Many of the fund managers I speak to remain conflicted about how best to position their diverse asset management firm. While I don’t have all the answers, perhaps I can help shed a little light on the topic for folks. Read this while you’re thinking about your capital raising battle plans for 2019. And may it help you separate who’s been naughty and nice, whose chimney you should visit and whose you should skip in the New Year.

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In January of this year, I was asked to speak at the 2018 TEDx UIUC event "Roots." The theme of the event was pretty straightforward - "The beginning of all things are small" (Cicero). The organizers asked me to talk about both my professional journey and the work I do around diversity in finance/investing.

First, I was very flattered.

Then, I *may* have pooped my pants a little at the thought of giving a TEDx talk.

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Ultimately, I of course accepted. And on April 22, 2018 I gave my talk to about 400 students, faculty, members of the Champaign-Urbana community, my mom, and Jill Kimmel (yes, THAT Kimmel).  

The talk looks at what I've identified as the three types of good and bad luck that impact all of us on our journey to success, and how we can create more good luck (or micro-opportunities) to open doors for others and effect change, specifically in the investing community.

If you've got just under 20 minutes, I hope you'll take time to watch it. If you like the message, I hope you'll take time to share it. If you utterly hate it, let me know and I'll send you a personal note of apology for the time wasted AND I'll try to prevent my mom from sending you hate mail, too. 

Posted
AuthorMeredith Jones

I miss Entourage. 

To this day, I’m not sure there was much better than watching Ari Gold lose his collective crappola and yell hysterical insults at people. Listening to Ari’s invective was like giving my id a voice. Sure, it was obscene, profane and probably actionable abuse in many cases, but that’s why it was so much better to watchsomeone else spewing that hilarious filth than to let my own inner Ari Goldout to play.

Vulgarity aside, I also enjoyed watching the agent-principal relationship that Ari had with Vincent Chase. Sure, Vinnie ultimately called the shots, but Ari brought moola and industry know-how to the table. It was, despite a brief firing at the end of Season 3 (and the entire “Medellin” disaster), an almost perfectly symbiotic relationship.

In many ways, you see that same principal-agent relationships play out in the investment world (minus the copious swearing). In fact, I content that all investors can be classified as either principals or agents, or as some hybrid blend of the two, and that it’s critical to know which one you’re dealing with at any given time. 

If you’re a money manager on the prowl for assets under management, knowing whether you’re interacting with a principal or agent can save you time, energy and headaches. If you’re an investor looking for a new role, understanding and explaining whether you’ll be a leading lady/man or Ari Gold can help manage expectations down the line.   

Investors who are principals usually have some traits in common: 

  • They’re often quicker to invest – usually because there’s not layers upon layers of decision makers behind the scenes. There is no (or a limited) investment committee and there’s usually no consultant or operational due diligence outsourced resource. 
  • “Principal” investors may choose more innovative or niche-y investment strategies, invest in new trends earlier and generally take more risks. 
  • However, they are often able to do this because they are investing their own capital and may not have fiduciary duty to anyone other than themselves or a small group of constituents, which means they don’t have to make enormous allocations or worry about headline risk. 
  • Think high net worth individuals, single family offices, small foundations. 

Investors who are agents also have traits in common:

  • They usually take longer to invest due to multiple layers of sign-off and decision making. 
  • You can be pretty sure that every nook and cranny of your fund, firm and investment strategy will be gone over with a fine-toothed comb, because these investors have more headline and client risk. If an agent investor recommends a fund that blows up or fails you’re almost certain to hear about it because they are investing large, either for themselves or on behalf of their external clients.  
  • Because “agent” investors often move as a herd, you can rest assured that where one goes, there will likely be a sequel. Making it past the gate with one agent can pave the way for others.
  • Think institutional investors (whose minutes and meetings are often matters of public record) and investment consultants. FOFs (who generally have to think about attracting clients to ensure their existence) can fall anywhere on the agent-principal spectrum, depending on the organization.
(c) MJ Alts

(c) MJ Alts

Obviously, there are benefits and drawbacks to working with both agents and principals when it comes to investing. The only real drama comes from not knowing with whom you are dealing and therefore not effectively managing expectations (and resources). 

For example, if you’ve got a truly niche-y and innovative strategy that perhaps is a bit untested, presenting it only to agents may pay off, but it will likely be a long slog and you may be stopped out entirely if your strategy can’t handle large allocations. Or if you have a strategy that is more of a new twist on an old tale, Aquaman 2for example, you may find that high net worth individuals aren’t sufficiently wowed by your offering. If you need to get to a quick close, or if you only have limited capacity left before your final close, landing a prime role with an agent may not be possible. But if you’re looking for a large anchor, or if you have enormous capacity and the time to run the agent gauntlet, these investors can provide the bulk of your capital.

And to make matters worse, some agents present as if they were principals, and principals can suddenly bring an agent to what you thought was your fund’s premier. It would be so much easier if there was just a script the industry could stick to, but unfortunately, you just have to try to learn everyone’s role and trust that if there’s some confusion, you can just hug it out in the end. 

It’s that time of year again. The leaves are turning pretty colors. Kids are back in school. There is a real possibility of leaving my air-conditioned Nashville home without my glasses fogging upon hitting the practically solid wall of outdoor heat and humidity. And like any good Libra lass, I’m celebrating a birthday.

That’s right, it’s time for my annual orgy of champagne, mid-life crisis, chocolate frosting and introspection. Oh, and it’s time to check the batteries on the smoke detectors – best to make sure those suckers are good and dead before I light this many candles.

One of the things I’ve noticed in particular about this year’s “I’m old AF-palooza” is how much time I spend thinking about sleep. On any given day (and night), I’m likely to be contemplating the following questions:

  1. Why can’t I fall asleep?
  2. Why the hell am I awake at this hour?
  3. How much longer can I sleep before my alarm goes off?
  4. Why did I resist all those naps as a kid?

I even bought a nifty little device to track and rate my sleep (oh, the joy’s of being quantitatively oriented!). Every night, this glowy orb tracks how long I sleep, when I wake, how long I spend in deep sleep, air quality in my bedroom, humidity levels (in the South – HA!), noise and movement. 

To sleep, no chance to dream

To sleep, no chance to dream

Yes, I’ve learned a lot about my nocturnal habits from my sleep tracker – for example, I move around 17% less than the average user of the sleep tracking system, I’m guessing due to having two giant Siamese cats pinning me down - but the one thing I didn’t need it to tell me was that I SUCK at sleep.

I’m not sure when I went from “I can sleep 12 hours straight and easily snooze through lunch” to “If I fall asleep RIGHT NOW I can still sleep 3 hours before my flight….RIGHT NOW and I can still get 2.75 hours…1.5 hours….” but it definitely happened.

I don’t drink caffeine. I exercise. I bought a new age aromatherapy diffuser and something helpfully called “Serenity Now” to put into it. I got an air purifier, a new mattress and great sheets.

But no matter what I try, I am a terrible sleeper.

I’ve concluded that it must have something to do with stress. I do spend an inordinate amount of time thinking about life, the universe and everything, so perhaps that’s my problem.

So in honor of my 46th year on the planet, I decided to compile a list of the top 46-investment related things I worry about at night. They do say admitting the problem is the first step in solving it, after all.

In no particular order:

  1. $2 trillion increase in index-tracking US based funds, which leads me to…
  2. All beta-driven portfolios
  3. Short-term investment memory loss (we DID just have a 10 year index loss and it only ended in 2009…)
  4. “Smart” beta
  5.  Mo’ Robo – the proliferation (and the dispersion of results) of robo-advisors
  6. Standard deviation as a measure of risk
  7. Mandatory compliance training - don’t I know not to take money from Iran and North Korea by now?
  8. Spurious correlations and/or bad data
  9. Whether my mom’s pension will remain solvent or whether I have a new roommate in my future
  10. Politicizing investment decisions
  11. Did I really just Tweet, Blog or say that at a conference?
  12. Focusing on fees and not value
  13. Robo-advisors + self-driving cars equals Skynet?
  14. Going through compliance courses too quickly & having to do them over again
  15. Short-term investment focus
  16. Will I ever have to wait in line for the women’s bathroom at an investment event? Ever?
  17. Average performance as a proxy for actual performance versus an understanding of opportunity and dispersion of returns
  18. The slow starvation of emerging managers
  19. Is my industry really as evil/greedy/stupid as it’s portrayed
  20. Factor based investing – I’m reasonably smart – why don’t I get this?
  21. Dwindling supply of short-sellers
  22. Government regulatory requirements, institutional investment requirements and the barriers to new fund formation
  23. “Chex Offenders” – financial advisors and investment managers who rip off old people (and, weirdly, athletes)
  24. The vegetarian option at conference luncheons – WHAT IS THAT THING?
  25. Seriously, does anyone actually read a 57-page RFP?
  26. Boxes...check, style, due diligence...
  27. Tell me again about how hedge fund fees are 2 & 20…
  28. The markets on November 9th
  29. The oak-y aftertaste of conference cocktail party bad chardonnay
  30. Drawdowns – long ones mostly, but unexpected ones, too
  31. Dry powder and oversubscribed funds
  32. Getting everyone on the same page when it comes to ESG investing or, hell, even just the definition
  33. Forward looking private equity returns (see also: Will my mom’s pension remain solvent)
  34. Will my investment savvy and sarcasm one day be replaced by a robot (see also: Mo’ Robo)
  35. After the election, will my future investment jobs be determined by my membership in a post-apocalyptic faction chosen by my blood type?
  36. How many calories are in accountant-provided, conference giveaway tinned mints? (See also: conference chardonnay)
  37. Why are financial advisors who focus on asset gathering more successful than ones that focus on investment management? #Assbackward
  38. Dunning Krueger, the Endowment Effect and a whole host of ways we screw ourselves in investment decision making
  39. Why divestment is almost always a bad idea
  40. Active investment managers – bless their hearts – they probably aren’t sleeping any better than I am right now
  41. Clone, enhanced index and replication funds – why can’t we just K.I.S.S.
  42. The use of PowerPoint should be outlawed in investment presentations. Like seriously, against the actual law - a taser-able offense.
  43. Will emerging markets ever emerge?
  44. Investment industry diversity – why is it taking so looonnnnggg?
  45. Real estate bubbles – e.g. - what happens to Nashville’s market when our hipness wears off? And is there a finite supply of skinny-jean wearing microbrew aficionados who want to open artisan mayonnaise stores that could slow demand? Note to self, ask someone in Brooklyn….
  46. Did anyone even notice that hedge funds have posted gains for seven straight months?

Yep, looking at this list it’s little wonder that sleep eludes me. If anyone can help alleviate my “invest-istential” angst, I’m all ears. In the meantime, feel free to suggest essential oils, soothing teas and other avenues for getting some shuteye.

 

Sources and Bonus Reading: 

Asset flows to ETFs: https://www.ft.com/content/de606d3e-897b-11e6-8cb7-e7ada1d123b1

Recent HF Performance (buried) http://www.valuewalk.com/2016/10/hedge-fund-assets-flows/

HF Replication: http://abovethelaw.com/2016/10/low-cost-hedge-fund-replication-may-threaten-securities-lawyers/

Average HF Fees: http://www.opalesque.com/661691/Global_hedge_funds_slicing_fees_to_draw_investors169.html

Political Agendas & Investing: http://www.njspotlight.com/stories/16/10/03/murphy-adds-plank-to-platform-no-hedge-funds-in-pension-and-benefits-system/

Asset Gathering vs. Investment Mgmt: http://wealthmanagement.com/blog/client-focused-fas-more-profitable-investment-managers

World's Largest PE Fund: http://fortune.com/2016/10/15/private-equity-worlds-largest-softbank/  

Spurious Correlations: http://www.bloomberg.com/news/articles/2016-10-14/hedge-fund-woes-after-u-s-crackdown-don-t-surprise-sec-s-chair

Short-Term Thinking - 5 Months Does Not Track Record Make: http://www.cnbc.com/2016/10/14/venture-capitalist-chamath-palihapitiyas-hedge-fund-is-outperforming-market.html