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Host Stacy Havener brings you the storytelling tips, sales strategies, behavioral secrets, and inspirational stories that help YOU turn your words into dollars. Learn from sales and marketing experts. Meet finance and investment leaders, founders and fund managers who have made it, and the ones on the rise. Because there are people behind the portfolios. Their stories matter. So does yours.
@stacyhavener // www.billiondollarbackstory.com/
Aaron: Managers tend to prioritize
the quantitative and look at my
sharp ratio, look at my drawdown
statistics, look at my Sortino ratio.
Look at all these different
risk adjusted returns.
Whereas on the allocator side,
who's sitting closer to that client,
they're much more qualitative
in nature, and they're focusing
on what makes you different?
What makes you, uh, smarter
than the competition?
How at the end of the day,
are you gonna help my client?
Achieve their different outcomes
that they're trying to accomplish
their own lives, whether that,
again, that's personal or it's
in a institutional setting.
And so what was really interesting
about this report is the difference
in terms of approach, um, between
those two, uh, Constituents, which
those two constituents really have to
come together at the end of the day
cause that's how the business is done.
Stacy: Hey, my name is Stacy Havener.
I'm obsessed with startups,
stories and sales.
Storytelling has fueled my
success as a female founder in the
Toughest Boys Club, wall Street.
I've raised over 8 billion that
has led to 30 billion in follow on
assets for investment boutiques,
you could say against the odds.
Yeah, understatement.
I share stories of the people behind
the portfolios while teaching you
how to use story to shape outcomes.
It's real talk here, money,
authenticity, growth, setbacks, sales
and marketing are all topics we discuss.
Think of this as the capital
raising class you wish you had
in college mixed with happy hour.
Pull up a seat, grab your notebook,
and get ready to be inspired
and challenged while you learn.
This is the Billion
dollar Backstory podcast.
What we've got here is
failure to communicate.
I think of that line from Cool Hand, Luke,
often in the investment industry, two
sides of the proverbial table allocators
and asset managers, and it's as if
they're speaking two different languages.
For all intents and purposes they are, and
it's a chasm we need to cross if we want
to move the industry forward as a whole.
The Chartered Alternative Investment
Analyst Association did a study on
the key drivers for manager selection.
It.
Is gold.
I literally quote the study
in almost every conversation,
podcast interview, presentation.
So I figure it's about time I get
my friend Aaron, fill back on the
show to dive deep with us into the
past research, yes, but also into
the future of the alts industry.
Aaron's journey began as
an allocator conducting due
diligence on asset managers.
Now he's an educator trying to help them.
Aaron is a managing director at CAIA
and the head of their Unify program.
CAIA serves 13,000 members around
the globe with 33 chapters, hosts 250
events per year, and produces extensive
research on alternative investments.
One of my favorite things about
CAIA is their people, the way
they show up with authenticity.
And today's episode has quite a few
authentic moments, including a section
where I totally screw up and refuse
to edit it out of the conversation
because, hey, we're real people here.
Don't talk about it, be about it.
Without further ado, let's dive in
behind the scenes of my favorite
research on manager due diligence.
Meet my friend Aaron, fill back.
Aaron, thank you so much for being here.
It is such a pleasure.
I feel like I'm turning the tables
a little bit because you and I
have done interviews together many
times in the past, but now I get to
ask you some questions, my friend,
and I'm so excited to invite our
listeners into that conversation.
So thank
Aaron: you.
Yeah.
Well thank you Stacy, and it's
been fun interviewing you over the
years, so I'm excited to see how the
tables turn and hopefully you can.
Uh, you'll be nice.
Stacy: I'll be very nice.
I'll be very nice.
So, I mean, we've been friends,
we've been colleagues in the
industry for a long time.
You know that stories are my jam
and that's where we're gonna start.
Obviously here you are.
Literally sitting at
CAIA's, uh, US office.
But I wanna go back, I wanna go
back to where this all started.
Did you always know you wanted
to be in the investment industry?
What was that path for you to get to CAIA?
Aaron: The answer is no.
I, I didn't always know that I
wanted to, to be in the investment
industry early in my career.
So I originally, I wanted
to be an architect.
In high school, like, you know,
I was like, I'm gonna go to go to
university and become an architect.
I'm gonna build stuff and design stuff.
And that was really
kind of my, my passion.
Um, I went to school and I started
off in, um, actuarial science.
So that was a pivot.
The first pivot, I guess, uh,
you could say where I was in
finance, math, statistics, all
the fun, quantitative stuff.
And then, uh, took an accounting class,
took a finance class, and ultimately
decided, well, I think I'm just gonna
do finance instead of actuarial science.
Uh, just found it so interesting and
fascinating and you know, here I am
Stacy: today.
So wait.
Okay, we're coming back to the
architect piece, but I'm gonna make
you go a little bit deeper here
because before you ended up at CAIA,
you actually were an allocator.
And I think that part of your
journey super fascinating.
I also wonder, I mean, I don't know.
Your parents personally, but I know
of your father, so I wanna weave
in just like what's going on in
the Lbeck house that maybe informed
some of this journey for you.
Aaron: So both my parents are
in education, so grew up in
a very academic household.
Um, and so, you know, teaching and
helping people understand, uh, complex
concepts and breaking it down, uh, was
always kind of a piece of my upbringing
and, and I think ultimately led to
where I am today, uh, with, with CAIA.
So that's always kind
of a fascinating thing.
My dad is obviously in the
industry, and so a lot of people
know him and, uh, we sometimes
get confused, uh, as one another.
I've had a couple people reach out
and say, oh, I, you know, took your
class, uh, you know, 20 years ago, and
I was like, uh, I don't think you did.
So that's, that's always
been really, really cool.
But, uh, yeah.
So to to your, uh, your earlier comment.
So, Left school, um, started a
career in wealth management, uh,
working for an RIA and was on
the allocator side of the table.
So doing a lot of manager research
and asset allocation and fund
selection, and really getting into
the nitty gritty of the investments.
Did that for a number of years.
And then, uh, this opportunity
popped up randomly at, uh, at CAIA.
And I, I was kind of sitting there
thinking about my career and what I wanted
to do, and, you know, there's always this
kind of academic, educational itch, uh,
that I had and CAIA's in a unique position
where it's not a full-blown university.
You're not, you know, sitting as
a, as a professor necessarily.
And you're still in the industry,
which I very much enjoyed.
But there's a little bit of a,
a unique perch that CAIA has in
terms of observing, um, everyone.
I mean, we've kind of got this
unique, uh, perspective of allocators
and managers and getting kind of a
nice perspective of the industry.
So, saw this posting and, uh, ultimately
had a couple conversations with, uh, some
of the people here at CAIA and Joints.
I've been here for, uh, Almost four years.
It's hard to believe, feels like, uh,
quite a long time, but I'm having a blast.
It's a lot of fun.
Stacy: That's so great.
And obviously I knew you when you were
on the other side of the table and I
was joking in the green room that, you
know, I guess there's three tables kind
of in the industry because you left.
That allocator side, you didn't
come to the dark side, which is
this side where the managers are.
Right.
You kind of went to this other
perch and I love that word.
What a great word for the
table that you guys are at.
That's, that's awesome.
Well wait, one more question.
What did your mom
Aaron: teach?
I.
So my mom's taught a couple things.
So she is, um, she's an
elementary school teacher.
Uh, second and third grade.
She's taught at university.
So she, um, was a English
teacher and, uh, wonderful.
Right now she's, she's teaching
middle school, so she's
kind of, she's seen it all.
She's, uh, she's had all different
ages and different backgrounds.
Stacy: Awesome.
You know, there's something to be
said for being able to simplify.
Complex things, which you talked about.
Nothing will get you there.
Like tell it to me like
I'm in fifth grade, right?
So there's something
really interesting there.
I wanna talk about CAIA
for a second because.
One of the things that's so important to
storytelling is what makes you different.
It's kind of this idea that like, why
does the world need another insert?
Whatever you are, right?
Because there's so much proliferation
across industry definitely here
in, in a lot of different ways.
And so when you look at the.
The investment landscape, the profession.
Why did the world need
another association?
Because there were certainly professional
associations out there doing great
work helping people, but why?
Why CAIA?
Aaron: Yeah, no, it's, it's a really
good question and I think something
that we are constantly trying to
challenge ourselves with and, and
ask that question of ourselves.
So, CAIA, you know, started,
we're, we're celebrating our 21st
birthday this year, so we've been
around for, for over 20 years.
And the genesis of CAIA really came
out of, uh, the hedge fund space.
So early two thousands, uh, you know,
these, these hedge fund strategies
were popping up all over the place.
This term alternative investments were
really synonymous with, um, hedge funds.
And, uh, you know, there wasn't a whole
lot of other things, um, in that umbrella.
Private equity was still relatively
small terms of assets under management.
Real estate's always been there, but.
You know, may not have been a, a big
piece of the institutional pie and so on.
And so as, as CAIA started, we really
looked around and said, there's all these
new strategies that asset allocators are
looking at to complement maybe the more
traditional long-only stocks and bonds,
but they don't fully understand it.
And wouldn't it be great if there was
some kind of an educational program.
To help train them on some of
these more esoteric strategies.
Yeah.
And thinking across the entire portfolio.
And so I think, you know, fast
forward to today, alts are over 18
trillion in assets under management.
It's a very diverse,
um, group of strategies.
So hedge funds is a
very big piece of that.
But private equity has, uh, grown
from a very niche, uh, industry
into a very mature institutional
asset class, almost 10 trillion,
um, in assets under management.
Real estate has become its own private
credit, one of the fastest growing,
uh, strategies in the industry.
So we've got this whole plethora of,
of strategies that are now available.
And you look at where a lot of
the, the capital is going in the
institutional space and even more
recently in the private wealth space.
And people need education.
They need to understand how these
strategies work, the ins and out of
them, ins and outs of them, and, uh, are
they appropriate for their end clients.
And so I think where we sit, we're
trying to make sure that we're
raising the standards, raising
the bar for the industry that's
continuing to grow and evolve.
But where that educational gap is,
is sorely needed, is where we sit.
Stacy: That's great.
And I love that you're specialists, right?
I talk so much about that.
Like serve, be, you know, be
something special to someone
specific and CAIA, is that right?
And even going all the
way back to your genesis.
This, which at the time probably
felt a little kind of startup rebel,
you know, to say, Hey, here's alts.
It's, it's becoming something and we want
to become something right alongside it.
Mm-hmm.
And that's awesome, and I love
that you've stuck to that.
I mean, you've expanded in many
ways and we'll talk about that,
but I love that you've stuck to
that specialization and just.
Own it, and I hope that people
listening kind of get courage
from that because you've built
something really, really special.
So you talked about kind of sitting
in between different constituents,
and that's something that.
I'm big on two, like who, you
know, who is your target market.
You talked about the allocators,
you talked about the managers.
Do you feel you serve both of those
groups or do you feel that one or the
other is more of your target market?
I can relate by the way to having two
target markets in the seat that I'm in,
so I'm curious, yeah, if you identify
with one side or the other more strongly.
Aaron: Yeah.
And, and I'll, maybe I'll answer it
in a, in a slightly different fashion.
We, we have this, uh, this
tagline, think like an allocator.
Yes.
I love that tagline line.
We, we've used that in our marketing
materials and you see it on our
website and, and a lot of our, um,
outward facing, uh, conversations.
So it, it says, think like an allocator.
Doesn't mean be an allocator.
And so the way that we're, ah, we're
trying to help the industry is to think.
Like that asset owner, the institutional
investor, the private wealth manager
who's looking across a variety of
different asset classes and strategies.
And so everything that we do is from
that lens of those people who are
closest to the client and trying to.
Serve that end client doesn't mean
that all of our members are allocators,
but you know, if you're a hedge fund
manager or you're a a private equity gp,
having an understanding of that total
portfolio is so important and where
your particular strategy fits into that
overall portfolio only makes you better.
It only makes you better at having
those conversations, and it only makes
you better in terms of how you position
that, that strategy in the marketplace.
So I, I guess I would say we
take all comers, um, anyone Yeah.
Who wants to go through the
program, uh, welcome to do so.
But what you'll find is that the
way that we talk about things and
our thought leadership and, and our
curriculum is very much focused on
that perspective of the allocator.
Gosh,
Stacy: I love when I'm doing a podcast
and I feel like I should do the
Running Man, which I can't do cause
I'm like hooked up to all this stuff.
Plus I won't be able to see it.
But that makes me wanna
just jump outta my chair.
I love that.
I love that because putting ourselves
in the shoes of the people we
serve is the very best place to
start, I think in every industry.
But.
Definitely in this industry.
It's like, okay, I have to
pitch, okay, this is my time.
It's about me, it's, it's me, me, me.
And that's so broken.
We are not the heroes of our story.
We are the guide.
And what you have captured in that
tagline is all of that, and then some.
Think like an allocator,
not be an allocator.
That was awesome.
I love that.
Aaron just like high five from
the storyteller marketing person.
Um, that is, that is good.
That is gold.
Okay.
I feel like this has been such
a long time coming this next.
Part of our conversation and
you're gonna laugh because, you
know, I carry this research paper
around for what, two years now?
Is that how old
Aaron: this?
I think, I think it might be two years.
But hey, it's got life.
It's not
Stacy: life.
It can never die.
It can never die to me.
I'm, I'm, I'm holding it close.
Can we spend some time geeking
out on this cuz it's so important.
To our listeners, so for those of you are
like, what the heck is she talking about?
I hold here in my hands also gold.
The alternative investment
due diligence survey on key
drivers for manager selection.
This is a, a amazing research report that
CAIA put together a few years ago and.
The gist of it in my, from my
perspective, is just a, again, think
like an allocator understanding how
allocators conduct manager research.
Yes.
But some of the things that were most.
Telling for me was the, the
fact that you also included the
managers in that conversation.
Mm-hmm.
Because then you could see where
the gaps were like, allocators sync
this, but managers think allocators
sync something totally different.
And those elements really
jumped off the page for me.
So, The biggest thing I always talk
about here, and I'd love for you to,
to riff on it, is the idea that in
a numbers industry, numbers are the
only things, things that matter, and
I feel that needs to be challenged.
And I felt like your research
really uncovered that.
Can you speak to the different, you
know, the roles that may be qualitative,
quantitative, and I don't wanna ignore
our friend operational due diligence,
but just for me, that qualitative,
quantitative piece really is the thing.
Aaron: Maybe I'll start big and
I think moving into, do it into
the, the due diligence process.
So I think you're right.
We are, we are a numbers industry.
You go through your, your credentials
and you're, you're doing the analysis
on, on your individual investments,
and it's a very quantitative industry
in terms of how we approach things.
If you think about.
The perspective of the client.
So whether that client is an institution
or an individual, clients are not
usually very qualit or quantitative.
They're very qualitative in nature.
So they're asking questions.
If you're an individual, they're
asking questions about, can I retire?
Am I gonna be able to sustain
my lifestyle in retirement?
You know, am I on track and uh, am I
gonna be fine at the end of the day?
And so we've got, on one hand, we've got
this very, very, Quantitative industry.
On the other hand, we've got
this very qualitative client.
And so that translation really comes to
fruition in the asset allocation process,
but also the manager selection process.
And so what was interesting about this
report on the due diligence side is
that, uh, I think one of the interesting
things is that, Managers tend to
prioritize the quantitative and look
at my sharp ratio, look at my drawdown
statistics, look at my Sortino ratio.
Look at all these different
risk adjusted returns.
Whereas on the allocator side,
who's sitting closer to that client,
they're much more qualitative
in nature, and they're focusing
on what makes you different.
You know, what makes you, uh,
smarter than the competition?
How at the end of the day,
are you gonna help my client?
Achieve their different outcomes
that they're trying to accomplish,
uh, in their own lives, whether
that, again, that's personal or
it's in a institutional setting.
And so what was really interesting
about this report is the difference
in terms of approach, um, between
those two, uh, Constituents, which
the two constituents really have to
come together at the end of the day
cause that's how the business is done.
But I, it is a very interesting
report, and I know you've been
singing its praises for the past two
years and we really appreciate it.
But I think it's still, it's true today.
Stacy: Yeah, it sure does.
And I think that that communication
gap, you know, if, if story unlocks
sales, then understanding who you're
speaking to is super important.
Who you're telling the
story to and what story.
You're telling, if you're telling a story
that the, that the allocator, in this
case, the think like an allocator tagline.
If you're telling a story the allocator
doesn't really want to hear, then you're
sort of speaking two different languages.
It's not a story that's gonna resonate.
And then, you know, if you're the
manager who's, who's doing this,
who's kind of approaching the due
diligence process very quantitatively.
You're gonna leave and get super
frustrated, like, well, that
doesn't, you know, it's not working.
What's wrong with them?
And it, it just creates all
this unnecessary tension.
It's like the very first thing we
need to do is understand what language
we're speaking in and let's meet there.
To your point, that's better for everyone.
Manager.
Allocator client, whomever
the client may be.
So that was, that's the biggest thing that
I sort of gravitate to in this report, is
that allocators believe qualitative is as
important, if not more than quantitative.
And managers are kind of the opposite.
And that's something that I think
personally and professionally, we
all need to try to bridge that gap.
There was something else as I was
preparing for this, I, I always get
something new when I read this report
and let me see if I can find it here.
Oh yes.
So the thing that kind of hit me
today was, What determines the
predictability of future returns?
Hmm.
And I'm, I'm sort of putting you
on the spot here cause I didn't
tell you I wanted to talk about
this, but this was fascinating.
75% of the investors surveyed rate
qualitative analysis as having higher
predictability than quantitative.
And can you talk to that?
I mean, you've actually been in the sea of
an allocator, so I think you have a really
unique perspective, not just at CAIA,
but also kind of being a practitioner.
I think that would surprise a lot
of managers that allocators look to
qualitative for predictability of returns.
Aaron: Well, and I think it
comes down to the simple notion
of, you know, past performance
doesn't predict future returns.
And so, The quantitative numbers
that you see on a page or a fact
sheet or anything along those lines,
those already have been realized.
The other investors got those returns.
And so it might get you in the door.
You might get a good understanding of
how the strategies work historically,
but if you're in that allocator
seat, you're more concerned about,
you know, where does the future lie?
You know, how are you gonna continue
to, to generate those returns, um,
in the future and help my client
achieve those different goals
that they're trying to accomplish?
So I think that takes a much
more qualitative approach.
You're buying into the manager themselves,
the team, how they implement their
process, decision making, uh, processes.
You know, is there one key person
who's making all the decisions?
Is it a team effort?
Where do you guys specialize?
I mean, there's a lot of qualitative, um,
metrics that, uh, you should focus on.
To make that decision moving forward.
The past, past performance is, is
great and it can be helpful in forming
questions for the future returns.
But if you're simply relying on a
historical screen, the research is
shown and you can look at mutual funds,
you can look at other strategies.
Usually those, you know,
top quartile managers.
Immediately afterwards, we'll
go through a, a really rough
period and hopefully, you know,
hopefully you can stick through it.
But, um, if you're simply relying
on those numbers, it usually
doesn't lead to a good outcome.
Stacy: And you know, when you say
it, it makes total sense, right?
I mean, as a manager being on that side
of the table, you're like, well, of course
my past returns don't predict anything.
And then it's so, so begs the question
then why do you keep talking about that?
Right?
It's like, if you know it,
because we do intuitively, then
why are we so focused on it?
Yeah, and I, I've heard a couple
different like quotes that I love.
You kind of said one there, which is
like, past performance is other people's
alpha, and I think that's so true.
I have another friend in the
industry who, who says yesterday's
performance is not for sale.
I.
That's a good one.
It already happened.
And so the key, I love how you said
the key is to take those numbers and
develop qualitative questions to uncover
how did that experience come to be?
Where's the repeatability
that led to that?
And or if there are anomalies
in those numbers, good or bad.
Mm-hmm.
Let's talk about that
and let's explore that.
And I don't think managers
are ready for those types of
questions the way they need to be.
Aaron: And I think that, you know,
the, the past returns can lead to
good discussions on their process.
So, you know, you can look at a
ruling tenure number, for example,
and it's like, well, great, you
know, that doesn't tell me much about
what happened over those 10 years.
That you were managing this portfolio.
So using the numbers as an allocator
is helpful for me to ask a follow up
question of, well, can you talk about,
you know, 2008, or you can you talk about
2013 when interest rates skyrocketed.
How did you position your portfolio,
how did you think about risk
exposure within that context?
And can I take some of those nuggets
and use that as a preview for
what future performance might look
like in a different environment?
Yeah.
Um, so I, I think it both matter, but.
Yeah, I love the, you know, the
past performance is not for sale.
It's, it's all the future.
That's
Stacy: it.
Right?
It's so true.
Other people's alpha, that's,
that's not available to you.
I told you there was a place in the
report where I, I literally have written
in my notes, Aaron, question mark,
and I said, I wasn't gonna tell you.
I'm gonna read you what it says.
Okay.
And I, I think this is you, maybe not.
One co-author of this report, a former
investor with active due diligence
experience, remembers the mantra that
investors want to know whether a manager
is smart, different, and careful.
Is that you?
It was not me.
Aaron: Oh my gosh.
It was.
Stacy: I know you.
Aaron: I know.
You might have to remove this stuff.
There's
Stacy: another, I'm not removing it.
Cause this is where you're,
when you're wrong, you own it.
So there's another allocator in Theia Mix.
Aaron: I think the person who
wrote that is a colleague.
He's, he's no longer with CAIA, but
his name is, uh, Keith Black, and he
was one of the co-authors of, of the
report for this, this questionnaire.
And I, I distinctly remember him
telling that story on, on a webinar.
I wish I could take credit, but
that's, uh, that's all Keith.
Stacy: Well also I love that you have
so many former allocators in the mix.
I think it really kind of speaks
to a differentiator, if you will.
About the people there because it
gives you a really unique perspective.
And I like that mantra
of smart different and
Aaron: careful.
You know, that was his background on
the, on the consulting side and uh,
did a lot of due diligence on a lot of
managers and that was kind of his mantra
as he was going into that process.
But I'll, I'll have to
tell that I love it.
Uh, you mentioned give
Stacy: him a high five.
Give him a high five for me.
That's great.
Cause I like that section a lot.
And he kind of unpacked it.
He actually even used narrative there.
You know, he said something like, if
a manager is not different as defined
by their philosophy or narrative
description of their style, then the
performance is not viewed as unique.
And I think it speaks to storytelling
again, in a different way.
Here we're really focused on backstory
and sort of the journey that people go
on just as, as people, because there
are people behind the portfolios.
But there are so many stories we tell in
our day-to-day lives, in our day-to-day
professional lives, and certainly as
managers, but that narrative around
your edge and what makes you different,
I, I wanna explore that a little bit.
Because to me, it's one of the biggest
challenges that asset managers have.
You know, when you ask somebody what
makes you different, they either struggle
to know, like they haven't done the
work to know what makes them different,
or they're just simply afraid to say
it like they know, but they're afraid
that the allocator won't like it.
So they don't say it.
So they kind of say, well, everyone else
sort of says differentiators like this,
so I'm gonna have some flavor of that.
And you're like, but that's
not uniquely different.
How does that sit for you,
uh, in all your roles as, as
just somebody in the industry?
Aaron: It's a challenging question to
answer, I think for a lot of managers
because they're so in it, um, as part
of their investment process, they may
not even think about it necessarily
in terms of what that differentiator
is, but you know, and, and you
can check off the list of all the
different ways they can answer it.
It's.
It's, um, you know,
informational advantage.
Uh, it could be processing of
information, uh, faster than their peers.
I mean, there's a lot of things
that you can kind of point to.
Maybe the other way to ask the
question is, what about your strategy?
Can I not replicate myself?
Ooh.
And, uh, that's a, that's a
unique perspective to, to kind of.
From the manager research perspective,
if I can decompose your returns and
just bill it on my own, what's that?
That error term or that excess
return that comes from that strategy
that's unique to you as a manager?
That might be a, a more quantitative way
of answering it, but I like that it does
Stacy: tell the story.
That does tell the story.
So it's sort of like the
unexplained alpha a little bit.
Not, not that you wanna say it's
the luck part, but it's sort of
the part that the manager says,
well, I know how that's happening.
Yeah.
But someone else might not
know how that's happening.
That's super interesting.
You know, I, I think like I,
I'm on the board of a, um, Of an
investment boutique, a breakaway
from a very well known value shop.
And you know, it's interesting because
I think there's a delicate balance, and
I wonder how you view this Sometimes I.
People lean too much into the new and
different thing and not enough of like,
here's kind of the familiar, known thing.
Hmm.
And sometimes it's the opposite, right?
So like this particular breakaway,
obviously, you know, you go,
you set up your own shop.
You do that because there's
something philosophically or from
a process perspective or, or just
from a people culture perspective
that you wanna do differently.
So you leave because you want to do
something different, and as you get in
touch with that, it's a delicate balance
of saying, well, I'm this, With a twist,
basically like, and here are the twists.
And that to me is really where
the conversation should start.
You don't wanna just sort of
throw out everything that's been
done, cuz that's just not, not
real, it's not known, it's not.
You know, I loosely used the word proven,
even though nothing's proven, like
the repeatability might not be there.
So you wanted to talk about,
to your point, what are you
doing to make it better?
Right?
What are you doing to
make it better, different?
Really that different
piece, is that more unique?
And let's talk about that.
I get it that you're a
fundamental research.
I get it that you're a
value investment shop.
I, I know what those things are,
but, but show me the different
parts and talk to me about those.
And at the same time, you wanna be
careful not to say, well, that's
all we are is this new twist.
It's a delicate balance.
It really is.
Aaron: Yeah.
I would, I would agree.
I mean, I think, um, you know,
investors like familiar, uh, even
though different is, is what leads to
excess performance and performance.
But if you can find a way to bridge
that gap of, okay, there's, there's a
process here that's very well known.
It's, it's backed by, you know,
rigor and has been tried and trued.
And tested, uh, over time, but we go above
and beyond maybe to the, the replication
comment, uh, that I made earlier.
Well, this is pretty similar across
all value managers for ex example,
or a growth manager or, and so on.
So here's the part that we add
that leads to better performance,
better risk adjusted returns.
And articulating that, I
think is, is very well said.
Um, and I think it depends on the
strategy that you're pursuing as well.
You know, if you're a
quantitative manager and you're.
You know, you're looking over, uh, you
know, lots of data and, and you're,
you're doing a lot of data science.
It's part of your process.
You have to constantly be changing
in order to yes, to keep up, because
a lot of this stuff becomes more
commoditized and, and well known.
But, um, you know, if you're more of a
fundamental, long only, uh, manager or.
Maybe a long, short equity, uh, manager.
I mean, there's a lot of things that
are gonna be similar across the board,
and so focusing on yes, we're this
plus, uh, this extra thing as I think is
Stacy: important.
Yeah, me too.
And I love the quant piece.
I've had quant managers in the
alt space say, well, like, story
doesn't really matter for us.
We're quant.
And it's like, actually it still does.
There are still stories.
There's, it's the same.
You still have a due diligence process
that's run by people to your point, you
still have to iterate, innovate, come
up with what's going to keep you current
and different, and have that edge.
So I still feel that the people
component and the the narrative matters
tremendously for a quant strategy.
Aaron: And it's, it's probably a very
different story, um, yes, than the fun.
I mean, the fundamental manager
is gonna focus on the individual
companies and they're doing these
really deep dives, whereas quantitative
managers, it's much more about.
Your model and what you're trying
to accomplish within the strategy.
You may not be getting into, you
know, uh, individual securities
cuz you own thousands of them.
And so it's a different way of
telling the story, but, uh, it
is, it is important nonetheless.
So, and especially with quant, which
can be very challenging for people
to understand relative to, well I
understand, you know, apple and,
and Facebook and Proctor and Gamble.
But with this quad strategy,
it's like, oh my gosh.
Like I've got a, I've got a whole
new way of thinking about things
and you need to break it down
to me like I'm in fifth grade.
Stacy: Yeah.
Oh, there we go.
See, I'll rose lead back to fifth grade.
You know, I wanna, so there
were a couple things you hit
on there that I wanna touch on.
One is, this actually goes back to the
beginning of our conversation when you
talked about just how the alt space
has expanded from just hedge funds.
To many other types of strategies.
And you also sort of alluded to
this democratization that's going
on where it used to be that also
was, you know, for a select few
types of investors for many reasons.
But now you're seeing that change and.
It reminds me of the, of the research
you've done around the portfolio of
the future and just kind of the need
for expanding our knowledge around
what's happening in the alt space.
So I wanted to talk about that.
I'm sure it's something you have a much
deeper understanding of than, than I do.
Given the seat you're in, can
you talk about what's happening
Aaron: there?
Yeah, sure.
And, and maybe I'll start with the
portfolio for the future and then
talk about what we're doing on Yeah.
On the democratization front.
So it was actually a year ago, and it,
it's funny, I, so I gave a presentation
a couple days ago on Portfolio for
the Future for one of our chapters.
The timing of this piece
couldn't have been any better.
It was look no further than CAIA
for your inside information.
And in terms of what's going on in
the market, the genesis of the piece
was basically, uh, and the rationale
behind it was, well, the future
is not gonna look like the past.
Uh, we're coming off of a, you
know, 10 to 12 year period where.
Interest rates were at record lows.
Inflation was low and and manageable.
Public markets dominated everything.
Uh, large growth in particular
dominated everything.
You really didn't need diversification
for the, you know, 2000 tens essentially.
And our view was, well, a lot
of this isn't sustainable.
And so how do you think about
putting together a diversified
portfolio when interest rates
go up and inflation goes up and.
You know, public markets are no longer the
dominating factor and things like capital
formation, moving more into to the venture
and, and buyout world and private equity.
And there's a lot of these different
things, central bank stimulus, uh, you
know, really reversing, uh, the different
trends that are being more accommodative.
Uh, and you know, this was in
March of last year, and of course
as soon as we released this, you
know, a lot of this stuff reverses.
Sometimes it's better
to be lucky than good.
Um, in terms of.
Our crystal ball.
But what we're trying to do, um, with
this piece was basically, here's a
guide path to think about allocation
and portfolio construction in an
environment when rates are normalized
and inflation is not low and a little
bit more volatile and you're taking
on more illiquidity in that portfolio.
And so that was, that was kind of,
you know, the looking forward view of,
of what we were trying to accomplish.
And the fact that the opportunity set
is so wide, And widely available to you.
Um, you know, your tool set is, is much
broader in terms of what you can select.
So that's, that's portfolio of the future.
And uh, I dunno if you have a, a
Stacy: question on that, but Yeah.
Yeah.
So I, it's funny cuz when you first
mentioned it to me, I instantly went to,
oh, this is like gonna be a rewrite of
60 40 and that's not exactly what it is.
That's right.
Or is
Aaron: it?
No.
So, um, it, it's funny, we, you know,
there's a lot of articles out there
and, and it's funny to see kind of the
change in tune in 2022 versus 2023.
So a lot of articles in 22
were, you know, death of 60 40.
You know, you've gotta diversify.
You need other things besides, you know,
stocks and bonds and, you know, worst
year and decades for a 60 40 portfolio.
Fast forward to this year.
We have similar articles from the
same news outlets and, and media
that are saying the exact opposite.
Oh, 60 40 has the best start to a
year and, you know, X amount of years.
And so I think this, this
fascination with, with a 60 40
is a little bit misguided in
terms of is it good or is it bad?
From our perspective, 60 40
is just an allocation, um,
and it's one of one of many.
And so I think the more important thing is
what is your client trying to accomplish?
What are you trying to accomplish on
behalf of your client and what's the
most appropriate allocation to do?
So if 60 40 is that allocation, great, you
know, that's, that's a good mix for you.
But there's also these other things out
there that you can use, um, as a tool to.
Achieve those different objectives.
And so when you look at the portfolio
for the future report that we wrote, it's
less about well abandon the 60 40 and,
you know, have a 50 30 20 allocation or
a, you know, 60, 20, 20 allocation and
more about how do you think about that
broader tool set and incorporating some
of these other assets, um, into that, that
broader tool set into your allocation.
So it's a little bit of a nuance,
but I think it's an important one.
Don't focus on the allocation,
focus on the outcomes and the
allocation will will be secondary.
Stacy: And not only that,
focus on the end client.
Exactly.
It goes back to that.
It goes back to that because,
and I love the phrase guide path.
I think that's really interesting
when you think about the
experience you're creating.
The goal that you've set out, you
know, this outcome, those subtle
tweaks, those nuances though in
the, in the narratives you write
can have a very big impact, right?
It could be the unlock that someone
needs to go, oh yeah, that hits for me.
I get it.
So I appreciate you sharing that.
I, I don't know if I'm gonna geek out
on Portfolio of the Future the way that
I do on this little gem that I carry
around with me, Aaron, but I will read
it and I can't wait to explore that more.
Every time you, you riff, it takes me back
to this idea that if we put ourselves in
the shoes of whomever we're serving and
instead of trying to be better or best, we
really try to be different and compliment.
I mean, even in the
portfolio of the future.
Conversation we just had.
That's really what you're talking about.
Mm-hmm.
It's that you need things
that will compliment each
other to get you somewhere.
Yes.
It's not necessarily about,
this is better, it's not.
This allocation mix is better than 60 40.
It's that what's in it.
That compliments each other to
get you where you're trying to go.
And I mean, that's just, that's
like the story arc of everything.
That transformation of you started
here, you wanna end here and what is the
transformation that happens in the middle?
So that differentiation thread
is just a, a really strong one
for me in our conversation.
You know, you
Aaron: start with the client and what the
client is trying to accomplish, everything
else will work itself out because you've
got that north star that's guiding
you instead of what's the appropriate
percentage in this versus this.
It's what's the client trying
to accomplish and let's,
let's figure the rest out.
Stacy: I love that advice.
I think that's great advice for all
of us, no matter what industry we're
in, but especially in this one.
Okay, so I wanna end.
With a version of PRUs
questionnaire because doesn't every
investment podcast end like that?
I don't know.
Maybe they should.
So the idea of this, I'm, I date myself
every time, but it's, it's from James
Lipton inside the Actor's studio where
he would interview actors and end
with this, these questions that just.
Allow us to get to know
you a little bit more.
And I've had the, the pleasure
of being able to do that.
And, and it, it, it changes how
it changes the perspective we
have on each other as people.
And so I appreciate you taking a little
deep dive here on the personal side.
So, first question, hopefully an
easy one, we're gonna ease into this.
What book inspires you?
Aaron: So I, and I was giving a
little bit of thought to this.
Um, so I, there's two, one, uh,
maybe just more of an interest.
Uh, I love, uh, ready Player one.
Uh, I don't know if you've seen
that movie or read that book.
No.
What is that?
Okay.
Well, the listeners will have to, to
recommend that to you or, or, okay.
Ready Player one.
Ready Player one.
It's a great sci-fi.
Uh, you know, there's a lot of
like eighties culture in there.
It's, it's fun.
Oh,
Stacy: it's fun.
Okay.
All right.
I love it.
Aaron: So that's a fun one.
Okay.
In terms of, of a book that probably
inspires me is, um, I don't know
if you've read Fact by Hans Roling.
He basically just takes a look at society
over the past couple of centuries.
And you know, I think in the short term
we tend to focus a lot on, you know,
the news cycle and, and what's going
on in, in a daily day-to-day basis
and what's going wrong with the world.
And he kind of takes a step back and
says, look where we were 500 years
ago versus 400, 300, 100 years ago.
And we made a lot of progress
as, uh, as a civilization and.
You know, things like child hunger
and, uh, starvation and, and all these
things that may have been more common a
couple centuries ago, that's all gone.
And so we, we've seen this vast,
uh, improvement in, uh, society.
And I think it's just a nice perspective
to see how far we've come as a people.
And, uh, it's mu it's a much
more optimistic view of.
Human rights if you'll
Stacy: Okay.
I love, so hence the inspiration.
That's great.
I, I don't know either of those
books, so that's always fun for me.
And I'm super curious about
this Ready Player one too.
So now we're going into
what place inspires you?
What's your happy place?
Yeah.
Aaron: This, this is probably
a boring answer, but because
I, I do travel quite a bit.
I'm, I'm obviously up here at
a, in our America's, uh, office.
Being home is nice.
Stacy: I listen, that's my happy place.
I 100% get that.
And you're not alone.
A lot of people on this podcast
actually have said some version of that.
I think, you know, it travels glamorous
when you're not the one doing it.
Yeah, it's, it's, it's, it's a grind.
So I get that and I am here for it.
Okay.
Let's take a turn into,
uh, into the musical realm.
Okay.
So let's pretend that you are going
to be walking out onto a stage in
front of, You know, a thousand of your
thousands will go make it even bigger
than my normal thousands true fans.
Thousands of true fans there.
For you, what's the song they play?
What's your walkout anthem, your hype
song that plays as you take that stage?
This
Aaron: is a tough question for me cuz
I, I love music, but a lot of the music
that I like is, uh, I'd say more chill.
So, so I don't know.
I don't know if I have a good answer.
You don't have a hype song.
Maybe I'll throw this out.
There's a band, uh, called Turnstile.
They're kind of a post-punk band.
They came out with an album a
couple years ago that I really like.
Uh, and maybe the song, uh, from
that album would be, uh, mystery.
It's
Stacy: just, okay.
It's, it's aggressive.
It's good.
It's aggressive.
That's, Hey, and, and so let's, well,
we're gonna take a twist then, which
is, since you more prefer the chill
music, so you're sitting at home,
you're, you're in your happy place.
What song do you put on for Chill?
Aaron: That's a good question.
Yeah.
So I love, uh, I love
Manchester Orchestra as a band.
I don't know if you've,
you've don't across them.
Stacy: Uh, okay.
I have like a list now.
Yeah, yeah.
So I've got, this is good.
This is why we do this.
Aaron: So, Manchester Orchestra,
uh, put out an album a couple
of years ago that I, I love.
Um, so there's a song
on there called Bedhead.
That I, I really like.
So that might be my, my chill
walk-in Anthem, if you will
Stacy: walk in.
That's perfect.
I love that.
Okay, here we go.
What profession, other than your
own, would you like to attempt?
Aaron: I don't know, may, maybe
in a different life I'd stick
with the architect or I was
wondering if he'd say that.
Or even the actuarial science.
I, I don't know.
You know, the actuarial science
profession has always been
interesting to me, but, uh, those
people are far smarter than I am.
I don't know if I could make it, but, uh,
maybe one of those, kind of going back to
that, you know, or maybe something more.
And that, that would probably
be, let's go back to those two.
Stacy: That's, we'll go back to those two.
Maybe you'd be in the music biz.
Aaron: We didn't go as far back as
my young childhood, but I did want to
be a music producer, so maybe let's,
Stacy: let's use that.
Maybe that's it.
Maybe that's it.
Yeah.
I remember in our, in our podcast in,
am I right that there was some sort
of a keyboard in your background?
Aaron: There was, yeah.
Yes, I've played piano for a
very long time and yeah, anything
piano related is, is awesome.
Stacy: Okay, now let's go different
direction on profession, which is what
profession would you not like to do?
They're
Aaron: awesome and, and they
do it far better than I could.
I could not work in a hospital.
Yeah.
I mean, good for, good for them,
but I don't know if I can handle it.
Stacy: Yeah, it's a different
type of strength, isn't it?
Okay.
And last one, what do you want
people to say about you after
you've retired or left the industry?
Aaron: You know, obviously
there's, there's the element of,
you know, hopefully I continue
to conduct myself ethically.
And so there's an element of,
you know, quitting the client
first and, uh, being a fiduciary.
And I hope that that rings true.
Um, after I've left, I think maybe more
on the, the lighthearted side, you know,
I hope people, uh, appreciate that.
I try to make this fun.
You know, this, this industry and
to your point at the very beginning
is very numerical and quantitative.
And so I try to bring a little bit
of, uh, Levity to the situation and
you know, let's have fun with, uh,
what we're doing here cuz if we're
not having fun, what's the point?
I mean,
Stacy: if that's not the perfect mic drop
place to end this thing, Aaron, I don't
know what is so well said my friend.
Thank you for being here.
For people who are interested in these
research reports and just following
along on what CAIA is doing, what's
the best place for them to do that?
Aaron: We're very active on social media,
so Twitter and LinkedIn, um, are the
two primary places you could follow us.
Um, I personally, I'm very active
on both as well, so, uh, I can drop
those links to you, Stacy, but,
uh, follow us and, uh, yeah, we've
got a lot of thought leadership
and we're, we're out there quite
Stacy: a bit.
That's great.
Thanks for everything you do and
everything CAIA does, Aaron, and for
taking the time today to be with us.
Aaron: Thanks for having me,
Stacy: Stacy.
Appreciate it.
This podcast is for informational
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upon as a basis for investment decisions.
The information is not an offer,
solicitation, or recommendation of any
of the funds, services, or products,
or to adopt any investment strategy.
Investment values may fluctuate
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guide to future performance.
All opinions expressed by guests
on the show are solely their own
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Manager's appearance on the show does
not constitute an endorsement by Stacey
Havener or Havener Capital Partners.