Transcript
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How do you go about being a better CIO every
year?
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It is so much about talking to as many people
as you can and being open to different
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perspectives and open to different views and,
honestly, reading as much as you can as well.
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You know, we are so fortunate.
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We get so much different types of research,
different viewpoints, different perspectives,
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not only from our managers, from, you know,
just the rest of the world.
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We do a lot at Rock Creek in terms of thinking
about the macro environment.
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We have a board of a board of advisors that are
all very much macro thinkers.
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I think the best way you can be a CIO
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So what is Rock Creek?
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So we have about 16,000,000,000 in assets under
management.
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We are a multi asset and OCIO solutions
business.
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So part of our assets are managing outsource
CIO portfolios for endowments, foundations,
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pensions that are less than, you know, call it
2,000,000,000 and don't have internal
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investment teams.
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And then the other half of our business is
focused on multi asset solutions.
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Give Give me a couple examples of how you solve
the problems that your clients have.
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It ranges really in terms of a variety of
different types of asset classes that we invest
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in, as well as the kind of niche areas, that
certain clients want.
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And it really depends on the client, their
type, what they need, and that's why the
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customization is so important.
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We don't believe that, you know, there's a one
size fits all.
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You know, we do a lot in terms of private
markets investing, obviously, and some of that
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can be very thematic.
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So certain areas or certain themes that we
wanna really focus on for a particular client.
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There is a corporate pension, for example, that
we manage, venture capital portfolio for, and
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we look for investments that are very much
aligned with innovation in the aviation
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industry.
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And we have more traditional portfolios where
there are institutions that can't access the
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best venture funds, can't access necessarily,
or don't have the resources to really do
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research on certain types of alternatives, and
that's where we come in.
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As we start the new year, what are some themes
that you're really excited about?
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So, you know, in terms of private markets, we
have started to see a real inflection in terms
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of our portfolio companies.
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We are very excited that we think the market
might start to pick up in terms of the IPO
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market.
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We've been talking to a lot of our portfolio
companies that are potentially getting ready to
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test the market and starting to talk to those
initial investors, and we've heard that from
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kind of both sides.
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And private markets.
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And so we do think that the market next year is
really gonna start to open up both in terms of
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an IPO market, but also given the new
administration, we do think that there might be
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a lot more activity or potential prep for
activity in the m and a space.
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And, again, all of that bodes very well for our
existing portfolio.
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So in terms of really starting to see Marks
come back in the venture side, we have, you
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know, a lot of optimism next year that that's
what we're gonna start to see.
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We've already started to see it the second half
of this year.
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In terms of specific themes, I mean, I think,
you know, we're at such an exciting time in
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private markets to be in a private market
investor and to be able to actually access
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private markets and innovation across pretty
much every sector is, you know, so ripe for
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opportunity today.
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So that means, you know, biotech, other spaces
within health care like medical devices, not
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just your kind of how telehealth, which was all
anybody talked about a couple of years ago.
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So we're really starting to expand in terms of
how can technology and innovation access, and
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enable access in some of these sectors that we
focus on.
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Health care being just one example that we're
excited about.
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So it's intuitive why m and a would pick up.
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We've had kind of an anti m and a, FTC chair in
Lina Khan.
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What is the reason for why you see the IPO
market opening up in 2025?
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Regardless of kinda what your political views
are or what you hoped would happen, that
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there's an uncertainty that's gone.
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We now know what is the situation for at least
the next 2 years in terms of administration.
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And I think that uncertainty being lifted from
the market is one element of why we think that
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the IPO market will start to get stronger.
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I mean, second of all, you've just seen a much
more soft landing in terms of interest rates
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coming down, inflation coming down.
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We kind of know the path that we will be on if
there are no huge exogenous of that events that
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are gonna affect markets.
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And if that continues, plus you've started to
see really strong fundamentals continue from
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companies that are public, I think that there
will be much more appetite that IPOs will be
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well received again versus 2 years ago.
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There seems to be a lack of consensus to where
interest rates will be over the next couple of
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years.
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What's your view on interest rates?
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Yeah.
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I mean, I do we think that we'll get to this
magic 2% number necessarily?
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No.
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In terms of inflation and, you know, that
obviously corresponds to interest rates.
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I mean, I think that in the next couple of
years, we're going to probably see a lower
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inflationary environment, which will cause
interest rates to remain stable, if not, you
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know, a little bit lower than where they are
now.
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That being said, you know, longer term, we are
worried that inflation will to spike again
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depending on what policies are out there, and
that'll cause interest rates to rise.
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So I think it's really about managing that
yield curve and looking to see where we are on
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that yield curve.
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You know, further out, there's a lot more worry
in terms of inflationary pressures and risks,
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and so we'll have to monitor that and actually
see what happens to see whether that
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materializes and what timeline.
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But, you know, I think for the next year, year
to 2 years, we're fairly constructive that
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we'll be in a similar interest rate environment
to where we are today.
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There's a new governmental agency, DOGE,
Department of Governmental Efficiency.
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If that department is successful, how will that
affect interest rates and inflation moving
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forward?
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Well, we're based in Washington, DC, so I
thought you were gonna ask me a different
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question because it'll definitely affect DC.
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And then many of my friends that work in the
government across many different agencies.
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I mean, I think the real question is what will
actually materialize and what will actually
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happen from them?
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I don't think that necessarily the actions that
they could take or may take or that actually
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take hold will affect interest rates or
inflation as much as tariffs and the, you know,
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trade issues that we're talking about and the
new policies that could come out in terms of
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different trade agreements between Canada,
Mexico, China.
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I mean, I think that is undeniably the place
that we have to look at to see where inflation
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will go and that will, again, relate to
interest rates.
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But there are other areas.
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And assuming that the tariffs hold at at these,
pretty significant numbers, is that gonna cause
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inflation to go up?
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In the long term, yes.
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Short term, maybe not.
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But in the long term, I think, undeniably, it
will.
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I think there's a lot of consensus around that.
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But, again, it depends on, you know, the
nuances.
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And I think it's actually really interesting
because some of the tariffs that have been
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talked about would affect most negatively big
multinational companies, right, and their
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supply chains.
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But and this goes back to your question on on
innovation and privates and where are we
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excited.
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There's actually been a lot of technology
applied to diversifying supply chains now.
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And so multinationals are not in the same place
as they were maybe 5 years ago when we were
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talking about tariffs in, I think, 2018.
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Right?
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So it's a little bit of a different environment
to do to see, you know, what implications come
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out.
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Let's take a step back.
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You advised many $1,000,000,000 endowments and
foundations.
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What's their typical alternatives portfolio
look like today?
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Yeah.
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So for a typical endowment foundation that's
really looking in perpetuity to, you know,
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sustain their assets, and, again, there's a lot
of caveats to this.
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So have a steady distribution, you know, and a
spend that they can plan on for the next, 10,
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20 years.
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Those types of institutions can take a large
allocation to private and illiquid assets.
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So typically, we would say anywhere from 20 to
25 or even 20 to 30% in terms of a target for
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private equity venture.
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And if you add, you know, illiquid real estate
real assets, it's probably close to the 35,
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40%.
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So about 30, 35% alternative, 60, 65% public.
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When we were last chatting, you said you were
very excited about the public markets today.
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Tell me about why you're so excited.
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Yeah.
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I mean, I think there's a lot of opportunity
today in the public markets.
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Right?
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I think that's starting to potentially look a
little bit more, you know, I don't wanna say
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scary, but uncertain in terms of, you know, how
long can we have such a positive public market.
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But I think there's always opportunity in the
public markets.
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I think that especially in the next year, we
think that active management in the public
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markets is really gonna start to be the place
you wanna invest in versus passive, which is
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where you, you know, undoubtedly would have
been if you had just been looking at numbers
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for the last 3, 4 years.
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And so passive has been, quite a large
allocation in portfolios because it's just done
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so well, but it's been such a concentrated
market that active management hasn't been able
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to do well.
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We started to see that in the second half of
this year change because of the broadening out
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of the market.
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Walk me through the decision making on whether
you choose to be a passive or an active
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investor in the public markets.
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Well, it depends on how much value, also you
think there is in a particular segment of the
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public equity market in terms of your decision
of whether you would go active or passive.
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So for example, US equity markets, which is the
classic example when people talk about passive
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versus active, US equity markets are extremely
efficient.
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So it's very hard for an active manager to be
outperforming by, let's call it, 2, 3, 400
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basis points on a consistent basis because the
markets are so efficient.
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That is not necessarily the case when you look
at other geographies or you look at particular
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sectors.
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What are some specific opportunities today in
the public markets?
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In the public markets?
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I mean, you know, as much as we talk about
diversification and we want diversified
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portfolios, it's been very hard to argue that
the incremental dollar from a macro perspective
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should go into anything but the US.
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So our our portfolios are definitely biased
towards US public equities today.
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That being said, we do think that there will be
selective opportunities again for stock pickers
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in particular sectors.
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So if you look at energy, if you look at, you
know, pharmaceuticals, if you look at a lot of
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different, Fintech or financial services
companies, asset management, insurance, like,
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you know, there's a case to be made that a lot
of those sectors are going to be very
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interesting, especially depending on what
happens with certain macro policies.
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So I think within the US, we're excited about
certain sectors.
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Outside of the US, we're less excited about
emerging markets.
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That being said, there are always spots to to
pick in terms of idiosyncratic risks that you
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can take.
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But from a macro perspective, I'd say we're
still biased towards the US.
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Unpack the diversification within the public
portfolio that you advise your clients to have.
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We are, again, like I said, overweighting, you
know, the US versus emerging markets and,
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Europe.
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And that's not a new view for the last 2 years.
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We've had much less exposure, for example, in
emerging markets because we just haven't found,
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despite valuations being cheaper in certain
countries, the risk reward to be beneficial
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compared to having the marginal dollar in the
US.
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So we have some diversification, but probably
not as much geographically as we did in, prior
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years where there were more opportunities in
other markets.
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That being said, we made a lot of money in
Japan, for example, last year.
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There was a lot of momentum in the Japanese
equity markets, but, again, all through kind of
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active stock picking.
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Right?
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Not from a passive point of view.
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So, you know, when we are managing our
portfolios in terms of the public equity
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markets, we want some diversification, but we
also wanna be able to make the incremental
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return that we see, given where the macro
environment is today.
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How does starting your career in sales and
trading change you as the co CIO of Rock Creek
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today?
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Yeah.
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You know, I feel fortunate that I have been
able to have different types of exposure
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across, finance as we call it, which I always
laugh because when people ask me, oh, I wanna
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get into finance.
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I'm like, that means so many different things
to so many different people.
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And you could do so many different things
depending on what your skill set is and
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actually what you're interested in.
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So I was fortunate that I was able to do
investment banking, which is a very different
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type of work than moving to sales and trading
where I was really researching stocks and
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putting on arbitrage trades between like Home
Depot and Lowe's and doing risk arb and merger
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arb, which was a very common strategy when I
was working at, Wolverine, and they had a multi
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strategy hedge fund.
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So, again, 2 very different skill sets, 2 very
different ways of looking at financial markets,
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but both very interesting and really both, I
think, informed how I, work as an investor and
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have worked as an investor over the last 20
years.
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And so I started my career at Rock Creek on the
asset management side by really looking and,
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you know, understanding the universe of
investment opportunities across, again, public
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markets and private markets.
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So having that background in investment
banking, having the background as, you know,
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working at a hedge fund really informed how I
asked questions and did due diligence on
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potential investment opportunities in those
areas.
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So I was fortunate to have that background
because I think it lays the groundwork for
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actually being able to do real due diligence on
investment opportunities, understanding how
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financial markets and capital markets work.
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Last year's Goldman Sachs report with surveys
over 500 ultra high net family offices show
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that they're only investing 6% into hedge funds
today.
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Why do you think that's the case?
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First of all, the term hedge fund, like, what
does that even mean?
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Right?
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Like, a lot of people would say that just a fee
and a term structure.
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So it depends when you say, what are they like
like, in 6% investing and what types of hedge
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funds.
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You can have a very stable value type portfolio
of hedge funds where you're investing in
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relative value strategies in idiosyncratic
markets, and you're extremely hedged, and
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you're not taking any beta or equity risk.
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You can, on the other hand, have a very
directional hedge fund portfolio where you're
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doing a lot of long short or where you're
taking a lot of long credit risk.
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So when people say hedge funds, I think the
interesting thing about that, asset class is
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that it can span so many different types of
risks and so many different types of alpha
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opportunities.
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And so you really have to identify what do you
need for your portfolio.
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Family offices, I think, are probably well,
some of them might be a little bit also more
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risk, you know, risk seeking.
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And so in which case, over the last couple of
years, they would probably be more biased
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towards directional equity, and equity risk
than necessarily wanting to hedge their
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downside, which is what hedge funds can do for
you.
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I will say that most institutions, endowments,
and foundations would probably have a higher
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target to hedge funds anywhere from 10 to, I've
seen, 20% in terms of hedge funds.
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But, again, it depends on what type of role
they will have in hedge funds.
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And, actually, we had been underweight hedge
funds for probably the last 2 years prior to
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this year.
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This year, we've seen again a lot more alpha
opportunities, a lot more stock picking
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opportunities, and so our hedge fund allocation
has increased.
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So you also have to be a little bit nimble in
terms of increasing and decreasing your
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allocation to that type of asset class
depending on what the market is giving you.
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What percentage of hedge funds that top
institutional investors invest into have are
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are focused on hedging versus capturing alpha
via quant strategies or other arbitrage
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opportunities?
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I don't know the exact specific numbers, but I
would say the vast majority of hedge funds out
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there are probably more focused on equity long
short type strategies, and more discretionary
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than Quant.
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Now there is a large allocation to Quant
strategies across both equity and credit and
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fixed income markets.
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So quant is a big type of, you know, hedge fund
strategy.
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But I would say that when I see new managers,
you know, starting and launching, it's usually
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in the equity long short space.
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So quant is still a smaller amount, of the
percentage of the universe.
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But I also think that is because you need a lot
of resources to be able to start a quant fund.
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Right?
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One person, you and I can go and start an
equity long short fund if we have the
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background and we can pick stocks, and we don't
need a lot of resources around us.
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That's not true when you think about the
technology and the systems and the data, most
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importantly, the data you need for a quant
strategy.
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You've been over 20 years at Rock Creek.
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What do you wish you knew before starting?
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That is a very good question.
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I think that you learn every day, so I don't
know if I could have anticipated what I would
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have needed to know before I started at Rock
Creek.
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I do think that, you know, before jumping into
the asset management world, you know,
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understanding again, understanding the dynamics
of different asset classes and and all of that
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is obviously very important.
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And maybe to round out my kind of foundational
background, it would have been helpful to have
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worked at a private equity fund or, like, at a
portfolio company to kinda understand a little
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bit more of the private markets before I
started.
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But I think if you look at what you can learn
at an asset management firm and especially in
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my job, like, I'm fortunate to be able to
really be able to talk to every single type of
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investor out there, private markets, public
markets.
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Right?
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00:17:25,200 --> 00:17:31,245
And so I think it's hard to say, should I have,
done anything differently or or known anything
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00:17:31,245 --> 00:17:32,225
before I started?
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Is that the best way that you sharpen your saw,
constantly talking to peers and managers?
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And how do you go about being a better CIO
every year?
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It is so much about talking to as many people
as you can and being open to different
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perspectives and open to different views and
honestly reading as much as you can as well.
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You know, we are so fortunate.
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We get so much different types of research,
different viewpoints, different perspectives,
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not only from our managers, from, you know,
just the rest of the world.
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We do a lot at Rock Creek in terms of thinking
about the macro environment.
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We have a board of board of advisers that are
all very much macro thinkers.
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And so I think the best way you can be a CIO is
to get all take all that information in, look
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at the data, be very data driven in terms of
your questions, in terms of your, investment
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process, and then think about the more
qualitative aspects of what's going on in the
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macro environment today as an overlay.
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But I will tell you, I think one of the most
important things also is being able to be
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dynamic and flexible because I think a lot of,
traditional ways of investing, especially when
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you think long term, is to not necessarily look
at your portfolio.
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And, you know, it's long term.
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It'll be fine.
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But I think in today's market and day and age,
you really have to constantly be just at least
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open to new ideas and open to the fact that
we're getting data every single day, and that
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could change what's going on in the market.
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Well, Alethia, this has been, great to catch up
and look forward to singing down soon.
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Thank you so much.
