that personalization. And then the last thing is fi pressure go in the areas where the fees are more resilient and higher. So if you want to go into alternatives, you want to go into new asset classes. Places where typically the fees are more resilient. There are great careers. And for us like our index business where there is more feed pressure, our cash businesses, those have more fee pressures and they're very important to firms like ours. They just don't have all the, all the big growth in terms of fees and revenues and the like. Okay, two points and I'll just quickly pivot to my career journey and then I'll stop. One is on the technologies. These are two little tidbits I just want to leave you with related everything I just said. Pay attention to fintech. Fintech is where the confluence of a lot of these trends will occur. And mostly, so the big asset managers today, I've gotten huge because it's been a scale game, it's been operational efficiency. These are multi-trillion dollar firms they didn't use to be that way they were boutiques back in the day. They become big. Fintech is nimble, lean, mean, flexible. They're coming up with innovative ideas. They're disruptive. And those ideas will migrate and merge and find their way into the bigger firms. Pay attention to Fintech, get to know what those fintech players are, what they're doing. Consider working for one more risk, but more reward and doing that more of a startup area. Because the big firms like ours need the FinTech world to help us write because they're coming up with a lot of really good ideas. And then I would just say, last piece of advice is on the data side and the technology side. Those of you who are interested in working on technology data invest unrelated investing. Pay attention to the mistakes that others are making. Because what I'm seeing are quants coming out of schools, either PhD programs, MBA programs, undergrad. They're coming out. They're brilliant when it comes to data. They're brilliant mining it. They can see statistical trends. But what they don't see is the traps, the unintended consequences of what they're doing. Try to see if you can figure out what those are. Because that's where there's huge opportunity. There all dieting and looking at the same datasets. Every firm's got armies of these people looking at the same datasets. They're all seeing the same trends. They're all ploughing their money into these trends simultaneously, but they don't realize they're all doing it simultaneously and think about what the knock-on effects are. So for those of you who are just in data science and data driven investing, try to take it up a notch and get insights into where those mistakes might be, behavioral mistakes or otherwise. Okay, quick, quick pivot, because I know we're running out of time on my career journey that Professor sulfide has asked me to talk about. So look, I grew up in Western Massachusetts, not that far from here, and this was a big deal for me to go to college an hour-and-a-half away from where he grew up, your Springfield. And I was a first-generation student. So for those of you who saw that movie, My Big Fat Greek Wedding like that was my life growing up. Both my parents are Greek, Big Fat Greek household craziness everywhere. But I was the first to go to college and my house. And I will tell you that it was so important to my family that we all go to college and have a successful Career and all that. And I think that instilled in me a real value in terms of making sure I get the most out of this place when I was here. I think I did. I think I made the most of it. I learned a lot. It was a tremendous experience for me. I think I came away very well-trained. My only regret for those of you who are finance majors and I was a finance major, I regret that I didn't take more liberal arts classes because the finance stuff you need to learn, it's critical. It's going to help you get the job. But then when you're in that job and you're learning it day in and day out. You'll look back and say, gee, I wish, I wish I took that philosophy class, I wish I had English class and so my own, my own personal regret. I wish I'd done more of that. But when I graduated, I wanted to get a job on Wall Street because I wanted to meet investor. And guess what? A big investment firms or not work really come into Bentley than they are today. There's no trading room there was that you guys built this amazing. So I added back door it. And most of the firms, as you might know, or accounting firms, right? But there was an opportunity presented itself. Ge came here and they recruited for the rotational program called the FNP program, financial management program. And the only reason they came here, they would hire one student or maybe to a year because one of the senior executives there from GE was a Bentley graduate and he made it a point to come here and recruit every year. And I heard about this and I saw that they rotated people in and out of different jobs and GE and they had a job in the financial services division for GE. So I thought, okay, I want to work in markets. I'm not even sure they do markets, but that's the, that's the closest thing I'll get to working at Lehman Brothers or Goldman Sachs or whatever at the time. And it was a choice job. I put my all my effort into that and I went there and I got it. And sure enough, when I got into the firm, I rotated through different areas and I learned a bunch about international currency management and then hedging GE's businesses. And then I worked in private investments for a little while, which was really eye-opening and so forth and so on. After doing that for a few years, I realized that when I looked at most of the people, I aspire to be in that time it was analysts and portfolio managers as like, I want to be a portfolio manager, how do I do that? And I went and started talking to them and ask them about their backgrounds at the firm. And almost all of them had MBAs. Okay. I gotta get an MBA. Maybe I needed money, they don't, but they all have it. So what school got my MBA and I went in specifically for that purpose. And a lot of people will go to the MBA program saying, I'm not sure what I want to do when I graduate and that's fine. Management, consulting, investment banking. Well, that's really I knew I wanted to be in money management and so I went in there with that and I came out with that as well. The other pivot I would tell you about what I graduated from, from my MBA program. I was looking for jobs and I had a couple of different options out there and there was one job which was in fixed income. And I thought to myself, I don't want to work in fixed income. I wanna be a stock guy. I want to pick stocks. I wanna be like Peter Lynch and friend of mine said this and just take this fixed income thing pretty seriously. This particular firm was good at it and they're very sophisticated and so forth. And you can learn a lot. And long story short. I decided to stretch my comfort zone and took this job in fixed income. And it was as a credit analyst scrubbing down companies, looking at the credit worthiness of companies so that we can invest in their bonds. I will tell you that was probably one of the best decisions I ever made in my life because fixed income investing is incredibly sophisticated. It is difficult. You look at multiple markets. We look at statistical relationships across markets, their currencies, there's hedging, there's derivatives. It is so intellectually stimulating. I can't tell you how much I was taken by it. What I've now learned in my management positions I've had over the number of years managing teams of investors is. And I don't mean this as a dig towards people who are in the equity business. It is typically a lot easier for a fixed income person if some of that training to go over the other asset classes like equities or Alt, than it is for one of them to go into fixed income. So if you think about your career progression, if you start with a base and fixed income and then you decide that's not for you and you want to pivot to something else. Think of that as a really good knowledge base that will help make you a very good manager of these other asset classes. I went to work as a credit analyst. I became a portfolio manager or as a fund manager for over a decade managing fixed-income portfolios, fantastic experience, competitive, stressful, everything you might imagine it to be. And then there was this pivoted my career where I decided that I really wanted to work on managing people who manage portfolios. And there was a light bulb went off in my brain at that time, which is that I noticed that most people who manage money don't like to manage people, right? You have your Bloomberg screens in front of you, your master of the universe. You think you're smarter than all your competitors and you want to pick stocks and you want to pick bonds. And there's a certain rush that comes out of that. But when you say, Hey, let's go manage a team was committed, What are you kidding me? I'm at the top on the top of the food chain and why would I go do that? Well, I'll tell you why. Why. There's an art to managing people and a science to managing people who manage money. If you can organize a team, a culture, an investment process, create a philosophy that on the margin is just a little better than your competitors. You've created an edge. Think of it as alpha, I call it soft Alpha. For me, overseeing over $1 trillion. I can add value two ways. I can sit there as Chief Investment Officer and say, buy this stock, sell that stock, interest rates are going higher, the Fed is going to do that. But I don't think that I'm particularly better than most CIOs and doing that. Okay, I've come reasonably good at it, but but if I can get my investment teams pulling in the same direction, having really healthy cultures where there's debate and we can help each other see our blind spots, make better decisions, manage risk in a better way. Those cultures, if I get those cultures really humming, that's alpha. And I can spread that across 1 trillion plus follower base of assets, a lot of value. So for me the big Ahad my career later was I liked doing that. I see value in doing that. And that's what I pivoted to doing. And I love what I do. Anyways, thanks for thanks for listening. I'll stop there. And we think we have a good 15 min for Q&A. Love to take any questions, by the way, so most of you don't know me. I love tough questions and singers and if I can't answer it, I won't answer them, but I'll try my best. So yes over here. Can you talk more about why you want it to take more liberal arts courses and what triggered the regret that you didn't have more of a liberal arts background in business. Yeah. What you'll find is as you migrate through the asset management industry, that knowing a lot about markets and trading and croissant and all that. It's kind of table stakes. You'll find yourself at a point in your career where you know just about as much as the guy sitting next to you or the girl sitting next to you. And I think that having a well-rounded view of the world to be able to understand about any kind of concepts. It could be philosophy, could be religion, it could be math. Gives you a well roundedness that will help your perspective on any investment problem. Now there's not a linear connection between these things. It's more of a just a, a worldly kind of view of things that might help you to be a little more innovative. Or think about things that maybe your competitors aren't thinking about. It's about getting, you get the narrow investment skills you need in a place like this, but also getting a little bit of breadth at the top. And by the way, this is one of the key reasons why diversity. Diversity matters, right? Diversity in an investment firm is critical. Not just because it's the right thing to do, but it's critical because it creates higher returns, because you have members of your team that come from different backgrounds, different schools, different majors, different geographies, different religions, and they bring a different perspective that each investment problem. So the reason I regretted it was I wanted to get more diversity in my own brain about the world in a way that we get when we create diverse teams as well. Yes. What challenges do you see in executing process philosophy, but it's such a large scale that you're managing. So I'll repeat that for those who didn't hear because of the mic, what challenges do I see in executing philosophy and process occur across $1 trillion? Where you don't have those obstacles. A smaller amount of money like 100 million, that is a challenge. And that is to me, one of the things that really energizes me trying to fix that, tried to conquer that challenge at big firms. It's about making sure that you're doing a team by team. You break it down into manageable bites. And you spend a lot of time getting to know the teams, getting to know what motivates people hiring really well, not just in terms of diversity to help your process alone, but then really understanding what makes people tick. I think that if you hire people who are hungry for what I call the Rubik's cube of investing, rather than the trappings that come with it. The intellectual stimulation is the key thing. You hire those people, you get a diverse team, then the probability of you creating a really healthy cultures much higher. So what I interview somebody, that person who's sitting across the table from me, He says, Yeah, I know it's a prestigious name company. I know have a great title. I'll know I'll make a lot of money, but This problem is so interesting to me. There's Rubik's cube, like I can't put it down until I get it. That gleam in somebody's eye is what drives it. And then those people know that all those other trappings are important, but that's not what they focus on. I can quickly ascertain the extent to which somebody is interested more in the ego part of it, the money, the title, all that kind of thing. And those are not typically the right people for the kind of culture that I want to produce. The other piece of this is creating a safe investment culture. So you don't want a strong personality on an investment team to dominate the results. You need to think about extroverts versus introverts sounds crazy. But you have a team of ten people and your equity, right? If one of them was an introvert and the other nine are extroverts. Guess what? That introvert is never going to see the light of day. The ideas are never gonna be heard. So thinking about balance about across those teams, making sure it's safe so that the person who is a little quieter, who's probably just as bright heirs his point of view, and it gets hurt and it gets brought out. And to create a safe space where people can create crazy ideas and not get smacked down for that, right? No crazy idea. You think Everyone thinks the stock is going up, you should all raise your hand, say, I think it's gone down and not feel at all stressed about that. That's alpha, right? But think about how hard that is to do in a classroom, right? When all your, all your classmates are going in one direction and you're thinking, I'm not buying this, but I'm not going to raise my hand. If you can create an environment where that is happening, It's kind of an ecosystem is how I think about it. Yep. Thank you. Your lecture is so inspiring. So I have a quick question, everyone talking about that recession in coming years. So what's your guide to your team about the recession in 2023? Something next year. What's your orchitis on your company like yours? So our assessment was that the Fed is going to be aggressive in combating inflation. And they would be willing from their own, their own personal risk management risk reward and figured that way too, they were willing to take some risk of a recession. And up until about a month and a half ago, we kind of give it a 50, 50 odds of some kind of a slowdown. We think those odds are starting to tip to be greater than 50% of some kind of a recession. We don't really like to use the word recession because there are 100 different definitions and everybody has a different definition. So if I'm in front of clients and I say it, I can get different reactions and I'm talking about the same thing, but they don't, they're thinking about different things. So what I want to say is that I think there's a better than 50% chance that the economy will slow to have some negative growth in the coming quarters. We think it'll be shallow, not gonna be earth-shattering. The markets aren't going to like it. Markets are still going to behave. Probably not so great for a few more months, were cautious on taking too much market risk. But the slowdown economically will probably be shallow. And we'll have to weather the storm. Since the importance of AI and technology is increasing in this asset management industry, what role do people play like us as future students? Are we going to play a bigger role, smaller role? Are we going to work as besides them? The role of people besides, Is that what you said? Yeah. Like people sitting behind computers don't go looking at the same data. And AI is also analyzing that data. Do you think AI could at some point overtake the analytics and analytical skills of humans? Or, yeah. It's a good question that I have a, I have not a lot of confidence in the forecast on this. Like I could see a world where AI becomes the dominant way of investing. It's possible, I'd say probably not likely, and it's going to be some combination always of people in AI. So the example I was hinting at earlier when I said look for mistakes, let me give you a concrete example of what that look an example what that looks like. So BlackRock hires PhD from Stanford and brings her in and says, I want you to analyze trends in the XYZ market. So she runs in, She's brilliant, IQ off the charts, runs all this data and says, I see this pattern. If you buy on Tuesdays and so on Wednesdays in this particular error, you make 10% a year more than anything else. Okay? So she's off doing that. Meanwhile, franklin Templeton hires PhD from Yale. Same IQ, puts her over on the West Coast doing the same analysis. All you look at the same market, et cetera. It looks at it. Hey, if you buy on Tuesdays and you sell on Wednesdays, you make 10% year. Wow. They both think they're geniuses. Their management team thinks are both geniuses. They don't realize that they're both seeing the same thing at the same time. What happens? Blackrock on East Coast starts putting money in that trade. Franklin, captain on the West Coast put money in that trait. Northern Trust does the same thing. The same thing, sorry. And all of a sudden there's money going in there. Kind of lock stock and barrel and everybody's making money or is making money until guess what? They don't, it gets taken away. Or they're all on the same side of the trade at the same time in a minute it stops making money. They're all selling simultaneously. Instead of one person selling, you've got 25 firms selling all simultaneously. So this is an exaggerated example, but what happens? Maybe, maybe the market in that particular investment becomes unstable. Maybe there's a crash there because of that. So this is the kinda thing that I think if you can take it one level higher and look at that, that's something that I think humans need to understand that machines don't easily see. No people in the quantized would argue with me on that. That's my, that's my point of view. So I noticed that in your talk you mentioned about the industry becoming commoditized, products being the same and not being on a lot of differentiation. And as a consequence, we had the one of the friend, the trends you mentioned about alternative investments. Investments. I was thinking about what about emerging markets investment? What's your position on that? But do you think the industry is looking at that currently in the outlook in the future? I'd say from a career perspective, pretty positive. Alright? I mean emerging markets is still, there are always new emerging markets, right? Because it's not like they all emerge and then become like the UK and they're not living a longer emerging. They're going in and out. There's a war and then a company was high-quality, High-quality countries, markets are developed and then dictator comes in and they shut the market off for a few years. And all of a sudden that's a deep emerging country. So it's rife with opportunity. It's constantly shifting. And I think that is a great area. And I didn't get to this in my talk, but we talked about globalization. So I mentioned about 12:13 years ago, globalization stopped happening and now it's starting to go down virtually every measure you can look at. And with all of the politicization, politicization going on across the world with dictators of Bertillon and Putin. And all these characters are rising everywhere. There's a lot more regionalization blocks being formed for economic trading. So instead of having a global world market, now, we're talking about China and Russia trading. Alright, turkey. You'll train a little bit with Russia, but not with the US. Saudi use to trade with us, but they're going to trade with somebody. So as you get more of that and less and less globalization, you're going to regional blocks of market activity. And that is going to result in a radically greater diversification opportunities. So for an asset management firm now investing in EM and other investments, we have the potential to have uncorrelated returns by investing in southern markets in a way we couldn't use back. So I think it's very promising. The downside is politically and you might be prevented from investing in some of these countries. So we have clients calling this right now saying, I don't want to be invested in China. And it's a huge part of the international benchmark that we've run for them. So how do we, how do we do that? I'm using to China as an example they think can say that about many other countries as well. In the way that stock markets have become much more efficient and hard to outperform. Do you see that being a risk with alternative investments as companies invest more and more? I think alternative investments will become a little more efficient, but they never have the price discovery, that information discovery that allows them to be really efficient in the way that stocks do. So, no, I think there will always be opportunities, or at least based on how they're structurally how they're structurally set up. I do think there are some excesses and the oldest business, so if you think about it, the venture capital or private equity has been going up for, I think it's like 28 or 30 quarters consecutively, which is never, ever happened before for these asset classes, think about alright, like venture capital, every single venture capital firm out there that I've seen, every single one. Is that 30, 40% returns for like, I don't even know how long. That's not sustainable. And a lot of that I might use due to the flow of money just flowing in and flowing and flowing in. And I think it's creating a little bit of complacency. And I think what you'll see over the next couple of quarters is some losses in these funds for the first time in a few years. Don't mistake in that with the bigger trend not happening, it's just that there's gonna be a correction in those, in those places. But I don't see them as becoming terribly efficient anytime soon. Thank you. Hello. Can you for your presentation. I just have a question for you personally. Maybe this is how you pitch an asset management firm to a potential investor. So why would an investor go with an asset management firm instead of an ETF? What are some of the advantages are things that you might pitch to maybe bringing a big client. Yeah. Well, the ETFs are managed by the asset management firms, so we have our own ETF business. So what we do is when we go to our clients, I was just in Saudi Arabia and Kuwait week before last. And when we meet with these big clients, these are huge pools of money, right? We basically say to them, you're interested in quiet equity, let's say factor and we have that. We have, we have an ETF version, we have a mutual fund version. And by the way, if you don't want either of those because you don't want your investments mingled with others. You can have your own separate account for a certain size. And they all have pricing differences in the light, but we offer them a full range. And this is kinda where the business is going, where we're providing more personalization, more solutioning. We want to give them options. Back in the eighties, it was like you want to invest in one of these big firms, you just have one vehicle. It's a mutual fund, that's it. Now we're offering real choice. And what we find is that clients have strong preferences for one or the other depending on what their unique needs are. E.g. an ETF is more tax efficient than a mutual fund. They could both have the same underlying strategy, both have the same portfolio managers running them identical results. But the ETFs got better tax efficiency. While the Kuwait, Kuwaitis don't care about the ETF because they're not paying taxes in the US. You know, your mom might be like, Yeah, I want to minimize my taxes. I'll put it in the ETF. We present those options as a range of options to the investors you choose what suits you. So you've talked about the flow of funds a few times now it's kind of stagnated and they're not coming from inflows from banks or kind of in the passive ETFs anymore, kind of like how Vanguard benefited. So what do you think, I guess be the key driver going forward, whether it's kinda making alts more investable. Or you've mentioned Fintech, super apps like cash app where you can liquidate a position in an investment and then go spend that on your bedroom or your cash debit card, you know, any store pretty much immediately. So I guess kind of whether it'd be one of those, there's something else going forward. What do you think it's really going to drive that? You mean in terms of careers, career possibilities, know, in terms of just inflows to funds for asset managers, yeah, I think the net inflows will be will continue to be close to zero into the industry. What will happen is the firms that are quick to adopt the new technologies. Like we had a big firm like mine. If we can adopt some of the best thinking from the fintech space and be a little more innovative as a result, whether we build it ourselves or whether we acquire these fintech firms or however we do it, that innovation is the key. And if we're a little more innovative than our big competitors, we're going to start to take market share from them. So a good example of this is Blockchain, right? So if we can take the idea of a distributed ledger, e.g. and we can apply it to how investing is done, whether it be settlements on the trading desk, whether it'd be operational efficiencies in our index portfolios. We can adopt that and some of our competitors aren't doing it. It gives us a little edge. We need to keep building innovation into our business in order to have that edge. That edge is going to allow us to take market share from our competitors. And that's where the flows are going to come from. The second, wary they're going to come from as just the flow effect from going from uninteresting low yielding, low returning asset classes into bigger, cooler, better returning areas like alternatives. So what I talked about the asset management business is not having any net flows within it, right? We've got money going out of equities and fixed income into parts and that's going to continue that's going to continue to happen. Hi, Angela. So we have a question online, um, and the question is, have you noticed any key characteristics in equity researchers that are translated well to becoming a portfolio manager in the industry? Repeat that again. This will make sure I understood. Have you noticed any key characteristics in equity researchers and industry they have translated well into becoming a portfolio manager. Yeah, that's a great question. And that's a very it's, it's one where the answer is very nuanced, but it's important. So a lot of equity analysts who had been doing it for a long time don't want to be PMs because they love equity research. I really respect those people like people who spend their whole career just doing that, and that's it. Then there's another group who want to become PMs. And the ones I want to be Keep PMs, think that if they're good equity analysts and they pick winning stocks, they're gonna be good PMs. And guess what? That ain't necessarily true. Because you're not just picking stocks. Now you, there's a whole other art to being a PM and it's what I call portfolio construction. You need to think about the correlations between the stocks in your portfolio. One of the maximum drawdown risk in your portfolio. Do you have imbedded factor risks that you don't see in there. That's a whole other thing. The person is vaporizing oil stocks for the past ten years. Doesn't know much about that. The folks who really succeed are the ones who can learn about that on the job and can exhibit those portfolio construction characteristics beyond just stock picking. But most stock pickers don't understand that. They just see it as I've been picking great oil stocks for ten years. Like why can't I be a PM? Portfolio construction is so, so important. And it's one of those things that a lot of firms don't teach you. The questions. Yes. Sorry. You're thinking about the Fed pivot. Yeah. So the question because you didn't have a mike on this repeated. So the question is, how are we thinking about the Fed pivot? If I pivoted tomorrow, stocks and bonds, unlike our view, is, I should say we just hired a great former colleague of mine who came out of the Fed as a senior economist. He worked for Jerome Powell and Janet Yellen. Before that, as their senior advisor, was involved in the FOMC meetings and the like, He's helped to inform this view. So what our view is on this is that there is no fed pivot. It's coming anytime soon. Now, the Fed has the overstay. It's welcome. Right now with regards to fighting inflation. And if you put yourself in the fed chairman shoes, think about the risks that he's taking heat for his organization. He's thinking, Okay, if I don't get inflation rate and it gets away from me, we've got a massive problem on our hands. The credibility of the Fed's called into question. Markets are gonna be decimated. It's gonna be horrible. Okay? I'm exaggerating a bit, but that's how he's thinking about. But if I can conquer inflation to be aggressive on it, even if I get it wrong and I overstayed my welcome, we're going to have an economic slowdown. Not great. But we can, whether it, if you think about it from that perspective, his rational decision is err on the side of being harder on inflation At the risk of putting the economy down into some sort of a slowdown. They want absolute trends on their line of sight on inflation and we haven't seen hardly any. So by trends, I mean, it's like month after month after month where it's like, okay, there's a clear trend here. Inflation is coming down. Maybe now I'll pivot. We're not even close to that. So I think we're months away from any kind of a pivot where the Fed does that. But that being said, markets are discounting mechanisms. They're not going to wait until they see the pivot concretely and then react. They're going to telegraph it though as we start to see inflation numbers coming down. They'll start to discount that out, come in and you'll start to see it before the actual Fed change in decision-making. So my guess, and this is just a guess is, you know, we're probably four or five months out from that. Alright, great. Thank you. Thank you so much everyone for coming to the fireside chats, and I'll pass it over to Professor Salter. What a great treat. Thank you, Angela. Thank you so much. I want to thank a few folks. Michael O'Brien from the development office. Thank you for arranging this talk. And also my trading room. Colleagues, okay. Managers and the alveolus. And in a very tough job. The way in the back there. Jt is here, Matt is here. Of course, we have been introduced. Thank you. You make me look very, very good. Thank you. It's a hard job. But again, we just wanted to say, thank you so much, Angela, for coming. This is what we appreciate very much from our alumni. Oh wow, That's great. Thank you. I have no Bentley swag anymore, so I have a shirt that has holes in it, so that's awesome. Thank you. Thank you. Okay.
Trading Room Fireside Chat - Angelo Manioudakis - November 1, 2022
From Jay Sultan November 1st, 2022
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