Transcript: Jason Schwarz, Wilshire Funds Management



The transcript from this week’s MIB: Jason Schwarz, Wilshire Funds Management, is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast, and Bloomberg.


This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have a special guest, his name is Jason Schwarz, and he is the President of Wilshire Funds Management and Wilshire Analytics, a company that has been around since 1972 and is perhaps best known for its famous index the Wilshire 5000, really, the first total market index that existed.

Wilshire is a fairly substantial company that advises on a ton of assets and manages a decent sum of assets themselves but they are of far more interesting and complicated firm that I had any idea prior to doing some research for this conversation, they are involved in all sorts of really fascinating things and I think the average person or even the person who works in finance may not really be all that familiar with what Wilshire actually does, and I found this conversation to be quite fascinating.

So with no further ado, my interview of Jason Schwarz of Wilshire Fund Management.

My special guest this week is Jason Schwarz, he is the president of Wilshire Funds Management and Wilshire Analytics where he has worked since 2005. He has an AB in government from Hamilton College and an MBA from the Marshall School of Business at USC. Wilshire is probably best known for the Wilshire 5000 stock index, they advise on approximately $1 trillion in institutional assets, another $180 billion in broker-dealer and RIA assets, and their mutual fund and other related businesses have approximately $50 billion in assets under management.

Jason Schwarz, welcome to Bloomberg.


RITHOLTZ: So I was really fascinated about talking to you because like many people, I’m familiar with Wilshire due to the 5000 index and will get into that index a little later but as I was doing a little reading about the firm, before our conversation, I was really astonished at the history of the various business lines you guys have, it’s really a fascinating company, tell us a little bit about your background and how did you find your way to Wilshire?

SCHWARZ: Sure, so I grew up here in New York and was exposed to finance, investment management, I had an early kind of internship at an RIA, a multifamily office here that was engaged in some, you know, manager, research manager selection activity so I had a bit of the early exposure to that, you know, being able to sit across the table from you know, portfolio managers and investment managers and really, really interesting, but you know, like a lot of young people, I sort of had a number of career experiences in my 20s before I went to business school, I did a little bit of sales and marketing, a little bit of technology, a little bit of finance, and I got to business school and I chose to go to spend two years in Southern California at USC.

RITHOLTZ: Right, not the worst weather in the world.

SCHWARZ: No, and you know as a 26 year-old, it seemed like a nice place to the park for a couple years, but you know as a New Yorker, I would then you know immediately return, right? It was not a place to stay. And you know after about three months there, felt like it certainly isn’t so bad and I will say, that’s really where we all had sort of pivotal moments and I was — I started business school in 2001, right? So post kind of dotcom bubble and you know, job market was still was tough, and you know, after business school, I just needed a job, right?

And was like, – I think like a lot of young people, was , you know, cast a wide net and was looking for jobs I would say not necessarily in my areas of passion per se and in my second year of business school, Barry, I was part of this seminar in applied portfolio management which allowed us to kind of manage a portion of the school’s endowment and really get kind of a taste for managing assets, managing money, and as part of that, we were able to visit a number of different investment organizations up and down the West Coast.

And one of the firms that we met was Dimensional Fund Advisors…


SCHWARZ: DFA, which if you’ve ever been to their office in Santa Monica, they had at the time, they had the top two floors of this gorgeous building looking right out at the ocean and we’re being hosted by a number of folks at DFA and there’s maybe 10 of us and we’re sitting this board room looking out over the ocean, it’s maybe 80 degrees, the beach is packed with people…

RITHOLTZ: Spectacular.

SCHWARZ: Spectacular, and I reached to my friend who is sitting right next to me, Craig Greenwald and I said, Craig, I don’t care what I do, I just want to work in this building. And so, you know, flash forward two years, I was working as a management consultant because I just needed a job after business school and that seem like a respectable thing to do.


SCHWARZ: And I was still you know, sending out resumes and two years after business school, you know, I probably sent Wilshire a bunch of resumes and I’ve done some research, and it turned out Wilshire was in the same building as DFA.

RITHOLTZ: That’s hilarious.

SCHWARZ: And so..

RITHOLTZ: And so is that while you were still working or has the headquarters since moved?

SCHWARZ: We are still there.

RITHOLTZ: Wow, and so you get — you get that actual view that you were longing for in…

SCHWARZ: Every single day.

RITHOLTZ: I’m more impressed that USC actually gave their MBA students part of the endowment to run…


RITHOLTZ: How did that work out?

SCHWARZ: That was great, I owe a huge debt of gratitude to that program and the professor Suh-Pyng Ku who worked with us, it was a great a great opportunity and we were divided into a few different teams, there was like a midcap group, there was a large-cap group, you know some folks in the community had donated money for us to you know, mess around with and experiment with.

RITHOLTZ: You mean separate from the usual alumni donation to the foundation, a separate pool of money was raised for this is for the MBA students to sort of get their feet wet…

SCHWARZ: Correct.

RITHOLTZ: Managing real assets.

SCHWARZ: That’s right.


RITHOLTZ: Wow, that’s — what was the performance like?

SCHWARZ: Man, it was a — that’s a long time ago, Barry.


RITHOLTZ: And that was not an easy period to be an investor, right? After the dot-commissions, right before the financial collapse.

SCHWARZ: Right, certainly, right, I mean, it was — we were still we all through the ’90s, right, were raised on, you know, gogogrow (ph) stocks and technology, and so …


SCHWARZ: It was a completely different you know paradigm shift, you know, value was obviously doing well but small caps and growth were not. But you know, but what was interesting is for me, it brought to the forefront the different roles, really within investment organizations, and so interestingly, I — you know had at that point developed a facility with numbers and was kind of studying the space and all of the modern portfolio theory and but I you know had realized that where my passion really was at that point was not so much being an analyst in the trenches with the numbers every day all day but if I can – gosh, if I could get a roll that allowed me to engage with clients and do some the other things related to working in this industry, wouldn’t that be great?

RITHOLTZ: Let’s talk a little bit about the product you’re probably best known for, the Wilshire 5000, which contains these days about 3,500 stocks, is that right? Why doesn’t the Wilshire 5000 have 5000 stocks?


So you’re correct that there’s just under 3,500 stocks today in the Wilshire 5000, the Wilshire 5000 was created in 1974, at the time, it was the first really broad-based measurement of the US equity market and still today when people refer to the total US stock market, they are often referencing the Wilshire 5000.


SCHWARZ: And so , you know, it was a really important innovation for us dating back to the ’70s and the reason there was roughly 5,000 securities when the Wilshire 5000 was launched, the peak was as you probably know about 7500 securities in 1998, right? So that was in an environment where companies were racing to go public, right?

RITHOLTZ: To say the least.

SCHWARZ: To say the least. And so you know, post dotcom crash, there were a number of delistings, there were companies that clearly went out of business so that dramatically lowered the count.

RITHOLTZ: Right, delisting, a lot of listed stocks ended up going pink sheets and building boards and especially the micro — I think there was some thousand or 2,000 microcaps fell off the radar, so there really aren’t 5000 investable companies to put in the 5000 even if you wanted to.

SCHWARZ: Right, and I think the other, you know, key theme in today’s environment really is around private capital, right. So companies are staying private for longer and are able to do so without needing to go to the public equity markets to raise capital. So there is, you know, the IPO environment has not been what it was in the 90s and so therefore there are roughly 3500 publicly traded securities today.

RITHOLTZ: Sure, look at companies like Uber and WeWork and giant multibillion-dollar firms, years ago, they never would’ve been able to get that large.

SCHWARZ: That’s right.

RITHOLTZ: To say the least. So let’s talk a little about what your assets look like and what the company actually does, so you have, we were talking earlier, you have about $180 billion in assets under management, how does that break down? Is that stocks, bonds, nonpublic assets, what’s the mix of that.

SCHWARZ: So we have about $180 billion in assets that we advise on for what we call financial intermediaries and these are organizations, financial institutions, that ultimately serve individual investors.


SCHWARZ: And so this really for us — for our organization, stems from the work that we’ve done in the institutional space. So you know, we talked about the Wilshire 5000, Wilshire’s first decade in the 1970s was really is a — is one of the early pioneers in applying technology to solve investment management problems. And so the Wilshire…

RITHOLTZ: I have to interrupt you at this point and out that your founder is literally a rocket scientist who was at JPL before forming Wilshire in’ 72, is that right?

SCHWARZ: ’72. That’s right.

Yet, that’s right, so that is a really important, it’s a great story but it is also a really important part of our heritage. So Dennis Tito, Wilshire’s founder, currently our Chairman and CEO still active in the business was at JPL and was an aerospace engineer and this was at a time where the most powerful computer technology was resident NASA JPL where they were trying to figure out how to how to program the trajectory of unmanned spacecraft.

And so as the space race was winding down and that was really Dennis’ calling, he was called to participate in that so late ’60s early ’70s, Dennis was thinking about how to transition and ultimately how to make some money and really recognized at an early point that intersection of investment technology or information technology and finance.

And so the first product that Wilshire launched in 1972 was one of the first commercially viable ways to calculate an equity beta and so that was 1972.

RITHOLTZ: You take it for granted you could either log onto a Bloomberg or even use a website and generate half the data points we just take for granted, that didn’t exist back then.

SCHWARZ: Right, and this was the stuff of — I mean this predates me, this is the stuff of slide rules and you know really sort of…


SCHWARZ: You know, hard computational math and so applying really strong math to solve investment challenges so the first you know commercially, viable way to measure equity beta which became our kind of multifactor risk attribution model which exist today by the way.

RITHOLTZ: Multifactor attribution risk model.


RITHOLTZ: So you’re trying to figure out what is it — it is that’s actually driving on markets gains how do you attribute that to what specific elements and factors.

SCHWARZ: That’s exactly right. So if you are able to decompose a managers return into its component pieces and isolate all sorts of different factors, you can basically separate, was this manager good at picking stocks or was this manager benefiting from an overweight to energy or technology or momentum or certain fundamental factors.

RITHOLTZ: Or were they just really leveraging up and taking a lot of risk.

SCHWARZ: Or a lot of, right. So it’s for us, the essence ultimately of investment management we talk about how we got there starts with the foundation and risk management. And so those tools didn’t exist so Wilshire built them through the ’70s, and other tools like one of the first asset liability models for pension funds.

RITHOLTZ: In order to match the future liabilities and obligations to their current portfolio, is that…

SCHWARZ: That’s exactly right.

RITHOLTZ: It’s amazing that all these things we take for granted did not exist at one point in time and not 100 years ago, we’re talking 35 years ago. That’s amazing.

SCHWARZ: That’s right and the pace of change continues to be rapid, but as much as the business is changed clearly you know risk and the ability to measure and present that information is critically important. So this was Wilshire’s first decade and was really known as a pioneer and provider of these types of risk applications. In 1981, we launched one of the first full-service US consulting businesses and the goal here was to not just provide tools but to provide advice to pension funds and foundations and endowments, to help them apply some of these tools, asset liability management to create asset allocation policies, to help them select managers, to help them build their portfolios, and so this is — this is when you think of the work that investment consultants do in helping pension funds create investment programs designed to serve their participants really in perpetuity, Wilshire has been at the forefront of that business for almost three decades.

RITHOLTZ: Wow, quite fascinating.

Let’s talk a little about how the business has changed at Wilshire over the past couple of decades, you’ve been there for 15 years, you’ve certainly seen a lot of changes and we were discussing previously how the firm just really began as a technology and analytics company, how has the past decade or two changed your business model?

SCHWARZ: Sure. Well, I joined Wilshire in 2005 into what was at the time, a relatively new business that Wilshire had created called Wilshire Funds Management and you know, this was in its early days and it — the idea behind Wilshire Funds Management was to take the firm’s institutional expertise, its risk management capabilities and provide investment advisory solutions designed really for financial advisors and their individual investor clients. And so you know our first clients at the time and we only had a handful were insurance companies and some broker-dealers that were looking for the same types of multi-asset multi-manager risk managed solutions that our pension fund clients were able to have.

RITHOLTZ: So that means not just going out and buying a mutual fund but having access to a suite of different — different managers and different asset classes, is that right?

SCHWARZ: Right, so it’s you know we look at the things that institutional investors do well, they tend to invest in a lot of things, a lot of asset classes, right? They own a lot of asset classes, they are highly diversified, they typically implement those views with managers, also now increasingly passive components of us portfolios, and they blend everything together in a way that’s designed to really optimize a particular outcome.

Financial advisors you know, in many cases, in most cases are doing the same thing, certainly those that are using funds or fund products or ETFs to build portfolios and so the market has been shifting to you know, that of more of an advice embedded model and Wilshire has been able to participate in that and so I — you know, it was fortuitous the timing of when I joined the firm, but you know over the last you know decade or so, we’ve grown rapidly as one of the premier providers of these types of services to the intermediary market.

RITHOLTZ: So let me ask you about a division that caught my eye when I was doing a little homework, what is the Wilshire Segregated Portfolio Companies?

SCHWARZ: Right, so these are fancy name for our Cayman Hedge Fund Platform and so these are you know that this is a platform that was created actually in 2005, right around the time that I joined at the time it was created, there was this belief that still exists in some respects today that you know, if you’re able to, you want to hire a hedge fund, right? You want that hedge fund’s trading prowess, you want their exceptional ability to buy securities and generate performance. But you know, many — people may be uncomfortable with the operational risk that comes with that, the fact that you don’t have a lot of transparency or control over those assets necessarily or just an investor in LP.

RITHOLTZ: And how do you pick out of the 11,000 fund that are out there?

SCHWARZ: How do you pick out of the 11,000, so we set out to solve that in two ways, one of which was structural where if we could essentially just have the hedge fund manager run a separate account, where they just have trading authority but Wilshire controls the counterparty relationships, etc., and Wilshire has a fiduciary, right? Would provide a level of you know, trust to the market to our clients.


SCHWARZ: And then the other you know element of that is if we could identify highly skilled investment managers using our you know research platform, using the fact that we obviously are engaged in a lot of these activities for you know $1 trillion in assets, we have a combination of buying power, we have we think the ability to separate you know, skill from luck, et cetera.

RITHOLTZ: And a pretty big network contained therein.

SCHWARZ: Correct.

RITHOLTZ: You guys do something similar on the private equity side? Do you break it out separately or is it all part of the same platform?

SCHWARZ: So that’s a different — that’s a different business unit, Wilshire Private Markets and you know similar in the sense that businesses is you know, today looks much like a private equity asset manager, you know started out as building customized fund to funds for institutional investors in today you know has a large array of fund to funds increasingly customized advisory work in the private markets…

RITHOLTZ: Makes sense I’ve been racking my brain trying to figure out who a competitor to Wilshire is and I can’t really think of anything, I mean maybe S&P but even then, that it’s not really the same like what you look at as actual competitors if anybody?

SCHWARZ: Right, so I think you have to look at the different components of our business which you know, as you have noted, is broad-based, you know, look on the consulting side of our business, a lot of the a large fortuitous competitors there, the Towers, the Aons, the Mercers of the world, you know as well as a number of mid-market players, you know in the work that we do in the financial intermediary market, you know, MorningStar is a you know a formidable competitor, obviously is a great brand in the retail advisor community. You know, certainly in the index side of our business, right? You know, FTSE, MSCI, S&P, on the private market side, probably firms like Hamilton Lane and others. So because we don’t do one thing we have which I think is a great strength and we compete with different people in different parts the market.

RITHOLTZ: Makes sense. You know, earlier, we were discussing Dennis Tito whose background was astronautics and aeronautics and he also is somewhat famous for being the world’s first paying space tourist, he went up to the — was it the international space station, is that right?

SCHWARZ: That’s right.

RITHOLTZ: So given that background, how did that impact how Wilshire developed? Was that significant or just an interesting footnote?

SCHWARZ: Yeah I mean, I think we — it’s consistent with our studio our heritage and Dennis, this was his passion early in his career and you know had an opportunity – it’s actually a remarkable story of persistence because you know, it was a difficult thing to do, he was I think at the time, the oldest — I think he might have been the oldest person and he’s going to kill me for saying this…


But the oldest person…

RITHOLTZ: Launched into space.

SCHWARZ: That is launched into space let alone as a civilian, he had to train you know for six months in Russia where they really tried to get him to drop out and you know and will we tell the way we tell the story is he’s a guy who’s been focused on risk management his whole career, I mean my understanding of the way that the payment was structured was there was a certain amount to pay him up — to bring up the space and then a larger amount to bring him back down.

RITHOLTZ: In other words, create an incentive to keep him alive.

SCHWARZ: That’s exactly right.

RITHOLTZ: That’s very, very funny. So we were discussing, I’m going to say it again, so the firm was pretty early in the world of indexes, the Wilshire 5000 in ’74, I think that was the year Vanguard launched so you were right there at the beginning of the indices, back then most indexes were used as benchmarks, now they’re really used as investment vehicles, how has that affected the world of investing and how has it affected your firm?

SCHWARZ: Sure. Well, it’s — you know for as a manufacturer of indexes, it is certainly an economic opportunity I think you know what started out as you indexes as benchmarks as you as you noticed is really blossomed or skyrocketed into — these are great proliferation of indexes, and part of that is because you know asset managers are looking for very discrete ways of measuring their performance and in some cases, you know, looking for ways to tell a story against the benchmark, let’s just get a better benchmark, or a different benchmark, which you know, I think is I would say is not a particularly healthy part of the industry.

But I think the other element which has been you know, good for our business and those that are that are able to, you know, as a branded entity create indexes is you have all this intellectual property, you got the smart people, you got these quants, right? And now increasingly with factor based quantitative strategies, one can creates investment ideas, right?

And so the pace of innovation around investment ideas which can then be translated into an index, right? Which can then be licensed to a manufacturer, an ETF firm, to package that license – to package that index and deliver that to the marketplace is you know is creating another wave of product growth and new ideas…

RITHOLTZ: That’s everything from smart beta to factor-based investing, to ESG to pretty much you name it, there’s an index for it.

SCHWARZ: So there is an index underlying that strategy…

RITHOLTZ: There is a crypto index coming out, there’s a weed index coming out, I mean it’s astonishing if you could come up with an investing style, someone either has or is about to make an index, is that a growth opportunity or are we now over indexed?

SCHWARZ: Well, I think probably both. I mean it’s a huge opportunity for us, we’re participating in that, I think you know for us, it’s where can we bring great ideas with partners not in a desire to just flood the market with product but it’s a great way to, you know, we think bring new innovative concepts in marketplace, but yes, I mean I read that there is a study recently that looked at the number of indexes relative to total listed stocks and it was like you like there’s something like four times the amount of indexes as there are just global stocks, right?

So it there is clearly this vast proliferation of indexes you know, and we can also ask the question of does the market need 2,000 or 3,000 ETFs and I think the answer to that is probably no.

RITHOLTZ: There is a real Darwinian battle for survival and when we look at the distribution of assets and ETFs, it’s a very much a fathead longtail sort of there’s a handful of winners, it’s Blackrock, Vanguard and then pulling up with number three, State Street, and then everybody else, are indexes more or less the same way, is it a handful of big winners and then 1000 also-rans?

SCHWARZ: Right, I think in the beta space, that’s correct, Barry. I think you know the beta races has essentially …

RITHOLTZ: It’s the S&P 500 and that’s pretty much…

SCHWARZ: Correct and you know and Ishares and Vanguard and me know – Schwab and a select few really own that market, right? And you know, what the price is for you know broad market beta, it’s increasingly free, right. But I think that the market for value add strategies, for more niche strategies, for strategies that are designed to provide differential types of exposure is still strong and you know the ideas that can be packaged into solutions not just you know, beta — market beta per se, you know, I think the market for that will continue to be strong and great ideas will always have a place in investor portfolios.

RITHOLTZ: So let’s talk a little about indexing and passive and I would be remiss if I did not bring up the so-called Robo advisers or algorithmic asset allocations, how does that fit into the Wilshire worldview, are these potential clients, are they competitors, are they just a here’s a cheap way to probably do it better than you are going to do it yourself, what is your view on that?

SCHWARZ: On Robos?


SCHWARZ: You know, I think, look, I mean I think there’s a number of things here, I think if you think about the way in which in some respect, asset managers engage with the market, it’s archaic in the sense that most asset managers don’t actually communicate directly with their clients, right?

RITHOLTZ: There is an intermediary between…

SCHWARZ: There is an intermediary…

RITHOLTZ: That makes sense.

SCHWARZ: Right. And so I think there’s this opportunity which we’re seeing you know a level of disruption where you’ve got this really what is a direct to consumer model, right?

So, which…

RITHOLTZ: If we are talking about Vanguard or Schwab, for sure, if you’re talking about all the third party Robos who are using State Street, Blackrock, Vanguard, et cetera, they are the intermediary.

SCHWARZ: Right but they are — but you know, we take like a better mentor or wealth fund or some of these firms, it strikes me that they are you know in many respects, disintermediate in the traditional relationship between the financial advisor and a financial adviser’s client.

RITHOLTZ: Sure. The question I’ve always wondered about, are they pulling the clients from advisors or are they pulling the clients from previous do-it-yourselfers who kind of said maybe I need a little help with this, and I honestly don’t know the answer to that.

SCHWARZ: I don’t know either and I think probably both, I think maybe it’s similar to online banking, right, online banking and the thought there would people no longer go to branches and you know self directed brokerage was going to put everybody out of business, but no, I mean there is a level of self-selection, I think clients will matriculate from a you know from essentially a self-directed experience to a financial advisor, I think, you know, as one’s needs become more complex, more of the financial planning component becomes more relevant.


SCHWARZ: You know, I see this as a sort of an app, as an application, I also by the way, when we think about millennials and how millennials are going to consume investment advice, right? You know, the notion of you know, when I was a kid having dinner right around six or seven o’clock, the phones ringing and it’s like a Smith Barney broker, right?

And so our kid is going to get cold called by you know by a broker at dinnertime they don’t even have landline.

RITHOLTZ: The last interesting data point I saw in that was by next summer, by the summer of 2019, half of the calls coming into your mobile phone are going to be spam, so I don’t know if there are going to be people pitching stock, but I think that method of selling certainly has if not disappeared, fallen by the way side to a large degree. When was the last time you got a call from someone pitching them you got to buy this IPO, I don’t think that’s happened recently.

SCHWARZ: Yes, yes.

RITHOLTZ: We have been speaking with Jason Schwarz, president of Wilshire Funds Management and Wilshire Analytics. If you enjoyed this conversation about all things index, analytics, fund management, and institutional advisement, be sure and come back and check out the podcast extras where we keep the tape rolling and continue discussing all of the above. You can find that at Apple iTunes, Overcast, Stitcher, wherever finer podcasts are sold.

Be sure and check out my daily column that’s at, you could follow me on Twitter @Ritholtz. We love your comments, feedback, and suggestions, write to us at I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

Welcome to the podcast. Jason thank you so much for doing this, I’ve been looking forward to having this conversation for quite a while. I’m sort of fascinated by what Wilshire does, it really is a unique firm compared to just about any other firm you want to put your finger on. You guys do a lot of different things across a lot of different business lines, one business sector that I didn’t get to during the broadcast portion but I have to ask you about is and I know you don’t run this division but I’m fascinated by it, the outsourced chief investment officer or OCIO, what exactly is that because I’m somewhat familiar with it, but probably not as much as I should be.

SCHWARZ: Sure. So the OCIO business model is essentially calls for the discretionary management of an asset owner’s fund or portfolio, and so…

RITHOLTZ: So if I’m an RIA and I have a chief investment officer or I don’t have a chief investment officer, I could outsource that responsibility?

SCHWARZ: Well, so the OCIO as you referenced in our consulting business, provides this service, is really resident within the institutional pension fund foundation and endowment community and what it refers to really is you know, the traditional way historically that pension funds have consumed investment advice is through a consultant meeting with investment committee and Board of Trustees generally providing nondiscretionary advice. So the consultant would make recommendations and say I think we should be using these managers and will do an asset liability study and will, you know, construct this really powerful asset allocation.

RITHOLTZ: And it’s either followed or not.

SCHWARZ: It’s either followed or not and so with that, the asset owner has to have professional staff, they have to have governance framework, they have to have meetings, et cetera and so with the OCIO, it’s all right consultant, all right Wilshire, here’s $1 billion, do it for me. Right? You make the decisions, we will set up the frameworks, the governance, you know there will be certain parameters but instead of you having a run all your recommendations through us and we meet for you know three month, six months, and discuss it, bring your best you know — your best thought leadership to bear but under an environment where you have discretion.

RITHOLTZ: So basically that, I’m guessing here, is that really aimed at some the smaller funds that may not have the administrative staff and the resources to run a full CIO office and with all the bells and whistles and analyst et cetera, is that the sweet spot of that?

SCHWARZ: That’s fair, I mean there’s been some larger kind of OCIO engagements but generally I think you’re starting to see up a pretty clear bifurcation you know sub $1 billion, I think it’s getting increasingly difficult to make that case for lots of overhead, you know and increasingly we think the market is going to go more OCIO sub 1 billion and over 1 billion will be all sorts of different levels of customization.

RITHOLTZ: And that’s especially if I’m again I’m guessing here but small endowments, small pension funds, where there are future liabilities and if you have a big and expensive staff relative to the size of the assets under management, it really could be a drag on long-term returns.

SCHWARZ: That’s absolutely right.

RITHOLTZ: Makes a lot of sense.

I think of ETFs as just a wrapper that happens to be tax-advantaged versus traditional 40 Act mutual funds, am I grossly oversimplifying it or is that basically what ETFs are?

SCHWARZ: I think that’s right.

RITHOLTZ: So what does that mean in terms of you just discussed intellectual property involved in managing and creating indexes, are we going to see more and more of those type of indexes become ETFs, what’s the future, we talked about a few thousand of them are out there not all of which are attracting assets, what’s your view on the direction of the ETF industry?

SCHWARZ: I mean I think that they’ll continue to be a proliferation of ETFs, I think we will continue to see kind of a winner take all you know, certainly in the beta side with more simplistic ETFs, scale matters, you know, brand matters, but you know, the barriers to entry are pretty low, right? And so I think you are going to continue to see a lot of additional ETFs. You are also going to see more funds, right? I think last year was the first year that we have seen in a while…

RITHOLTZ: Mutual funds?

SCHWARZ: Yes, I think we’re going to see more fund products too.

RITHOLTZ: Mutual funds have just about a century of history, what does it look like going forward for them?

SCHWARZ: We think that that you mutual funds will continue to exist, we’re seeing fees come down, we’re seeing increasingly, you know, fees being stripped out of mutual funds, that trend will continue, you know, ETFs are certainly helpful in that respect, but you know, I think, we ask ourselves the bigger question of could we offer personalized SMAs for individuals, right? So instead of everybody’s in a pool vehicle in this mutual fund vehicle, maybe we get to a point where technology will allow for more mass customization so everybody gets their own kind of SMA…


SCHWARZ: And I think that is something that you know, model delivery UMAs, these are all sorts of innovations that are kind of at the fringe here…

RITHOLTZ: So someone says I want the S&P 500 but I don’t want to want gun stocks or I don’t want gambling stocks or whatever it happens to be, you get the S&P 500 minus whatever or plus whatever it is you want, is that what you mean by customized?

SCHWARZ: Right, right, and that exist today at the higher end of the market, right? Where a wealthy individual can have an investment firm create a customized strategy, whether it’s for tax planning purposes or for you know, stripping out certain types of securities, you know, ESG does this, right? Pretty well.

But I think that the ability to create those types of vehicles for smaller account sizes will become increasingly a reality, which you know then calls into question the viability of the mutual fund as really the kind of default package for many individuals.

RITHOLTZ: Dave Nadig is the managing director of which is owned by CBOE and he is a big believer in that exact approach, everybody gets a custom SMA because the technology has made what used to be complicated and time-consuming and expensive pretty much a couple lines of software and off you go. I remain unconvinced but he and you both seem to be thinking along the same lines with that. Is there really a big market for that today or is that a future sort of a sort of product that people could customize if that’s what they want? I’m also thinking of things like motif where you could kind of create a theme and it’s very low-cost to do that.

SCHWARZ: Yes, I think it’s in the future, I think, look, I think there are structural impediments to change in the traditional way in which investment services are distributed…


SCHWARZ: It’s why you don’t see ETFs on DC menus right from a record-keeping standpoint, it’s difficult, so I think they’re there to continue to be kind of institutional impediments to change but you know we talk about robos and digital advisors and in some of these new startups, you know where you’ve got this from algorithmic way of creating you know high-volume portfolios, highly customized portfolios, and we’re doing parts of this, too. I think we will start to get there but it may not be the start with the more entrenched players.

RITHOLTZ: Why is it that we don’t see more ETFs in 401(k) type vehicles, is it just inertia, are the mutual — I’m thinking of the admiral type shares of mutual funds, they are very, very inexpensive compared to the average ETF, certainly the spider S&P 500 is dirt cheap, but for most 401(k)s, the mutual funds, I want to phrases correctly, for the better 401(k)s you have options of very, very inexpensive mutual funds, why haven’t ETFs found their way into that?

Is it simply inertia or are there other reasons?

SCHWARZ: I think I think there are other reasons related to record keep – the way in which record keepers and those you know, systems, some of which are kind of older systems are designed really for mutual funds not for ETFs, and it’s that simple.

RITHOLTZ: That’s quite fascinating. So I know I only have you for a finite amount of time, let me jump to my favorite questions.

Tell us the most important thing that we don’t know about Jason Schwarz.

SCHWARZ: How about I actually started my career in Hanoi, Vietnam.

RITHOLTZ: Really? That’s fascinating, what we you doing in Vietnam?

SCHWARZ: So I had an opportunity go over there for a summer really as an internship in the 1996 and ended up staying for a period of time, I worked for a private equity firm the US normalized trade relations with Vietnam in 1997 and so I stayed and worked for the Department of Commerce…

RITHOLTZ: That must have been fascinating.

SCHWARZ: It was fascinating, absolutely fascinating.

RITHOLTZ: I have a buddy who was doing a speaking tour of Asia, Michael Covel who was the prior guest way back when, did a speaking tour of Asia, Hong Kong, Beijing, went through everywhere, ended up in Hanoi and called his roommate in San Diego and said send my stuff, I’m not coming home. He said it was that fascinating of a place.

SCHWARZ: It was amazing.

RITHOLTZ: It’s the wild west and the new face of capitalism is that…

SCHWARZ: Right, and at the time it was it was really kind of early in an opening up and liberalizing the economy and you up until 1997, US companies were not able to do business in Vietnam…

RITHOLTZ: Legally.

SCHWARZ: Legally, right. And so it was absolutely fascinating, absolute wild west but a really a great way for me as a young you know is a young person to be introduced to business to do so in a different in a Third World communist country…


SCHWARZ: You know, it’s where everybody should start their careers.

RITHOLTZ: That’s very funny. Tell us about some of your early mentors who helped guide your career.

SCHWARZ: Yeah so it was a guy here, Bill Aaron, at the executive monetary management was my first kind of investment related jobs, I remember him telling me to really focus on a calling not so much a job and that always stayed with me.

You know, at Wilshire I — you know the cliché, but I certainly wouldn’t be where I am today without the time that folks like him certainly Larry Davonzo who hired me, a guy named Chuck Roth, Chip Castille who is a former BGI was or CIO, was the smartest person I ever worked with and was one of those guys where you know when you have them on your team and you go into a meeting you just know you have the smartest person in the room on your side.

But I would ask these — all of these folks questions and they were gracious with their time and that’s really you know Dennis became a — has become a mentor to me as we moved along.

RITHOLTZ: That’s a pretty good list.

SCHWARZ: That’s a good list.

RITHOLTZ: So let’s talk about investors, what investors out there influence the way you think about markets, thinking about investing, who’s affected your perspective?

SCHWARZ: So I — for us and for me more kind of in an asset allocation manager selection space, you know, Harry Markowitz…

RITHOLTZ: I knew you were going to go there, it was the name on the tip my tongue.

SCHWARZ: So, you know, the grandfather father of modern portfolio theory, Bill Sharpe…

RITHOLTZ: Still, by the way, very active, both him and Sharpe, both active, writing, publishing, interesting.

Anyone else before I interrupted you, anyone else…

SCHWARZ: There was a gentleman, Barton Wering (ph) who wrote some papers he was at BGI, and that was a group that was doing some of the most powerful work in kind of — we call it active risk optimization, right? How do you build a portfolio of managers and really optimize that outcome and control for risk moving from you know sort of total return, total risk, to active return, active risk and I you know devoured that literature when I was early and trying to figure things out.

RITHOLTZ: Very interesting. Everybody’s favorite question, tell us about some of your favorite books be they fiction, nonfiction, investing related or otherwise.

SCHWARZ: Well I you know sheepishly I will say that my list isn’t particularly long, I have three kids under the age of 10…

RITHOLTZ: So you are busy.


SCHWARZ: But I did read “Shoe Dog”.

RITHOLTZ: Phil Knight.

SCHWARZ: Phil Knight…


SCHWARZ: And I — it was one of those books that I literally couldn’t put down …

RITHOLTZ: They were on the verge of collapse for like the first 10 years of their existence, it’s amazing story.

SCHWARZ: Sitting on the edge…


SCHWARZ: Right in and that you know that I think how he — how the definition of winning changed for him you know originally it was in a win at all costs, it was this ultracompetitive, sort of more narrowly defined I must be successful which ultimately became more of a you know we want to make contributions, we want to, you know, do things to change peoples’ lives, you know that it became bigger, right?

And I really could relate you and I think a lot of us is as we sort of move along in our careers what becomes of gosh, I just want to — I want to be successful, I wanted the company to be successful, moves you, and want to help change your — improve people’s lives, improve their outcomes, I really, he talked about that and it really resonated with me.

RITHOLTZ: Quite interesting. What are you excited about right now?

SCHWARZ: In the industry?

RITHOLTZ: In whatever.

SCHWARZ: Well I think that we talked a little about technology, I think there’s a lot to be excited about technology both as a disruptive force in changing the way that people consume investment advice, it you know the things that –the ways in which we use technology today to automate certain task increasingly really automating elements of the investment process even, the delivery of materials to clients as we think about like from paper to portal, right? The pace of change I think that we’re living in right now is so rapid and it’s exciting because you know there are elements within the financial services space that you know, have probably been untouched for a long time.

RITHOLTZ: To say the least.

SCHWARZ: To say the least and so that’s either horrifying, right, and scary, or it’s a huge opportunity and I think it’s a huge opportunity and I’m excited to be able to participate in it.

RITHOLTZ: Tells about a time you failed and what you learned from the experience.

SCHWARZ: So you know, long list here, hiring is an area where…

RITHOLTZ: So challenging.

SCHWARZ: So challenging, right? And I think it is an area to where you know you go to school and you learn, you go to graduate school, you learn a little bit more, you know, you have opportunities to work in different jobs and assuming one doesn’t work in human resources capacity, hiring is not ever really something that that I think we learn how to do…

RITHOLTZ: It’s not a class in school, is it?

SCHWARZ: It’s not a class, it’s not taught you have this you know belief that it’s kind of intuitive great people just hire great people and I think it’s something that I personally actually spent a lot of time on trying to get better, trying to approach it from more scientific way and you know, so a failure would — failures would clearly be the times we got it wrong, the times I made a mistake wrong person, wrong role, not a great fit, you know and all of this sort of classic in retrospect biases that that prevail.


SCHWARZ: But there is you know, that’s sort of top of my list right now in terms of…

RITHOLTZ: I think that’s the hardest thing that any company has to do, it’s just at – there is a little bit a luck, it’s just one of those things and I’ve had numerous people sitting in that seat say variations of what you’re saying, hiring good people is the hardest thing to do because it’s just not a natural skill set.

SCHWARZ: That’s right.

RITHOLTZ: It’s amazing.

What do you do for fun, what do you do out of the office to kick back, relax and have a good time?

SCHWARZ: So I have actually become slightly obsessed with Olympic weightlifting.


SCHWARZ: So that’s become my hobby…

RITHOLTZ: What do you bench press?

SCHWARZ: No, no, no, this is the clean and jerk all this is the snatch, so these are the two lifts that are in the Olympics.

RITHOLTZ: Those are brutal. That is not easy to do.

SCHWARZ: Yeah so that’s I mean in there there’s a reason they are Olympic lifts, right? And that’s become a real probably the most challenging in a physical thing that I’ve done which has been…

RITHOLTZ: How did you find your way into that? That’s amazing.

SCHWARZ: Yes, so I think a lot of — if you go to gyms these days, the sort of cross fit, you know…

RITHOLTZ: Flipping over tires…

SCHWARZ: Flipping over tires and…

RITHOLTZ: Burpees and all that stuff.

SCHWARZ: Burpees and pull-ups and including some of these lifts, and you know folks you know dropping barbells and chalk flying, and after years of just you know more of kind of the bench press and you know whatever it was to just kind of just stay in shape, you see these guys slamming bars and I said that would be a great way to kind of blow off steam, and just started you basically just you know had somebody to walk me through it and then continued debt to try to progress and enjoy it.

RITHOLTZ: So what do the Olympians do in those sort of way — what sort of numbers…

SCHWARZ: Well so think about — some of the best lifters are lifting from a barbell from the ground…

RITHOLTZ: From a dead, on the ground …

SCHWARZ: Over two times their body weight over their heads…

RITHOLTZ: That is amazing.

SCHWARZ: So if you just think about it from that standpoint.

RITHOLTZ: 400 plus pounds.

SCHWARZ: 400 plus pounds, you know over their head in a variety of ways and in what’s really interesting is it’s not just about brute strength, it’s about speed and technique and that’s where it becomes this you know and obviously the sort of the mental kind of agility but…

RITHOLTZ: So it’s funny you say it’s speed and technique, I was just having conversation last night the woman who won the U.S. Open in Forest Hills, I’m drawing a blank on her name, it was a whole big issue with Serena Williams, and then she crushes the ball like 135 miles an hour, she can’t be more than 100 pounds soaking wet, she is this tiny thing, and the answer is it’s all technique, it’s not power, you are not just muscling it through, I had no idea that was true for a Olympic deadlifts like that.

SCHWARZ: Well, I would sort of say that it’s actually true for a lot of things in life.

RITHOLTZ: Yes, absolutely.

SCHWARZ: Thankfully, right?

RITHOLTZ: For those of us who aren’t necessarily 6’2 and jacked, yes. Absolutely.

And our last two questions, what sort of advice would you give to a millennial or someone just starting their career if they were interested in going into finance?

SCHWARZ: First I would say there is a lot of different roles within you know within the finance realm and so you know I’m a good example of — I’m actually I didn’t rise to the ranks as an investor…


SCHWARZ: And so you know I’ve been always more focused on the client and business side of the business of investment management and so, you know, there’s a number of different roles available and they sort of learn about industries and roles you know is incredibly important. The other I would say and sort of take a page from Phil Knights memoir about seeking a calling and really using your 20s where the currency is really less about you know how much money you are making and should be more about the knowledge of both about, you know, what makes you tick and what you — what doesn’t and really to ultimately try to find that calling because it’s the true calling that’s going to make you know the hard work more fulfilling, the disappointments you know easier to bear and the highs, you know when those highs come, and this is what Phil Knight says, that there’s nothing like it, and that’s been certainly my experience.

RITHOLTZ: And our final question, what is it that you know about the world of investing today that you wish you knew 20 years ago?

SCHWARZ: You know, I’ll say that simple beats complex almost all the time, and I think that’s something that, you know, the further I’ve came, the more kind of the realization that the really complex difficult to unpack, you know, strategies whether it’s investment managers, whether it’s the latest kind of whiz-bang you know idea often times, you know, really well diversified portfolios, you know, really good, you know, investment managers or passive products do really, really well.

RITHOLTZ: We have been speaking with Jason Schwarz, he is the president of Wilshire Funds Management and Wilshire Analytics.

If you enjoyed this conversation, well, be sure look up an inch or down an inch on Apple iTunes and you could see any of the previous let’s call it 220 prior conversations that we’ve had.

We love your comments feedback and suggestions, write to us at, I would be remiss if I did not thank our crack staff who helps put this together each week, Atika Valbrun is our project manager, Madena Parwana is my producer, Taylor Riggs is our booker, Michael Batnick is our head of research.

I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.


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