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A
Odyssey celebrates Patriot Day. Brought to you by T Mobile, America's best mobile network in the US According to OOKLA speedtest.
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All right, we are live with Max Gokman from Pacific Fund Life Advisors. Pacific Life Fund Advisors. Correct.
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C
It's a handful.
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B
Yeah, got it the second time. It's St. Patty's Day. So we're here on a Wednesday and we're going to talk about a couple interesting topics today. But Max, welcome to the show. Glad that you're able to make it and excited to learn a little more about your background. So maybe we can kick it off with, with your career and how you navigated to where you are now at Pacific Life.
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D
Yeah, sure.
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C
So, you know, my career has been really moving up and down the California coast in some regards. So I went to college down south, Claremont McKenna about 40 miles east of LA. And as an econ and psych dual major, I really focused on behavioral finance. I wanted to understand how investors think and I really wanted to go into a trading position. But being that it was a small school, there was not a lot of capital markets opening. So like most everyone in my in my graduating class who wanted to be in finance went either to banking or consulting. I wound up going the banking route, but quickly realized that working 100 hours to make a pitch deck is not the best use of my time and started looking at other options and wound up meeting up with a few really smart folks who were starting a quantitative hedge fund. I joined up with them as the fourth founding member of Coefficient Global, which at the time was actually three different strategies under one umbrella. And the strategy that I co managed was a long short credit fund. And my timing was perfect because this was late 2006, so I had about 6 months before shit really hit the fan and we got into the credit crisis. So definitely a trial by fire. Moving credit derivative positions and just regular cash bond positions through that market. We did relatively well. But also we decided it made no sense to have four guys run three strategies. So we repositioned as one quant fund. So all assets, stocks, bonds, rates, currencies, commodities in one strategy. And this was in 2008. We had an excellent 2008 through the drawdown, delivered double digit returns. 2009, on the rebound, delivered double digit returns. Unsurprisingly, that helped our fund grow. And then in 2011, Mellon Capital, which was another San Francisco asset manager, much larger, one part of BNY now they bought us and it was really kind of an acqui hire where the whole team came on board. So I Was both on the research side there as well as the portfolio management side. Worked on managing my strategy, my coefficient strategy, but also helping Mellon build custom solutions for investors. So we would go to a large institutional manager like a pension or a foundation and say, hey, what exactly are your problems that you're facing? Maybe for certain exposures that you want to either amplify or tamp down, maybe there are certain volatility regimes that you really want to avoid and you're willing to maybe take out a little bit of upside for the downside protection. Maybe there are certain cash flows that you have coming up that you need to meet. So really, whatever votes specific factors are, we would solve for them. At the time, this was an emerging industry. There's not a lot of folks doing it. And it was a really great way for us to compete against much larger and more, you know, in some regards, more sophisticated players. And then in 2014 I got a really interesting call to move back down to Southern California. And that was from Pacific Life, where they basically gave me the opportunity that I that I'm in right now, which is running the Multi Asset Division's investments function. And at the time there was really no one doing asset allocation in house. There was a lot of assets spread across mutual funds and variable insurance products. But the investment work was really outsourced to a consultant in Chicago. And so given that performance was not good, the board and management decided that it was time to bring in someone in house to could really build the foundation and then turn performance around. So my first three years was really all about that. It was building the risk group, the investment committee, really the investment philosophy for us. And I'm sure we'll get into that a little bit more later in the show. But really building all of that from the ground up and then focusing on turning around performance, which is really exactly what me and my team have done. And culminating with last year, which was a really strong year for us through all the turbulence. And that's my career in a nutshell.
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B
Yeah, it's really helpful and I think understanding asset allocation, maybe you can walk us through in your world how these strategies come about. What are some of the ways that you formulate these ideas? I know we're going to talk about some macro themes, but do you start there and then can you go bottom up and top, or is it better to think about the higher level themes than develop some type of thesis around that to come up with some type of strategy when it comes to asset allocation?
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D
Sure.
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C
So in terms of creating a new strategy or a new fund, the biggest question is investor demand. So whether it's an institutional strategy or most of the strategies that I run are retail focused. So for us it's going to be advisors really and saying hey, what are your clients asking for? Going to the wholesalers who are talking to the advisors, saying what are you hearing across different regions, different channels. Can we solve for that in a way that's differentiated which is really the key thing. If I was to launch say an index multi asset strategy, I'm gonna get blown out of the water by blackrock. I can't compete. But maybe there's something that I can do that's different that they're not doing and that addresses a more specific need that we still think can be met in scale. That's how we would approach a retail strategy. It's a little bit different with institutions. That's where it's much more specific to the institution because you're also getting a bigger ticket. But you really have to start by first making sure that you're not creating a solution for a problem that doesn't exist. So that's step one. And once you have the concept that you think will have strong uptake, that's when you go and really try to figure out how to solve best for.
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B
It and does it really help to have a team? So when you, you know, because I, I'm familiar with the whole typical strategy of PMs and then there's you know, research analysts. So is that a similar strategy that you have? Do you have different, you know, research analysts coming up with ideas and then there's like a PM that makes the final decision on asset allocation and portfolio.
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Construction or Odyssey celebrates Patri brought to you by T Mobile, America's best mobile network in the US according to Ookla speedtest.
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B
Maybe you can just give a little detail on how the teams are structured as far as executing on the strategy.
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D
Sure.
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C
So the way I've built my investment team, it's a blend of quantitative and fundamental analysts. The term that's really common in the industry now, I think it's not always used correctly is quantum mental. So quantamental is the way I see is having both the quantitative models that are advanced and generally fairly automated once they're built as well as the fundamental top down analysis working truly together where both the quant side and the fundamental side has an equal stake in the portfolio but they're used for different things. So the way we look at the world and the way we deploy our quantum metal approach is the quantitative part of the equation really looks at what's going on broadly across asset classes on an absolute and a relative basis. So what I mean by that is an absolute model would be is the US Economy in a recession, is it an expansion? Is the market sentiment bullish or bearish? A relative model would be is US or are US equities more attractive than European equities? Are high yield bonds more attractive than leverage loans? So asking those kind of this or that questions, and that's how we use those quantitative models to really give us that overview of the world. But we also understand that even the best model is not going to capture everything that's going on. And that's really been even more of a case in these kind of very emotionally sentiment driven markets as well as markets that are driven much more by policy and even the anticipation of policy from both central bankers and the government officials. And so because of that, the fundamental component really looks at those exogenous factors. So what is the model missing? What's a catalytic event that's going to occur in the future that we need to position for? And the great thing about those approaches working side by side is you can have a much smaller, much more nimble team because a lot of the kind of really detail driven work can be done by the quant models. But the fundamental analysis then is freed up to really zero in on those idiosyncratic factors and really focus on less things, but get really, really smart and then go really, really deep. So like last year, a lot of our fundamental work was talking to epidemiologists trying to understand how a vaccine is developed, trying to understand how a pandemic actually spreads. You know, these new variants that are coming out, how, how much more dangerous or infectious are they really? That would be just an example of something where we had no knowledge before 2020, obviously. And now me and my team, we're all armchair fauci, I would say.
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B
Yeah, it's interesting because you want to stitch together both of those insights, whatever the models are showing and what the quantitative insights are showing, you want to make sure that that stitches together with the fundamental research that you're looking at as far as. And then also the news headlines too, because sometimes the news moves different sentiment and different directions of where the market's heading and opportunity for demand for different types of investments as well, right?
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C
Yeah, absolutely. And the sentiment part of it is really key, but it's important not to overstate that. So the way we look at sentiment is really drives the timing of when we invest but it doesn't drive so much how we invest. So if we want to, let's say we wanted to buy us small caps, we would consider the sentiment on small cap. So like in January there was a really positive sentiment because obviously GameStop AMC.
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A
Odyssey celebrates Patriot Day brought to you by T Mobile, America's best mobile network in the U.S. according to Ookla, speed test, et cetera.
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C
And we would say, yeah, that's not really a good time to dip into this broader trend right now because this is very short lived, hyper bullish sentiment that's going to go away. We're going to wait for a pullback on that, which is what you saw happening. That's the key thing. I think sentiment goes across all asset classes. Now it used to be more relegated to the retail market, but all investors to some extent now are sentiment investors. We're seeing it in the bond market right now with bond investors being so concerned about inflation that even when the Fed says, hey, we are not going to look at kind of near term pickups in headline numbers, they're still selling Treasuries. And so that's where we say, okay, if we want to make a move in the cash bond market, do we actually take a pause or do we buy into this at this time based on how sentiment is going? But it's not going to change our broader thesis.
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D
Sure.
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B
And when you say that it's retail money that is being invested, so is that capital that's being invested into these strategies specifically from the retail investors that are funding their accounts or are there also institutions that are investing as LPs into some of the funds that you guys are deploying capital in?
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C
So our funds, in terms of the funds that I manage, they're predominantly 40 ACT funds. So they're all funds that are bought by retail investors. They may be on a platform of a larger advisor or bank or wirehouse, but our ultimate end client is going to be a retail investor.
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D
Sure.
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B
And there's probably some benchmarks as far as like how much AUM that you're going to be getting from the retail investors too. Right. So that's probably more upstream like the sales and you know, sales and business development people to kind of get clients too. Because I guess from my understanding these clients are people that are purchasing insurance products to protect their wealth, but then probably also some investment products to grow their wealth. And then that's where the AUM comes from. Right. So there's probably some goals and benchmarks, you know, at a high level to be able to Meet some type of AUM and you know, is there some type of goals that, you know, these larger institutions have as far as just increasing AUM by a certain percentage every year?
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D
Sure.
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C
I mean we do have targets which I can't share obviously. But the sales cycle is. It's pretty sophisticated in the sense that we have really broad sales team of what we call field wholesalers who are actually going out or well, maybe not going out as much right now, but meeting virtually with different advisors, reas, et cetera, and telling them about our product lineup, having those discussions from, you know, really making those sales. We also have internal wholesalers who are maintaining relationships and cross selling. And there is a plan for how we then, you know, create thought leadership, create new strategies and really continue maintaining and growing those existing relationships. In terms of the other thing you said, it's our clients may be clients who just want to, you know, are one of our strategies. So on the mutual fund side, that's really all it is. These are mutual funds that you would buy same as you would, same as anything from any other investment manager. Where it gets a little more complex is on the variable insurance product side. So variable annuities are tied to a strategy. So you do have an insurance rider which gives you lifetime income and in some cases downside protection, but you also have a fund attached to it. So that's where the investor can decide.
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A
Which fund they Odyssey celebrates Patriot Day brought to you by T Mobile, America's best mobile network in the U.S. according to to OOKLA Speed Test.
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C
So when they buy a Pacific Life variable annuity, they can pick from any number of investment options, which obviously include the funds that I manage as well.
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B
And those funds, I guess from what you're saying too is even with an annuities product, there's underlying constituents probably like bonds that make up that product. Is that correct? Are there different products that you have to pick and choose and weight accordingly so that there is some type of return?
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C
Yeah, so our products are multi asset, like I said. So they're composed of generally about 20 different asset classes and that'll be everything from US large caps down to emerging market debt. And the way we implement that is through a combination of trading directly as well as through employing third party managers.
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B
That's helpful. And when I used to spend time with some of these portfolio managers in one of my past careers, I know that a lot of these people were very sophisticated in their education. They did the cfa, they studied portfolio construction. So what do you think if somebody wants to have a career in building these complex portfolios with so many different types of assets. And I think some of the things that I've learned is really weighting them accordingly. Right. So if you're buying some type of product, you know, maybe you're weighting them differently or maybe heavier on some type of security. So what's the, what's kind of the. Is there a certificate or some type of education or best practices to, to refine that skill to make sure you're balancing your portfolio correctly, or does it just come from experience and, and, you know, getting feedback from, from your team or maybe both?
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D
Sure.
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C
I would say the gold standard is the cfa. It's really designed for a very broad level overview of the industry. To some extent it's expected that if you're a portfolio manager, especially on a mutual fund, you have a cfa. The CAIA is becoming more popular and several folks on my team actually have both a CFA and a caia. There's not quite as much overlap. The CAA is generally seen as a little bit easier, obviously more focused on the alternative markets. I would say it's key that you have some designation that shows you're taking the industry and your career seriously. An mba, I say, is generally only useful for networking is the reality. And an MBA is generally useful if it's from a top five finance school. So think like Stanford, Wharton. You know, if once you go down further down the list, it's not that you're, you're not going to have great professors or you're not going to learn useful things, it's just going to not be as big of a step up for your career because you won't have the network. And from that perspective, it's a much better use of your money and time to just get the designation which still carries significant weight, like the cfa.
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D
Sure.
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C
And I will say that if you're going to be on the quant side, then obviously we're getting into a lot more rigorous education. So that's where my director of quant research has a Master's in physics, a PhD in physics, a master's of financial engineering, and a CFA and a CAIA. Right now that's, that's maybe a little extreme. This guy is extremely smart and he really enjoys learning and teaching. He's actually a assistant professor at UCI as well, on the side on the weekends. This is, this is what he does as a hobby, you know, but at a minimum, if you're going to be on the quant side, you're going to need, you know, either a PhD or an MFE, which is a master's in financial engineering, to really do well in that field.
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B
And I think some of the key skill sets is really being comfortable with large sets of data and being able to derive some insights even from historical data as well.
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C
Right? Yeah. And the biggest thing about financial time series, which is one of the first things you learn in that kind of MFE curriculum, is that the data is imperfect. There's gaps, there's events that create irregularities from one period to the next. So it's really not just being able to work with big data, but being to work with big data that's imperfect and it has outside force affecting it. One of the things that I see a lot of times when, you know, we have an intern or we have. We're working with university students, is they think they found some great alpha pattern, but they forgot to make, you know, an adjustment for seasonality or forgot to make an adjustment for being in a recession versus being in an expansion. And once you make that adjustment, that, you know, theoretical alpha really goes away. So that's, that's the other thing that's really key when you're working with big data.
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B
And this is all interesting stuff for me because most of us are on the private side, but many of us are big fans of billions. With the whole hedge fund now going quant and mainly focused on data science and computer science, what are some of the trends that you've been seeing recently with the quant funds? What are the biggest limitations and what are some of the things you've been seeing in the last couple of years as far as how they've evolved?
- [21:54]
C
I think there's been a couple of trends which I think are interesting. So first, most quants will tell you within finance, there's two kinds of models. There's alpha models, which generate good returns, and there's marketing models, which sound really sexy but don't do anything. So on the latter front, AI has been a big one there. So there's been a couple of funds that say we use AI, and really they don't. There is one fund that I know of but can honestly say we use true AI. Everyone else maybe uses some version of machine learning, which is a real development that's been happening over at least a decade, if not longer. Certainly we use machine learning extensively as well in most of our models. That's where you get into pattern recognition. But AI is a stretch too far. And I would be very cautious when you're talking to a fund and they tell you that it's AI based. One trend that's also picked up in the last, I'd say maybe a little over five years, but less than a decade is alternative data. So alternative data can mean anything that's not going to be found in a financial statement of a company that's not going to be released by major data provider like a central bank or oecd. It's kind of started with credit card data, which was aggregated up. And that's a very useful source of information. So for example, last year when we looked at credit card data, we saw the trough in consumer spending at department stores right around the time that the market hit its own trough before the rebound, which got us confident with deploying equities and risking up late in March of last year, when we looked at retail sales, you didn't see the retail sales actually start picking up until I think it was June or July of 2020. So way after the S and P has started recovering and accelerating quite quickly. So that's where alternative data can be really helpful in the sense that it gives you that early read. It gives you the real time pulse of consumers or businesses. And that's definitely a real trend. That is where you're working with very large data sets and you're trying to analyze them and map them appropriately. Related to that, NLP has been another trend that we're seeing more and more of. So NLP stands for natural language processing. It's where someone could basically take the closed captioning of this conversation and try to extract some information from that. It's processing tweets, it's processing conferences in real time. So like when Chair Powell spoke today, you could use NLP to try to extract inferences from that on how the market may move. And if you're a high frequency shop, you'd actually try to do that basically in real time from when Powell says a word to a trade, there being a tiny, tiny delay. Has that been done very successfully? I'd say not yet, but it's definitely a real trend that I'm seeing emerging.
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B
What's happened recently with high frequency trading since the book Flash Boys? What, what's, you know, what's evolved there and you know, have there been limitations since, you know, all of that time?
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D
Sure.
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C
So. So I think high frequency is one of those things where, you know, it's, it's the kind of can. It's a cannibalistic industry where as funds started getting better and better at kind of getting closer to the pipe. Right. The cost started going up exponentially so it was about being, you know, like 100ft closer to the exchange. It started being about having an even bigger supercomputer. And that computational intensity by geographic proximity requirements meant that it got really difficult to actually generate alpha. Because we're talking about tiny, tiny slice of alpha. Right. And this is where I would say it's fair to say that high frequency trading adds liquidity and adds efficiency to the markets because they're taking out these. By definition, we're taking out tiny, tiny inefficiencies. The parallel, I would say, is like, if you remember, kind of a scheme in office space where they were going to skim like a tiny little amount from each payment and an aggregate, it actually added up to millions. So that's how high frequency trading works. They try to find these tiny little bits of arbitrage and if you get enough of them, you can make a lot of money. The problem is when everyone else is trying to do the same thing, it becomes a literal arms race. And at this point, high frequency is kind of limited to more true market makers where they're not necessarily seeking alpha. We're just collecting value from flows.
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B
And to your point, the added overhead could possibly eat into your alpha. That's what you're saying it was cannibalistic.
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C
Yeah, exactly.
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B
Yeah, that makes sense. So let's talk a little more about some of these macro trends. Right, so what are some. And before we do that, maybe you can provide us with some resources that you use. Because I'm assuming to be on top of all these macro trends, you probably need to download the information every morning. So, you know, is it the Wall Street Journal, is it Business Week? Are there certain blogs that you read? Do you have a ritual that you follow to make sure that you're on the pulse of all the trends and aware of what's moving the market?
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C
Sure, and that's a great question, because I think it's important when you're in the kind of public market business where you're really working six out of the seven days of the week when you're a global public markets investor, that you have a process. So for me, the really basic thing is when I wake up around West coast time, 5:36, fortunately now I don't have to commute to the office. I can wake up a little later. I open up Bloomberg. They have a great function called Daybreak, which really summarizes all the key events and news that are either have happened or are going to happen later in the day. So that's a quick like 5 minute scroll through that gives you at least just the main elements. After that there's certain sell side researchers and independent researchers who I follow and have a relationship with, where I, you know, most on the lookout for any emails from them. Those will kind of give me more context around the events that are happening. So like today obviously there's a Fed meeting. Okay, what are the key things I need to watch for during that meeting? So one of the words that kind of popped out was SLR or basically supplemental liquidity or leverage requirements for banks. And it's not something that I really looked at since last March. Kind of forgot what the acronym even meant. But seeing a lot of context around that from certain folks I follow, like, okay, does this actually matter? And then I'm starting to kind of form the thesis for what's going to drive markets today. What are the key things to look out for? And after that I try to be more agnostic instead of kind of sticking to a particular source. Because sometimes you're going to want to talk to or read someone who's really focused on fixed income. Sometimes it's going to be someone who's more focused on volume someone. It's sometimes going to be an alternative data provider where they may have some insights. And it depends on what you think the dominant theme is or where you think you're going to want to focus on for the day.
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B
That's really helpful. On the tech side, what are some of the emerging trends that you're seeing on just technology as a whole?
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D
Sure.
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C
I think on the tech side we're moving past the point where the work from home trade is really going to continue to be effective. I think as it relates to technology, I think in terms of streaming, in terms of consumer focused social media, there's really a saturation point that was reached at an accelerated pace because of last year. I think we're now moving much more to B2B areas. And within that the obvious one is cloud. Again, I don't think you're going to have anyone tell you otherwise. If they do tell you otherwise, I'd be really curious what trades there are so I can counter those. But B2B cloud is huge. It got accelerated massively because of the pandemic. You can see companies looking for that extra efficiency, looking to do more with less overhead, potentially less really focused on automation and how to improve that. And then beyond that, on the corporate side, cybersecurity is a really big trend that I think is going to continue picking up. So when we look at the Number one fear of almost any executive right now, it is a cyber threat. And it became from something where large companies were really focused on large companies with specifically very sensitive client data. So companies like an insurance company, company like us, like we have a lot of very sensitive client data that we're beholden to. And so we take cybersecurity extremely seriously. But now really, any company that's doing business either with clients, with consumers or with other businesses, is extremely careful and willing to spend significant resources on cybersecurity. So I think that trend is starting to pick up beyond that. I think as we get more infrastructure spending in the US which is going to be part of the next leg of stimulus, a lot of folks, when I think of infrastructure, they think of roads, they think of building, maybe bridges and railways and airports and all that. Sure, that's part of it. But the bigger infrastructure build and the bigger infrastructure spend is going to be actually technological this time. And that's going to be enabling faster broadband access, that's going to be laying down fiber. And that's going to accelerate the other trends we've seen, which is Internet of things, 5G autonomous driving. I think within that, and maybe a broader kind of high sophistication car market encapsulates a lot of it because it's got Internet of things, it's got 5G, what you need to do autonomous driving. It's also obviously got EV as typically as a component. And I do think we'll see more momentum within that. I think Tesla is going to get challenged by several other automakers. Maybe some of it is going to be companies like Rivian who are building differentiated products, at least until Cybertruck comes out. So Rivian sounds like they're going to beat them to the first EV consumer based truck, but also like an sev, but can actually do what an SEB theoretically should do, which is go in the backcountry rather than just drop your kids up at soccer practice. So I think those trends are going to continue and there's going to be an ecosystem that built around the more autonomous electrified car as well. So I would look for those trends on the consumer space.
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B
So let's double click on both of those points. Right. So Internet, do you see any alternative sources for Internet with Starlink coming out? And then quick follow up to that is Apple's car. What are your thoughts on Apple coming out with a car? And you know, just from what we've seen since Steve Jobs has left us, you know, their, their innovation on products, what are you Thinking about when you're thinking about them coming out with a car.
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D
Sure.
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C
So I think with Apple it's really a function of having a lot of cash and figured trying to figure out what to do with it. So Apple, you know, I think has something like $200 billion of cash sitting around. That's enough money to start a car maker. Is it enough to kind of jump in headfirst and compete? I think they will be competitive. I think there's a lot of things that can go wrong. Now this is in terms of what Tim Cook has done, this is by far the most risky and ambitious thing. It's almost like it makes up for all the non ambitious things that he has done since he took over. Right. I mean you look at how Apple looks now versus how Apple looked before Steve Jobs passed away and it's pretty much the same product lineup. It's laptops, small desktop market, iPads, iPhones. Okay.
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B
I think the only new product has.
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C
Been the AirPods, the AirPods and the Apple Watch. And those are really accessory products. They're not core. Right. I mean the Apple Watch has done great, but it wasn't something truly revolutionary. It wasn't something truly like category changing. An Apple car is going to be category changing. Whether or not it succeeds. It's definitely going to be the thing that marks Tim Cook's legacy. I would say Tim Cook is a very capable and smart executive and not one who takes risks quite as aggressively as Chief Jobs did. So for that.
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B
Yeah. And I'd say he's the supply chain guru. Right. So he was the one that was able to really optimize the throughput in the supply chain and really just generate the minting machine. But you know, there's rumors that I guess they've already minted the deal with Fisker. Right. So what are your thoughts on them partnering with Fisker and have they historically partnered with a lot of people or have they mostly done stuff privately in house? And how do you think that's going to impact the possible outcome of the car?
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D
Sure.
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C
So it's been typically on partnering on components. So like Sam's partnering with Samsung for example, which obviously is a very rocky relationship because Samsung's key partner, you know, but I think when it comes to a true partnership. So it's Apple car buy Fisker or something else along those lines, I think that's where it gets again into very new territory for Apple. Now it could be a partnership that leads to an acquisition and that's, that's happened. I mean, you know this is a very different category. But, you know, Apple buying beats by Dre and then, you know, still having that be its own line.
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D
Sure.
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C
But also AirPods are using some of the same technology.
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B
Because when I think about it, I'm like, hey, it's a, it's a Fisker Apple car. I'm just thinking it's in my mind. Right. And this is me being cynical. It's just a Fisker with like an iPad on the dashboard or, you know, maybe just the.
- [36:31]
C
I think they're gonna want to go beyond that. And now again, to what I said earlier. Tim Cook wants to minimize risk. So maybe his view is like, hey, step one, let's. Let's brand Fisker with an iPad. Right. Let's give it the Apple interface. Change a few things around me. It's almost like a limited edition Fisker.
- [36:48]
D
Sure.
- [36:49]
C
How well does that sell? What's the uptake? Is it kind of just. People see it as, this is kind of a way to differentiate myself from the other EVs, which Fisker already kind of is. Right. Like we buy a Fisker instead of a Tesla because you want something a cooler, better design, better styling, not necessarily, you know, better features. Maybe Apple adds in some of the things that Fisker is missing from that point. But I do think if it goes well, that's where it leads to an acquisition and it goes in house for Apple. And that would be pretty much part and parcel for how they've done things before. They don't tend to really partner with other outside brands for too long. It's either we're going to try this out and if it works, it's a path to an acquisition, or we're going to try it out, lower risk, and that's it.
- [37:35]
B
So you think it's kind of a pilot and, you know, Johnny, I've left too. So what are your thoughts on how that's impacted their concept of design? Because, I mean, the products, the new products were designed pretty well. I mean, I personally still love the design of the Apple Watch and I've got the same one from 2015. It hasn't changed much, but I'm really happy with the design. So they do have good design thinking. And, you know, I mean, Johnny's not with Apple, but how do you think they've been able to maintain that design discipline when Johnny was really known as one of the people that pioneered that?
- [38:11]
C
I think so far we've been able to ride Johnny's very long coattails, and it was a key departure. I don't Think it was maybe even flow through the stock price quite to the extent that it, you know, should have. Yeah, we have. Again, we haven't seen it yet because if you look at the product design, you know, like the new iPhone is basically like the couple generations ago. Right. So. Right. So what, we basically took the, the.
- [38:36]
B
Old design back to the Apple.
- [38:37]
C
We're back to the iPhone square now. Okay, cool. That looks like an iPhone I had like five years ago. Yeah, so that's regurgitating style and that, that work. I mean it worked. People still going to buy the new iPhone?
- [38:51]
B
Yeah, I mean it's bad to have a big phone, you know, but then it's also bad to have a small phone two years later. Right. So it's. Yeah, they can pretty much move the trend. And you know, I thought a pivotal moment was when we removed the earphone jack. I'm still getting through that.
- [39:05]
C
But you know, that was a very brave move. Right. I think is the word.
- [39:10]
B
That was his quote. Yeah, yeah. Courage. Courage. That's what it was.
- [39:12]
C
Courage. That's right. Courage was what he said. And you know, I mean stuff like that, that's. You can do that for a while now there's going to be a point where you have to change technology so much that the form factor has to change meaningfully. And I think that's where Johnny not being there is going to be a big question. You know, did he. And to be fair, I don't know whether he left enough proteges, you know, to really kind of carry the torch. And are they going to be able to create their own interpretation of what Apple 3.0 is? I don't know.
- [39:45]
B
Yeah, because if you think, you know, because for me, right, I'm like, it's a Fisker, it's got the OS and then maybe the slick dashboard. But I mean what, what do you think is really going to be fundamentally transformative to make it like an Apple car? With the Fisker, do you think there'll be some augmented reality or like a heads up display or something like that? What do you think they would maybe do to really give it the Apple stamp of innovation?
- [40:14]
C
So I think in terms of that it would be more or it'll be less about like new fangled tech like AR and more about simplicity of the user interface. If they do it right. Like if. Yeah, kind of to what we're talking about earlier Johnny was on the team and they said, okay, what do you think he'd be like, we need to make the user interface super clean and simple. And we need to make it as intuitive as possible to use. I hope that's what they do if they. To the extent that they want to have, you know, a successful launch.
- [40:46]
B
I think I know what you're saying. So I rented a car, you know, a couple months ago, and, you know, normally. Right. The old school is the big, heavy gear. Right. But I literally had this car, and it was like a little slick dial. So probably just better intuitive designs like that. I feel like the steering wheel could be reinvented and there could be a better human user interface, because that's been around for. So there could be opportunities to innovate in ways that we don't think, in frameworks that we don't know about, because we're stuck in kind of the gear handle and, like, the steering wheel. So it could be like a more slick way to drive a car without a steering wheel.
- [41:21]
C
Yeah. I mean, Tesla kind of experimented with that, with the plaid, you know, model of the Tesla where, you know, it looks more like a yoke. I mean, again, is it that different now? You're still steering the same way. In fact, some of the race cars that I've been on, they've moved away from a circular steering wheel. And, you know, it's more like an F1 type.
- [41:38]
B
Yeah.
- [41:40]
C
Rectangular steering wheel. So, you know, a yoke is sort of moving in that direction. It looks cooler. And that's, I think, kind of one of those things where the Elon Musk approach is like, I just want it to be super cool looking. Like he literally changed how his one of his rockets looks, even though it's less aerodynamically efficient because it looks better. And the Jony I've Apple approach has been form, must follow function. So we're all gonna change the way the steering wheel looks if that makes it easier. So maybe it makes it easier to get in and out of the car if the steering wheel doesn't have the bottom portion. Again, that's like, in motorsports, that's a very common thing where you have a deep shaped steering wheel because. Makes it easier to get in and out. So something like that. Maybe it's the way, you know, you kind of, when you come to the car, it knows who the person approaching it is based on whose key it is. And all the settings kind of adjust automatically so it's less focusing on really, you doing anything in the car, predicting what you want to do. Right. So kind of that kind of Apple AI technology leveraging, Siri, et cetera. I think that's where they're probably going to go and see how that picks up. When we get into things that are totally foreign to Apple, like autonomous driving, vehicle dynamics, vehicle design, I think that's where we're going to be a long ways off from really seeing a true Apple car.
- [43:01]
D
Sure.
- [43:01]
B
Yeah. No, that makes sense. Yeah. And I think there's way in. Do they have an estimation of when that's going to be announced or is it still very, very preliminary or do they have some idea of when that first release is going to come out? And one thing I'll say too is before I forget, so Elon Musk and Steve Jobs, from what I've read and what I've observed, is two traits that they have that's in common is they're just really good at product releases. So their product releases are huge productions and a theatrical performance. I think that's what's helped them be be successful as far as just the launches of these new products. So I'm assuming, you know, typical Apple style, when the Fisker does come out, you know, to be the same thing.
- [43:48]
C
Yeah, I mean, I don't know when the car is going to be actually released. I can't imagine it'll be before 2025. I mean, just because, you know, if it's truly going to be such a big change, if it's, you know, adding an Apple, some Apple branded features to an existing Fisker model that could be like you know, 2023, 2024. But if you're going to actually design something brand new, just the cycles that it has to go through, the regulatory approvals, et cetera, I would expect we're going to be waiting about five years to really see something out of this. And I would expect Apple, as they've recently been doing, will start dripping a little bit of leaks strategically as that comes out.
- [44:27]
D
Sure.
- [44:28]
B
What about other forms of entertainment media? We have headsets, we have different types of augmented reality. But you know, I've always just seen the 80s be the future. Right. I mean the holograms came out in Star wars and I've always thought that would be cool if there's a way that you can have some type of 3D projector or camera, like seeing a show like in 3D space versus on the TV. I know that's a little out there, but I don't know if you've ever, you know, because you're always thinking about these trends and kind of the future when you come up with these investment strategies. I don't know if you've been thinking about that or if anything that you've been seeing with some of these companies, innovate on that. As far as just alternative opportunities to innovate in media.
- [45:15]
C
Yeah, no, I would say it's really a combination of AR moving from just kind of a gimmick to AR being actually really useful. I do think you're spot on with the 80s analogy. I mean, holograms are already being used in media a little bit more. I remember I was at a conference a couple of years ago where one of the guests, he claimed he couldn't be there and so he hologrammed it. And I'm pretty sure it was designed to be a gimmick, but it was a very effective gimmick. Everyone remembers Jeff Gundlach appearing via hologram at SALT and it look really cool. So I do think those technologies are going to continue coming through. I think VR is a trend that is very slow burning in terms of how it's been coming out. It started as you're a big gamer, you're going to get an Oculus, you're going to need to get a whole new computer for it. As technology gets faster, you'll be able to support VR with something that's either standalone, which you can right now with like the Oculus Quest.
- [46:26]
D
Sure.
- [46:27]
C
And I think the difference between the Oculus Quest and the Rift, which requires a full powered computer, is going to start shrinking. As that starts shrinking, you're going to be able to do a lot more with it. And that's where we get into not just purely entertainment applications, but also business applications. And those two will drive each other to further progress. So, you know, like, I mean, there's VR experiences that I've seen where, you know, you're like in the concert and you can go to be, you know, right next to the drummer, right next to the guitarist versus the singer, and kind of just move around and so you can watch the same concert 10 times and get a different experience each time. I think those things are going to continue emanating. I'm sure you're gonna see VR movies that actually aren't just a gimmick, but are let you experience a story from different points of views just by moving around the scene. So I do think there's going to be more trends within that space. I think interactivity is going to also have a broader moment aside of just VR, AR but even traditional streaming Netflix played around with that a little bit. It wasn't super successful, but I do think consumers are going to want something different. So kind of not necessarily choose your own adventure, but maybe something where you can move the story in a certain way. So almost like within the gaming world, like Telltale Games, that's basically what they do. They create story driven, you know, hard to hold on a game because it's really more like a choose your own adventure. But really it's that blend where it's casual but you're still in control. I think that's going to continue as well.
- [48:07]
B
Yeah, no, that was, that was helpful. I think that was a good overview on just consumer tech and just tech as a whole. I know we got a couple more minutes. I know we had a couple quick bullets that we wanted to cover. So SPACs and then maybe crypto and then Robinhood.
- [48:25]
D
Sure.
- [48:25]
C
So alternative SPACs. And this is a divisive topic in the industry right now. I think SPACs are not an asset class. It's really the one key takeaway there. SPACs are a way for private companies to access public markets. It's really traditionally been a way for very stable cash flow businesses to get out and get public equity. It was never designed to be something where a celebrity is one of the sponsors and they're going after high flying tech names that don't have a real profitability map. So I think actually today we saw that the Q1 number of SPAC launches and AUM of SPACs or dollar amount of SPACs launched exceeded all of 2020, which itself was a huge record. So that's excessive. And that means we're just in Q1 pretty much. Right? We're not even over with Q1 and you already had that. So now you have by definition too many players chasing too few names. And the people who are going to benefit the most from this is going to be the sponsors who are offering the SPACs. Kind of mathematically, by definition they're going to make gains. Then maybe the executives of these companies. I'd say the companies are third on the list because long term, if you look at how SPACs perform, it's not that great. And that creates hurdles when they want to raise further rounds of financing. It creates hurdles when they don't realize just how much rigor they're going to have to go through with the sec, with analysts who are now looking at them and evaluating them. That's going to be a big, big hurdle for those companies down the line. And that leads me to the ultimate loser in all this, which is the end investor who, if you're just buying these SPACs, again as an asset class, you say, I want to get exposure to SPACs. That creates, I think a really bad precedent for you to wind up being the back holder in all this for the audience.
- [50:27]
B
Can you also unpack pipes? Because we've been talking about pipe deals a lot too. Do you have any insight on how the pipes similar.
- [50:35]
C
It's a similar structure. I don't know if we have time to go through mechanics of a pipe versus a spac, but they're not as popular. But they're being obviously. But they are quite similar.
- [50:51]
B
Okay, got it. And then we got two more. So crypto and Robinhood ipo.
- [50:55]
D
Sure.
- [50:56]
C
So crypto I think is, you know, broadly it's a real asset class. It's not a mature asset class by any means. And I think there's two camps in this as well. There's the camp that says it's all fraud and fake and it's used for any number of criminal activities. I think that's a little excessive. Certainly it's used for capital flight out of countries where you can't otherwise get your money out. And certainly it is used on the dark web for some criminal activities because again, it lends itself to anonymity and not being able to trace the individual's identity. But that doesn't mean that it's not a valid asset class. Plenty of people use dollars for criminal activity too, and we don't save a dollar is not a valid currency. But the volatility is what makes them really not a mature asset class. And I think that's where the other side that says, you know, this is something that everyone should own like 10% of their wealth in. You need to be, you know, looking at transactions in crypto like Elon saying he's going to let people buy a Tesla with Bitcoin. Okay, so how does that actually work when Elon saying that sends the price up 15%. So if I'm going to. If I was at that point buying a Tesla and some a similar tweet happened, would my Tesla now be 10% cheaper? Assuming I agree on the price. So how do you clear that? So all those issues in the plumbing and the volatility are actually very complex. And so while I think it is going to mature, and I think you will, I think especially stablecoins like Diem that Facebook is doing is formerly known as Libra. I think that is moving us in the right direction of cryptocurrency that has the benefits of blockchain without the downsides of the volatility. Those are real developments that we're paying very close attention To Sure. But I have been getting, which is kind of interesting, questions from advisors and like, hey, do you have any crypto exposure in your mutual funds? Are you planning to add any? And the answer is no. But I always caveat that by saying it's not because we're not paying attention to the space, it's because it's not an asset class that I believe retail investors should have any significant allocation to. And I think the same really goes for institutions, for most institutions.
- [53:15]
B
That's interesting. Yeah. Because we've got a new generation of clients that are coming in. Right. We've got the Gen Z's and we got the Millennials. So there's probably a significant amount of holdings in those assets. So when they talk to these financial advisors, do you think some of them need to be to cater to those demographics and keep that into consideration, or is it better just as a strategy to not incorporate that? Because you guys can't essentially buy that as part of their strategy. Right. I mean, I know there's a lot of institutional custody happening now, but we're not at the place now where financial advisors are incorporating that into their strategy. Do you think that'll change?
- [54:00]
C
I do think that'll change because demand ultimately drives products. As I said really early on in this conversation.
- [54:07]
D
Sure.
- [54:08]
C
I think there's going to be advisors who are first into that who don't really know what they're doing, but are just trying to meet their consumer demands. And that's going to lead some bad outcomes and that's going to have a pullback in the industry and it's going to have regulatory overreach and then it's going to normalize. So what that's happening, that normalization, that's where I would say most mutual fund platforms will start looking at this more seriously and say, okay, now we know what the guardrails are, but I think it's important, and I tell this to advisors when I speak to groups of them, is your role is to protect your clients assets. If your client goes in and says, hey, I want to buy 800 strike calls on GameStop and sell out of all my diversified holdings, it's your job to walk them off that ledge. And similarly, if they say, hey, I want to buy 20 grand of Dogecoin, it's your job to tell them to back off right now they may not listen to you and they may do what they want to do, but you should be willing to lose that business to make the right recommendation. And you know that does. But you know, I think Also with individuals and with retail investors, you have to give them ability to do some fun with their money. Right. And I think that's when we get into like, you know, kind of last topic, right. I'm going to kind of segue into it now is Robinhood. I think Robinhood on premise is a good thing. But gamification of stocks taken to an extreme is dangerous. But getting young people to think about investing is a really good thing. Getting the broader population to participate in the stock market is a really good thing. I mean, we've said for a long time, we, I say broadly, economists have said that the stock market doesn't represent the broader population because typically only the wealthy and the elder population has access to stocks in any meaningful way, whether it's a 401k or other investments in companies, private stock accounts. That's typically been the domain of the top 20, 30% of the population. Robinhood made the younger generation much more interested in actually investing and not just passively doing it or, you know, not doing it at all, which is really the worst thing to some extent right now. Taken to the extreme where you're ignoring fundamentals and buying whatever stock has the coolest meme, that is where you don't want to go. And I think when Robinhood does their roadshow, unless they do go through a SPAC and just skip all that, right. If Robinhood does traditional IPO and they're going up to investors and trying to explain how we're going to regulate that, how we're going to help actually help investor education and move their users from that extreme of we're looking at this as a way to gamble to actually, we're looking at this as a way to invest, I think that's going to be a big, big question for them. But look, I think even notwithstanding the grilling that Vlad got in front of Congress last month, I think Robinhood is going to have a pretty successful IPO because they are the next paradigm for retail investing. And we can have a full discotholic argument of whether or not they're helping or hurting. But they are generating massive user traffic and people want to get into that. Retail investors are now about 20 to 25% of daily flows. The only kind of single segment ahead of them on a daily basis is the high frequency market makers that we talked about. So when you're looking at an opportunity to be part of a company that's driving a lot of that as an investor, you do at least want to take the meeting and look into it.
- [58:02]
B
So these Gen Z's and Millennials that were using Robinhood, they're eventually going to be growing up, they're going to have families, they're going to have kids, they're going to want to think about their future. So what's gonna happen to them? Right. How? What, you know, what's the opportunity for companies like Robinhood or where are they gonna go?
- [58:19]
D
Right.
- [58:19]
B
Cause they're, you know, should they still be trading and you know, buying shares of Plug and Gamestop when they, when they're trying to think about their financial goals or, you know, what, you know, where do those people go?
- [58:32]
D
Sure.
- [58:32]
C
I mean.
- [58:33]
B
Cause they grew up on Robinhood. Right.
- [58:35]
C
And that's a really good question. I think that's actually the key question. And, and there's a fine line here because I think the regulatory answer is wrong in terms of saying, hey, we should limit investors access to suboptimal decisions, which would be like buying those calls and Gamestop or doing things where, generally speaking, any professional investor will tell you the outcome is likely to be negative unless you get very lucky. And you shouldn't be investing based on luck. But if you have a new class of investors that actually truly think stocks only go up, then that does create that Icarus problem, as I like to call it. And so eventually they are going to fly close to the sun, get burned, come back down to earth, hopefully not lose their life savings and realize, okay, we need to think about investing differently. Hopefully it doesn't scar them so much that they just step away from investing. And I think Robinhood and other platforms that encourage millennial trading should be moving them from trading to investing. And that can be done at a platform level. I think that's where the gamification can go too far. So you can create milestones and badges and whatnot to say, hey, you've completed a fully diversified portfolio. You can get a little badge when you buy a bond fund and loan fund and emerging market equity fund. Right. But you're buying diversified basket. And when you get all that, I don't know, you get some special badge that says you're a fully diversified investor. I would say that's positive. But sending you a reminder like, hey, you've got some margin cash, you should maybe buy some calls. Well, yeah, that's not really, that's almost like drug pedaling at the financial level to kids, I don't really support that. And I think that's where Robinhood's going to need to think about their long term plan because they're also going to run out of customers eventually, the way they're trading now, those retail investors are going to run out of money. And that's not going to be good for Robinhood.
- [60:44]
D
Sure.
- [60:45]
B
No, it's helpful. Yeah. And I think they're going to evolve too, to want other services as well, right along with their trading strategy. Maybe they want some life insurance or something like that. So that could be an interesting synergy. So I know we're at time, I guess, Max, you have a couple minutes to maybe take a couple final questions at the end?
- [61:03]
C
Sure, yeah, absolutely.
- [61:04]
B
Cool. So I always have a question at the end. You know, any general advice that you've received from a mentor, any life or career advice that you want to give, any, you know, single or double nuggets that you got, that would be great. And then, you know, we'll take that advice and then any questions in the audience.
- [61:21]
D
Sure.
- [61:21]
C
So I'd say in terms of general advice, when it comes to your career, the best advice I got is to really consider long term what you want to be and where you want to go. I think a lot of times people don't have a plan and they see where the tide takes them. And I'm seeing that unfortunately more with younger people. And perhaps that's because of the economic situation that they were born into. Kind of like during the credit crisis or even afterwards kind of getting out of college in a very shallow growth environment. Certainly people who are dealing with the fallout that's happening right now where they may have lost their job and sort of just saying, like, I'm going to kind of float through and see whatever looks best. Right now it's really important not to do that. It's important to have a plan. And that plan can have many steps and it can have optionalities. But you should consider that because. And then this is especially true in finance. I don't want to speak for other industries, but in finance you do get put on a path. So like, I started in banking and I pivoted very quickly to investment management. And it's more specifically I pivoted to macro investing. So if I was to say tomorrow, like, hey, you know what, this has been really cool, but I want to be a partner at venture capital. From now that's not going to happen unless it's a venture capital firm that specializes in insuretech and fintech. I'm certainly not going to be partnering or becoming a partner at a consumer tech vc because that's not where my experience has been. I would say even earlier on in your career when you're five years on, if you've been on a certain path, it's really hard to pivot within finance. Again, I don't want to speak for all industries.
- [63:12]
B
No, I see that across industries. I mean, I know people that have worked in accounting and they've always wanted to be a venture capitalist, but they studied accounting. They're kind of stuck with it, and they're kind of settling in life because they're like, hey, you know what? This is just kind of the path I chose. It's too difficult to get into venture. But then some people just flip. They're like, you know what? This is it. This is the last straw. I've seen people just quit. They're like, I'm just wasting my time. Even though it's stable and it's safe, I'm not happy. This is not really where I want to go. So some people, People just put their foot down and you have to start over. I think, to your point, you're not going to be a partner in venture capital if you've been a partner in public equities. So I think you have to have some touch of reality, knowing that maybe it's a lateral move or maybe even a pay cut to get into the space that you want to. But I think the money will come, especially if you're in a big city. You could easily get some experience, get your foot in the door, and then maybe become a partner over time and venture or, you know, start your own fund. That'll be another part two of this when we talk about, like, emerging managers. But yeah, I mean, I think I totally agree with that. So thanks for that nugget. And then maybe we can have a couple people just rattle off any final questions, if you have any, and feel free to shout it out. All right, I guess you. Any, any. Anything, guys. All right. I guess you answered all our questions.
- [64:51]
C
Sounds good.
- [64:53]
B
All right, Max, thanks a lot. We'll. We'll catch up soon.
- [64:56]
C
Sounds good. It's good talking with you, Joel.
- [64:58]
A
Thanks, everyone, for watching Odyssey celebrates Patriot Day. Brought to you by T Mobile, America's best mobile network in the US According to OOK Speed Test.