The transcript from this week’s, MiB: Marcus Shaw, CEO of AltFinance, is below.
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ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have another special guest. His name is Marcus Shaw. He has really a fascinating career and a focus these days. He really began as a traditional engineer/finance person working at IBM as a network engineer before he got his MBA at Duke. And from there, he did the usual research and investment banking gigs throughout a lot of Wall Street before the opportunity came to help entrepreneurs develop and grow their businesses in places like Alabama and Tennessee, which ultimately led him to participate in the founding of a new firm called AltFinance, which was created by really a group of, for lack of a better word, finance royalty.
It’s Howard Marks of Oaktree Capital. It’s Tony Ressler of Ares, Marc Rowan of Apollo Global. These three gentlemen said we’re lacking the ability to tap into a very rich, diverse talent pool, including historically black colleges and universities. Venture capital, private equity, just were not recruiting for those spaces. And so they stood up a firm called AltFinance, whose main purpose was to help alternative asset managers tap into that rich pool of potential hires. Marcus Shaw works with them, and he’s the CEO of AltFinance.
I found this to be really a fascinating conversation about how to access the most skilled partners and employees, what can be done to shake up a relatively staid industry that has lagged behind its peers in terms of recruiting and other things, and really how to help have a major impact in the world of finance. And I found this conversation to be fascinating and I think you will also. So with no further ado, my interview with Marcus Shaw.
MARCUS SHAW, CEO & PRESIDENT, ALTFINANCE: Barry, thank you so much for inviting me.
RITHOLTZ: I’m excited to chat with you. So let’s talk a little bit about Wall Street and diversity. Wall Street has been pretty bad at recruiting black talent. It’s been a stated objective for decades. Why is finance so bad at this?
SHAW: Barry, I think that it’s a complex question that requires actually a complex solution and a multifaceted solution. I would say the most general issue here is that folks don’t have the networks and the access to careers in finance from across the country. Right? So if you grew up in New York, yeah, you’ll probably know some people that worked in the industry and you may have some relationships. You may go to school with somebody. Your parent may work there. And that’s whether you’re white or black. All right.
But if you don’t, if you grew up in a market, where there’s not an investment bank, there’s nothing other than a branch bank for one of the multi-dimensional financials, then you’re not really going to have an understanding of what that career looks like at a young age. And so as you get ready to go to college, and you start thinking about what your career going to look like, it’s going to be primarily academic for you. And so I think that’s always a challenge that they’re not a ton of people that are in the seats, that are getting access to, in this case, black students from across the country. They’re giving them a look and this is what a career could look like for you. This is what an opportunity could look like for you. Here’s what the realm of possibilities is. And this primarily is how you get there, here’s a path to get there. That’s the biggest challenge.
RITHOLTZ: So tell us about AltFinance, what is its mission? And why is this a better mousetrap than the way things have been done before?
SHAW: So AltFinance is focused on building diversity in the alternative investment industry.
RITHOLTZ: Alternatives being venture capital, private equity, anything else?
SHAW: Private credit, real estate investing, hedge funds, everything kind of outside of traditional stock and bond investment, right, the things that are more private and market-driven often. And so our goal is to increase diversity in that space by working with partnerships at historically black colleges and universities, by providing students from HBCUs opportunities to have co-curricular programming, understanding, you know, exactly what you need to know to be successful in that role.
Also to provide mentorship for students so that they’re not operating in a vacuum, so that when they have questions, there are people in the business, people that have experienced in the business that they can talk to. And also by working and partnering with schools to provide financial support to help increase capacity not only for students, but also for the institutions themselves.
RITHOLTZ: So let’s talk a little bit about how AltFinance was initially funded and created. You have Howard Marks of Oaktree Capital, Marc Rowan of Apollo, Tony Ressler of Ares. These are like three heavy hitters at giant legendary firms. That’s a heady group to work with. What led them to say we need help accessing black talent, and we’re not getting it from anywhere else, we have to do it ourselves.
SHAW: What I think all three gentlemen, you know, Howard, Marc, and Tony all recognize is that relationships help drive value. And so you got to have relationships with the schools and the places where there is a lot of black talent, and I think they saw HBCUs as an opportunity for that. I think what’s important, though, and what’s key is that we found ourselves at a very interesting point in time, in 2020, in the wake of George Floyd, in the middle of COVID. And so I think, everybody around the world, business leaders from across multiple industries were trying to think about how can we make the world a better place? How can we address racial equity in a way that’s specific to the businesses that we operate in? And I think that’s the key, right?
This was not just about, you know, going out and being philanthropic, right, and making one time gifts. This was about how can you be strategic in building partnerships over the long term, that are going to have a systemic impact in the industry in which you operate. And that’s where I really think that the three firms led by, again, Howard, Tony, and Marc really found something that was special and something that was, you know, a better solution to a question that Wall Street has been dealing with for years.
RITHOLTZ: So is it safe to say that Wall Street, in general, but alternatives like private equity and venture capital, were not recruiting at historically black colleges and universities? Was that void out there forever?
SHAW: I think that it was not systemic, right? There was no systemic recruiting at HBCUs, in a way that was going to be sustainable, right? And I think that a lot of that was driven by needing to take some time and figure out how do we engage with these universities. We know we’ve got talent there. We’ve got density of talent, which is the important thing. And so I think giving us time to reflect on what had happened over the past few years was a really strong case for let’s go, let’s be direct and intentional. Let’s work with presidents of these universities. Let’s work with the deans, let’s work with the students to develop a strategy together, that’s going to rise the tide for everybody.
RITHOLTZ: So I want to get into the details of what you guys actually do with students. But before I get there, you mentioned Tony, Howard and Marc, what led them to say, hey, let’s stand up some entity so we can set up an institution to correct just a recruiting shortfall we’ve had for years and years. Like that’s an unusual group of guys to get together and say “Let’s see if we can dent the universe a little bit.’
SHAW: Yeah. So I think there are two factors. Number one, and I think they both reflect strong leadership at the firms. Number one, you had, you know, somewhat of a groundswell from within the firm, certainly at leadership that said we need to figure out a way to do something. And I think as great leaders do, I think Howard and Tony and Marc were receptive to that. And also, it was perfect timing because they were thinking, how can we drive impact? How can we impact and affect change in our own way? And so it starts off with senior leaders at the firm and you know, these heads of industry working together to figure out, what can we do?
Then you bring the relationships together. So Howard, Marc and Tony have known each other, but also many of their senior leaders have known each other as well.
RITHOLTZ: Right, right.
SHAW: And so the main thing that you have to do is say we want to take down any competitive barriers in which we operate during our standard business. And we recognize that what we’re trying to solve for is bigger than our individual company. It’s really about the industry. And if you can get to that point, which they did, very quickly, I mind you, then you can instantly start to put together something as powerful as AltFinance. And that happened, and it happened fairly quickly. But I think it took a lot of time and a lot of vulnerability, and a lot of transparency. And I think that’s really symbolic of what AltFinance represents.
RITHOLTZ: So now let’s drill down a little bit and talk about what you exactly do with students. Do you guys provide coaching or mentorship? What do you do to help kids who probably aren’t all that familiar with what private credit is, and put them on a career path until alternative investments?
SHAW: So there’s a framework that I use, I use it with entrepreneurs, I use it with talent anywhere I see it. First, you identify really good talent, right? Kids that have an interest in investing. Although they may not know the nuance of what investing asset class that they’re most interested in, or, you know, they’re young, they may not have the experience of understanding multi-cycles in the market, but they have an interest in investing. They have academic strength, right, some real intellectual rigor and horsepower. And so you look at kids that perform well, no matter what they do. You know, the kid can be a philosophy major, they can be a finance major, but they’re doing well in the pursuit that they’re following. And then we look for students that are coachable, right?
SHAW: Coachable. Coachable is key.
SHAW: It’s an apprentice model business. You know, there’s nobody that comes into this business, and comes in right out of college as a partner. Even if they’ve got all the resources in the world, nobody is going to come in as a partner. By and large, most people start this business as an analyst and they work with associates, and those associates working with VPs and principals, and managing directors and so forth. So you need people that are going to be willing to work through the apprenticeship model, that are willing to come in, you know, well compensated, a great network of people that they’re going to be around, but they’re still going to have to listen and be coached up in order to benefit the team in the company. And so we look for those things, people that have an interest in investing, people that have intellectual horsepower, and people that are coachable.
RITHOLTZ: That’s really intriguing. So it’s not so much specific qualifications that are needed as qualities that will allow the students you select to succeed going forward?
SHAW: Yeah. I think by and large, I mean, I would say that those qualities, you know, we recognize them through qualifications, right? So I look for people who have strong GPAs, and people that are taking some rigorous coursework, even if that coursework is not in finance. I look for people that have done extracurricular work, or you know, manage their own little portfolio, or have stock ideas or businesses ideas that they want to pitch. And then I look for people who also have references that say, “You know what, this young man, this young woman has been really coachable in the time that I’ve had them in school.”
RITHOLTZ: So generally speaking, alternative assets, that’s a tough gig to get into regardless of where you go to school. Private equity, venture capital, hedge funds, real estate, down the whole list, not easy, how much harder is it to get into that space if you’re coming from an HBCU?
SHAW: I think it can be difficult, and not because of anything that’s attributable to the student themselves. I think it can be difficult because no matter where you’re coming from, you need to know somebody to get into this business. And so the first key is how can you create networks that allow HBCU students to have mentors, to have advocates that are in the industry, that learn and know them well, know their strengths, know their weaknesses, know, you know, their ambition and their aspirations, and can speak to that and help guide them to certain careers inside of alternatives where they can be successful.
RITHOLTZ: Really intriguing. Let’s talk a little bit about some of the work you’ve done, start with CEO of The Company Lab, what was CoLab’s mission and why Tennessee?
SHAW: My wife and I decided to move to Tennessee back in 2016. She joined a practice down there and we had family in Tennessee, and it was really a unique opportunity to move around. We’ve moved around a bunch and have enjoyed all the different places that we lived in the country. Chattanooga is a fascinating city, really steeped in some rich history, but also a city that faces some challenges as they grow from a very small city to a more significant city in the U.S. economy.
When I moved down there, I was still working with MLT, and then an opportunity came up to take a pretty significant role within the community as a CEO of The Company Lab. The Company Lab was the entrepreneurship and economic development center for Chattanooga and the surrounding areas, which include North Georgia, North Alabama, and Southeast Tennessee. It was incredible to really focus on local opportunities for entrepreneurs, for investors. for economic development, and really see how the fabric of a city with, you know, about a couple of hundred thousand people can develop, when you have people that are really dedicated to fostering that growth.
RITHOLTZ: Was this like a private public partnership? Tell us a little bit about the structure of that.
SHAW: It was a private public partnership. It was set up as a nonprofit that had some funding coming from the state, some funding coming from foundations, and then some funding coming from corporate entities that also found economic development in the region very important
RITHOLTZ: What’s some of the economic sectors within that area? What is Chattanooga known for?
SHAW: So Chattanooga is known for a couple of things, right? Key brands, number one, Coca-Cola Bottling is the company that really helped to jumpstart the city. And so Jack Lupton was kind of the patriarch of that company, and sold that company back to Coca-Cola in the mid-90s.
RITHOLTZ: They were two separate companies for a while.
SHAW: That’s right. So, yes, there were a number of bottling companies that would bottle Coca-Cola product and distribute it throughout the country or throughout the region. And the one in Chattanooga, Coca-Cola Bottling was one of the larger ones in the mid-century. Again, it was sold back to Coca-Cola as they consolidated those businesses, and left a pretty strong economic footprint in Chattanooga.
Chattanooga was also the home of Moon Pie and Little Debbie, right? And a number of consumer products that are very familiar brands that we know about, but did not know that they were from Chattanooga. And so what I saw in Chattanooga was a rich history around entrepreneurship that necessarily hadn’t found its way into the modern day, right? We didn’t see a lot of great companies coming out of Chattanooga in the late ‘90s during the tech bubble, and so forth.
RITHOLTZ: So what did you accomplish when you were there? Do you feel like you moved the needle at all?
SHAW: Well, we moved the needle tremendously. You know, there were some companies that were there when I took the seat, companies like Bellhop, that’s a tremendous company and kind of operates in the Uber of moving, right. So you have fantastic moving company and a fantastic culture. There was a company FreightWaves that has done fantastic work. People kind of equate it to the Bloomberg of trucking. And so they’ve got a —
SHAW: FreightWaves. FreightWaves.
SHAW: That’s correct. And Craig Fuller who’s the founder and CEO down there was a good friend, but also a really strong business person who’s done some great work. We brought Steve Case in Rise of the Rest to Chattanooga.
SHAW: And FreightWaves was actually the investment that they made in Chattanooga, and has done great work. The company has grown. They’ve employed hundreds of people with meaningful salaries. And that’s what it takes to move the needle in a place like Chattanooga, and there are hundreds of cities like that around the country.
RITHOLTZ: So how do you go from Tennessee to Alabama at the Montgomery TechLab?
SHAW: So as I was leaving CoLab, in Tennessee, I saw what was going on in Montgomery, and I saw that Montgomery had great leadership. The mayor down there, Steven Reed, has done a fantastic job in Montgomery. I also saw that they had some really unique assets. They’ve got a fantastic Air Force installation down there. They’ve got the state capitol there in Montgomery. They got a really diverse population. And so what I really did was take the thesis that we were working with in Chattanooga, and adjust it so that it applied to Montgomery.
And so in a couple of years down there, we’ve been able to bring some really incredible companies to Montgomery, to see the type of value that they have there. But we’ve also, in this most recent cohort, and the team down has done an incredible job, helped grow companies that are there in Montgomery, focusing on tech solutions and tech services, to help them expand and recognize assets even outside of the region.
RITHOLTZ: So you mentioned tech, I tend to think of the West Coast as the, you know, center of tech in the U.S. The Northeast is the center of finance. The Southeast, how should we think about that in terms of the business sectors that they should be known for?
SHAW: So I think there are a couple of things. Number one, manufacturing has been strong in the Southeast for a number of years.
RITHOLTZ: A lot of car companies really, right?
SHAW: A lot of car companies. There’s a lot of pro-business environment for companies with big labor forces in the Southeast. You’re able to operate at a more efficient standard of living in terms of cost. And so you see a lot of car manufacturers operating down there. Also, transportation and logistics, Chattanooga was probably one of the biggest hubs for transportation logistics in the country. Anything that’s coming through the Southeast via truck is coming through either 81 or 75 or 24. All of that comes through Chattanooga. And so that was something that we saw. You’ve got companies like U.S. Xpress and Covenant that operate in Chattanooga.
RITHOLTZ: Didn’t FedEx or UPS have a big logistics center?
SHAW: So FedEx is out in Memphis, Tennessee, so on the other side of the state. But those trucks, again, will all come through Chattanooga. And so when you think about, you know, the south and you think about industries that are moving, it continues to be manufacturing and logistics. Also, healthcare is really popping up. Nashville and Atlanta are two very large healthcare hubs. Some of that is due, unfortunately, to demand, right, where you have health outcomes that are probably a little more severe in some of the Southeastern states in the United States. And so you need strong healthcare to meet the needs of the population.
RITHOLTZ: It’s interesting we’re talking about different parts of the country. A lot of the bigger firms want to see the end of remote work or hybrid work. But I would imagine that that creates opportunities for parts of the country like Chattanooga, and Nashville, and Montgomery, where there are a lot of big companies that may not be located there, but they want to tap the pool of talent that’s there.
SHAW: So we’ve seen that, and talking with leaders in a number of cities throughout the south, and even throughout other areas in the middle of the country that have not traditionally had the type of talent there, or the draw to those cities. You definitely saw a surge of people, I would say, during the COVID period, that were moving to cities where there was a lower cost of living, but a strong quality of living, and they could work remote. And so I think there’s been a benefit to those cities, and that you’re getting people that are moving. You know, Nashville had a ton of people that were moving to Nashville primarily from California, and that really strengthened the work or the labor force in Nashville.
What you do see on the other side of the coin, though, is that for companies that are there locally, it can be a detriment because you have people that are there in the city and may take jobs outside of the region instead of taking jobs there in the region. And so there’s a delicate balance, right, to the impact, particularly for small to mid-size markets, where you have a labor force that’s needed in the market, that’s finding opportunities outside of the market, even if they continue to live.
RITHOLTZ: Let’s spend a little time going over some of your history. Your family is from Mississippi, but you grew up a little bit of a military brat? Tell us about those experiences.
SHAW: Yes. So my dad is actually from Mississippi. My mom was from North Carolina. My dad was a naval officer who retired shortly before I was born. So I spent most of my time growing up in Maryland, right outside of D.C.
RITHOLTZ: So you didn’t do the whole army brat travel around the country?
SHAW: I didn’t do that. But I did hang out on military bases a lot. So all my friends would change every three years when they PCS, right. So I had kind of the opposite side of the travel, which is being the friend that was always left behind.
RITHOLTZ: Right. That’s really intriguing. What did your dad retire from doing? What was his —
SHAW: So my dad had two careers in his life. He grew up in Mississippi. He’s picking cotton, believe it or not, when he was 7 years old. He was born in 1929.
SHAW: 7 years old. Right.
SHAW: We talk about skipping generations. He went into the Navy in 1945, and spent 27 years in the Navy. He retired and went to work at the Library of Congress as personnel. He was able to get his undergrad, master’s, PhD all through the GI Bill while he was in the Navy.
SHAW: But I always say my father is a real hero of mine because he truly did skip three generations in one lifetime.
RITHOLTZ: Wow. That’s really impressive. Was mom working? Was she a homemaker?
SHAW: My mother was a 50-year school teacher and taught public school in D.C. for 50 years —
RITHOLTZ: 50. Wow.
SHAW: — and really was an inspiration for the way I think about learning and understanding the value of education.
RITHOLTZ: So let’s talk a little bit about education. You went to Sidwell Friends School, that’s some rarefied company, isn’t it?
SHAW: There’s some good people that have gone there.
RITHOLTZ: Yeah. Who did you go to school with? Any famous names that you know of?
SHAW: Marcus Shaw is one. But, no, I had great, great folks in my class. Baratunde Thurston, who you may have heard of, author and producer that spent time with The Daily Show; Jon Bernthal who’s a great actor; Tommy Kail who was the director of Hamilton and some other big plays.
SHAW: But you know, everybody in our class was phenomenal. Also, folks like Chelsea Clinton, and later, the Obama girls went to Sidwell. So some rarefied air indeed, but a great group of students and a great group of friends.
RITHOLTZ: So you go from there to get a mathematics degree from Morehouse College, then onto Georgia Tech for an electrical engineering degree, with little football mixed in. Tell us a little bit about your academic career in college.
SHAW: So when I went to Morehouse, I was excited. I went down there with a few friends. It was a great mix to be able to go to a school, like Sidwell, and then go to an HBCU as esteemed as Morehouse was. It was really a great opportunity for me to have a bunch of different experiences.
My story around playing football is probably my great interview story. I was playing cards with a bunch of guys right at the beginning of the school year, and made a bet that I could kick a 50-yard field goal. So we go out on the field, we jumped the fence, I lined up, take about 20 steps back, kick a field goal from 50 yards. One of the coaches comes out and yells at us to get off the field. We’re trespassing. As we’re leaving, he tells me to come out to the walk-on tryouts at the end of the week.
RITHOLTZ: How close did you come to a 50-yard field goal?
SHAW: Oh, I knocked it down.
RITHOLTZ: No kidding.
SHAW: I made it, man. He didn’t want me to come out because I missed it. He wanted me to come out because I made it. And you know, I went on to play four years in Morehouse and had some strong accolades there. But really, even that experience was about building great friends that I played football with. And many of those gentlemen have gone on to do incredible things as well.
RITHOLTZ: Why is it not surprising that a math nerd is also a placekicker? It seems to be like the field goal seems to be one of the most mathematical parts of football.
SHAW: Well, it’s pure geometry.
SHAW: So 1.3 seconds from the snapper to putting the ball down and getting the ball off the ground, the angle that has got to come up, you know, is pretty significant in terms of your probability of making it. So I looked at it as an exercise in physics, geometry, you know, a little bit of chemistry, depending on the texture of the football. So I thought I was a natural.
RITHOLTZ: That’s really intriguing. And then you go on, get your master’s at Duke School of Business. What led you in that direction, given the mathematics and electrical engineering undergraduate?
SHAW: So I went to IBM after completing my undergrad degree at Georgia Tech in electrical engineering. I had a great time there, learned a lot, but really wanted to understand the way that we were selling business, right, understanding more about the business of IBM, and how we thought about the products and services that I was delivering as an engineer.
Not to mention one of my, you know, very good friends that played football with me in Morehouse, was a year ahead of me in business school, he said, “You’re pretty smart, you should check out business school.” And fortunately enough, I had a great school in Duke that was right there in Durham. My wife was in med school at UNC. And I didn’t have to move to go to a great business school, which was really refreshing. And it was a great experience, and I learned a lot about business there and kicked off a new career.
RITHOLTZ: From there, you ended up going into a decade of equity research and investment banking at shops like Bank of America, Piedmont, others. What led to that aspect of finance?
SHAW: So I always tell folks this is one of the great turning points in my life. When I went to business school, I was pretty confident that I was going to come out of business school and go back to IBM. I was going to stay an engineer, wanted to learn more about marketing and you know, some operations around technology.
There was a point right before the start of my first year in business school, so this is 2003, I had an opportunity to go to a camp, two-day camp at Goldman, that was focused on providing insights in investment careers for people that did not have an investment background. And you know, they fly you up, you’re a smart kid, put you up in a nice hotel. And I met a woman who covered enterprise software at Goldman, and she gave me really great insight into how I could leverage the industry knowledge that I had developed at IBM. And so, really, it was one person on an off-conversation, you know, down on Broad Street, 20-plus years ago, that led to my career. She said, “Equity research is a great place where if you know a lot about the business, and you learn a lot about finance, you can be impactful. You can earn a good living. You can really understand the markets and meet great people.”
RITHOLTZ: As opposed to the opposite which is knowing a lot about finance, and then having to learn a whole industry from the outside, it’s a very different perspective than starting with the industry knowledge from the inside.
SHAW: That’s right. And that perspective is something that I think we’ve got to learn to embrace more because, you know, finance is challenging, but it’s not difficult, right? It requires putting in work and getting reps in order to start to understand patterns and be able to anticipate things that you will see in the market, or things that you’ll see at a company. But really understanding the core of industry is what makes a master of business, right? I mean, that’s how you really start to hone the skills that you need in order to make true alpha out in the market as an investor.
RITHOLTZ: So tell us what you did it at shops like Bank of America, what was your focus?
SHAW: So I covered telecom services at Bank of America. During my time at IBM, I worked on several telecom networking projects and really understood the industry, things like spectrum and things like wireless that were coming of age at that time, I understood pretty deeply. And you know, through my understanding of finance, I was able to say, these are businesses that I think will do well. these are businesses that are positioned to do well. And once the market understands that, the stocks will perform. I had great mentors at Bank of America, a great team that I worked with, and really set me up for a great start in finance.
RITHOLTZ: So you have a little bit of a health scare when you’re relatively young, and it changes your career trajectory. Tell us what led you to stepping off of the merry-go-round?
SHAW: Yeah. Barry, it’s an incredible story and one that I think also defines a lot of where my life has led. So you know, I was at a firm in D.C. and covering tech media telecom, a bunch of regulated industries as well, and was having some chest pain. And a bunch of traders had, you know, what we call walking pneumonia, but it takes everything to get a trader off the desk, right? I mean, the whole desk will get pneumonia before they leave.
And I was pretty sure that’s what I had and was coughing for a few days, and had some pain in my chest, go to the hospital. They take an X-ray. They see that I’ve got some swelling and a little bit of cloudiness there in my lungs, and they gave me a Z-Pak, an antibiotic. They think that I might have had pneumonia. My wife who’s a physician, as I shared with you before, you know, comes to the hospital, to the emergency room. She asked me what they said, I said, you know, as an equity research guy, I think I know it all, “I’ve gotten pneumonia. You know, they saw it on the X-ray.” What I didn’t–
RITHOLTZ: It’s like, “Let me see those films.”
SHAW: She’s like, “Let me see what’s going on.” Exactly.
RITHOLTZ: She didn’t buy it?
SHAW: Well, she didn’t buy it because she’s a doctor and she’s very good at her job. Like, I say all the time. I’ve got a great wife, but I got the best doctor that anybody could have in their house. I had some leg pain earlier in the week.
RITHOLTZ: Left side?
SHAW: Yeah, left side.
SHAW: So we know where this is going, right, Barry?
RITHOLTZ: All right. Yeah, you can just ignore that. That will sort itself out.
SHAW: I thought it was a charley horse.
SHAW: I played a little basketball with buddies. This was right at the end of a Thanksgiving holiday. And I got a group of buddies, lifelong friends, we always play basketball together. And I thought it was a charley horse. Pain in the leg went away. A couple of days later, I’m having this pain in my chest and I take myself to the hospital. She goes, “Did you tell them about your leg?” And I said, “No.” She goes into the head of the emergency room’s office.
SHAW: The guy comes back out and he says, “How come you didn’t tell me about your leg?” I said, “Well, my leg doesn’t hurt anymore. It’s my chest. I got pneumonia. That’s what X-ray said.” This is where equity research guys talk themselves into a hole. They think they know more than they do.
SHAW: I know a lot about telecom. I know nothing about healthcare. All right. So the guy comes out and he says, “Well, we got to give you what we call a D-dimer.” Right. There’s a test for blood clots essentially.
SHAW: They do the tests. I am at this point, the second sickest person, highest priority in the emergency room.
SHAW: They rolled me in. They gave me an MRI. They see the blood clots in my lungs. They see some remnants in my leg. I’m immediately, you know, brought into the hospital and I’m there for several days. They gave me blood thinner. They want to make sure that these clots don’t —
RITHOLTZ: So no bypass or anything crazy like that?
SHAW: No, no, no, no, no. So what I had was a blood clot, right? So I did not have a heart attack. I’m in the stroke center there at the hospital in D.C. And for me, it was really a point where you start thinking about your life in a different way.
RITHOLTZ: It had to be terrifying when your wife comes in and the head of the ER says, “Stat. Let’s get this guy taken care of immediately.”
SHAW: It is, but not as scary until you realize what’s really happening. And that, you know, there’s things that they call the widow-makers, which are these bilateral blood clots that you get across the aortic valve. And I mean, you just go away.
RITHOLTZ: You’re done. Right.
SHAW: You’re done. Right? As somebody that kind of steeped in mathematics, probabilities, investment, you’re always thinking about the future. And you know, my great story from that is that I actually upgraded a stock Pandora Media from the ICU in the hospital.
RITHOLTZ: I bet they loved that.
SHAW: Yeah. To which my wife responded, you know, “If you die writing a research report, I’ll kill you.” Right. So this is where you start putting it together, you put a little bit of life together, and you start thinking like an investor, and you start investing in yourself and thinking about, you know, how are you going to measure the return in your life? And for me, I’ve done well as an analyst. You know, we did well. And I said I really I want to find ways that I can impact and help others with the years that I have left because it could have gone away right then in there.
RITHOLTZ: So is that what led to Management Leadership for Tomorrow, and then AltFinance? Tell us about what took place when you got out of the hospital?
SHAW: Yeah. So got out of the hospital, stuck around for a few more months at the firm that I was working. And then decided to do some other things, and that included doing some work with small- to medium-sized businesses, providing some outsourced CFO type of service, to really understand how some of these small businesses worked. An organization that I looked at doing some work with was Management Leadership for Tomorrow. And John Rice and the team at MLT do a great job. They have absolutely moved the needle and changed the trajectory for thousands of Black, Latino and Native American students over 20-plus years.
I knew John a little bit and knew about the work that he had done. I had written recommendations for mentees of mine into that program. And John asked me to come out and you know, “Can you help raise some money, right, running business development?” And for me, that was a step away from the industry. And what I recognized is I got tremendous fulfillment out of seeing young people that were, you know, 10, 20 years younger than myself, but helping them get to the next level, helping give them the opportunities that that woman gave me from Goldman, when she said, “Here’s the path you should think about taking.”
RITHOLTZ: Quite interesting.
RITHOLTZ: I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. We’re talking to Marcus Shaw. He is the CEO of AltFinance, a firm which seeks to increase diversity across alternative asset management firms. So we’ve been talking earlier about the lack of recruiting and the lack of diversity, historically, on Wall Street. But let’s talk about the other side. You often speak to groups of smart college kids, and you ask them, hey, what do you guys know about private equity, or credit, or venture capital? What sort of answer do you get when you ask those college students those questions?
SHAW: So the most interesting thing that I’ve seen in assessing college students and talking to them is that students generally have very little knowledge of the companies that are operating in the private equity, private credit markets, real estate. They know some of the venture capital firms because I think venture capital has done a great job of a PR over the past 10 years or so. I mean, everybody wants to be a venture capitalist and an entrepreneur. I always attribute that to a low interest rate environment where —
RITHOLTZ: Oh, no, go back to the 1990s when venture capitalists were rock stars also.
SHAW: That’s right. That’s right. Well, also, though, you know, a period there where you had the Fed being a little accommodative, right? I think that by nature and by design, many of the firms that operate in private equity and private credit space don’t want to be known. But our students know many of the holding companies, right. And that’s what’s really interesting, that they know the publicly-traded companies, they know the private companies, but they don’t know the holding companies for the private companies.
RITHOLTZ: You use the example, and I think it’s fascinating, Rihanna partnered with a private equity firm for her fashion line. The students know who Rihanna is and they know how wildly successful she’s become, but they don’t know who the financers are.
SHAW: That’s right. That’s right.
RITHOLTZ: And how do you get them to look behind the curtain and/or under the hood and see that capitalist is what’s driving the business?
SHAW: I think the key to that, and we check for this when we’re interviewing students for our program, is intellectual curiosity, right? That’s the key to being an investor. Are you always thinking about peeling back another layer to the onion? You go in a store; you see a great product. Hmm, where is that product made? Who’s the company that owns that? Is there’s several different pieces to the product? Where are they getting the components from? Where are they sourcing them from? Who owns that company? Who finances those companies? That’s the way we’re teaching students to think because that brings about the type of intellectual curiosity that you need to have when ultimately, you want to put some capital behind a company that you really like.
RITHOLTZ: So let’s go back to first principles. Why are companies interested in diversity? What’s in it for them?
SHAW: So I think there are a number of reasons why companies are and should be interested in diversity. We have hundred million students out here, coming through, you know, K through 12, and university system that are operating at a higher level than we were 20 years ago. Students are very smart, independent of their color, their background, their religion, their gender orientation, right? What we know is that students are being educated at tremendous levels today. They have so much more access, that their intellectual curiosity is going to be really fueled by a lot more information that’s delivered in a more equitable way.
If I’m hiring for talent, I want access to all of that. I want to know the brightest kid from every corner of the country, boy, girl, gay, straight, black, white, it doesn’t matter. I want to know that student because that student can help me. That student can help me build and invest, and find opportunities and generate alpha, and bring more clients into my business. And so if I’m a senior leader at a company, I think that’s the business operative, right? I’ve got to have the brightest talent, the talent that’s most differentiated and intelligent, and also helpful.
I think the social part of this is that, you know, a lot of these dollars are public dollars, that companies are managing. My mother, again, a 50-year school teacher who put money into her retirement for 50 years. It would benefit her, and it would benefit the other teachers and firefighters and police officers that represent diverse communities, to have people who are investing their money look like them as well,
RITHOLTZ: Really interesting. So this is more than just a checkbox on any list. Companies are actually looking to expand their diversity and inclusion practices because they see a genuine benefit to both their decision-making process and their businesses.
SHAW: I think that’s the obvious answer. And that’s why with AltFinance, you know, this is a long-term plan. We’ve got a 10-year commitment from our three initial partner firms. And so this is not about checking the box; this is about changing the paradigm for recruiting talent in this industry.
RITHOLTZ: So this industry has been notoriously laggard when it comes to diversity. But there are lots of other industries, technology has been accused of having a diversity issue. Medicine, law, pretty much wherever you look, United States has its own history, with some of its dark pockets. What other sectors could benefit from an organization like AltFinance, or what else can we focus on?
SHAW: Yeah. I think there are a number of sectors that could benefit from this strategy, even sectors like tech that have already developed some strategies. I think, again, we’re focused around education, exposure and experience, the three elements that are going in to preparing students for careers. This is not just about scholarships, right? You give a student a scholarship, but then you don’t really give them access to the people at your firm that are going to help that student not only get a job at that firm, but feel a sense of belonging, right, once they get to that firm, so that they maximize their individual output. That’s what you’re trying to go for. Right?
I’ll tell you a story about a student. So we have a student in our program. And when you talk about counseling and coaching, it was a phenomenal story. A student, very bright student who had the ability to graduate in three years, and worked last summer at a fairly reputable consulting company. And I asked the student, I said, “Why are you in a hurry to graduate? You students got a pretty good scholarship package.” Student comes from a background where, you know, he’s having to support family still at home. I mean, you know, a tough situation, and he wanted to get out in the workplace where he can earn.
I said, “Trust me, if you stay for your full four years, you’ll have the opportunity through this program, to get access to a career in alternatives. You had a great opportunity last summer. You’ll come out. You could make 2x, even 3x if you stay and pursue this opportunity in alternatives.” So the young man stayed, had multiple opportunities, selected one. But here’s the real power of the network. As he’s making his decision to which role he’s going to take and you know, at one of three mega funds, he calls up his mentor who is not at one of the firms that he has an offer from. And he says, “Well, what do you think I should do?”
In the course of that conversation, not only does he get guidance from the mentor, the mentor connects him with another gentleman who used to work at one of the firms, in the same group that he was going to. Now, he has a decision that he’s made, that’s been informed by two people that he did not know a year ago. That’s the dinner table.
RITHOLTZ: And we will take those conversations for granted if specially someone grown up in a New York area, where you know people who work in finance or people’s parents were in finance, that network just doesn’t develop elsewhere without focused exposure to it.
SHAW: That’s right.
RITHOLTZ: That’s really intriguing. So you’re at Bank of America a decade ago. You had some important teams you worked with, and you led some groups. How do you see Wall Street having changed over the past 10 or 20 years? Were the signs on the road that things were getting better? Were they ripe for moving in the right direction? Or is Wall Street just calcified and needed to really be shaken up?
SHAW: Well, Barry, I think that question really highlights something that’s amazing to me. Number one, that I’ve been in this business, you know, a long time.
RITHOLTZ: It goes by quick, doesn’t it?
SHAW: It goes by very fast. And number two, how much things change, you know, in a fairly short amount of time. You know, when I started my career in finance, I was the only black person in my group, in my division. Okay. Another young woman came shortly after. We had a great relationship. In fact, she’s been a lifelong friend. And I, you know, was a mentor to her. And —
RITHOLTZ: Was that something that was very consistent? You were the only black guy working at the other shops you worked at, or at least the only person in the department?
SHAW: Well, for a couple of firms. I also did work at a minority-owned firm down in North Carolina, and it was refreshing. I mean, actually, you know, some of the brightest people that I ever worked with, and much of my investment philosophy and the thesis, the way I think about investing was developed there, amongst an incredibly diverse group of investors who had, you know, tremendous experience and success.
RITHOLTZ: Really intriguing. So given that you were at some big firms early 2010s, you know, what was it that led Wall Street to finally being ripe to accept changes?
SHAW: I think there is an inevitable pressure from society that helps drive change. And I think Wall Street, while we talk about it, in this compartmentalized concept of its Wall Street. It’s in New York. It’s, you know, the bull down on Wall Street, right? And it’s the movies that we see. In reality, the funds that Wall Street is managing, the capital that it’s managing is coming from all over the country.
SHAW: It’s coming from people that look like me. It’s coming from people that look like you. It’s coming from people that look like our parents and our children. So at the end of the day, and I think we saw this in 2008, I think we saw it again during COVID, that at the end of the day, these companies are accountable to the people, right, and to the people that are their investors, their LPs, and entities that their LPs represent, and their clients.
And so I think that what we’ve evolved into is a more human Wall Street that is more inclusive by nature. And I do believe that what we’re seeing now, right, we will continue to see because we’ll have people that come through AltFinance, but also people more senior that are at the table and helping make decisions on where and how we invest in people, and where and how we invest in companies.
RITHOLTZ: So that leads me to a pretty straightforward question, which is, first, how do you measure your own success with AltFinance? And second, how to people like Oaktree, Apollo, and Ares, how did they ask you to track your progress? What metrics do they look at, to say, hey, we’re getting our money’s worth for standing up this company and giving them a decade long horizon?
SHAW: So I’ll address the latter first, right. Number one, so I came in in September. We started our first cohort of our fellowship in January. We now have the second cohort. I’ve got 75 students from HBCUs that are now building relationships, getting education, getting exposure, and ultimately getting experience to the alternative investment industry. That is fascinating. We’ve got students in our program that have their first full time offer with alternative investment firms, that will graduate in 2023, in May. So we’re already in a few months really hitting the cover off the ball.
That’s the quantitative element, right? Those are the KPIs up on the dashboard that are saying, you know, how many students are you getting to exposure to these jobs? How many students are getting these jobs? What I also measure and this is through the conversation with students, how many students are building confidence, skills, and relationships that will help improve their wealth and economic mobility as they grow? How many students are having a conversation around the learning session that we do on interest rates, and then calling mom or dad at home and saying, “You know what, you know, what’s the interest rate on your credit card? Did you refi your house? How should I think about my student loans?” Right.
They are really taking an active position in the way that they think about their personal finance, but also the way they think about investing. And I hear those conversations and have those conversations with students almost on a daily basis, and that’s what fulfills me and lets me know we’re moving in the right direction. When I look down the road in 10 years, I believe that I will have hundreds of students that are actively working in alternative investments, but I’ll have thousands that are knowledgeable and have relationships with people in this business, and are better off for it.
RITHOLTZ: So we’ve been talking a lot about alt investments. Are there parallel entities to AltFinance for traditional asset management, investing banking, stocks, bonds, IPOs, et cetera? It seems like there should be something similar to what you’re doing for that space as well, which arguably, is even bigger than AltFinance.
SHAW: So I think there are some organizations that have, you know, been active and providing similar opportunities for students for traditional banking, right. I mean, when you think about what Reginald Lewis did, you know, almost 30 years ago, and breaking grounds for blacks in investment banking. I think that we’re doing some of that today in the alternative space. Remember, we had our first group of fellows. We had 33 fellows in our first cohort.
RITHOLTZ: What year was that?
SHAW: So this is January of 2022. This is just, you know, a few months ago, right? And I asked the students, all right, how many of you know Morgan Stanley, Goldman, Citigroup? Everybody raises their hand. They all know it. They see the commercials. They get the commercials on the Internet. I asked, how many of you know Ares, Apollo, or Oaktree? One student, so roughly 3%. These students are brilliant, all high performers, all strong academic performers. I mean, they will not fail to get a job. They could get a job doing anything. But they did not have the awareness of how the pathway to enter one of the most rewarding careers in investing.
SHAW: And that’s a key. And so when I look at other industries, and what other organizations are doing, we are squarely focused on helping move the needle in the alternative investment space, places where people can help do deals, be long-term owners. It’s not about, you know, the transactional element of investment banking, right? Be an owner, a direct owner of a brand that you know, but you never knew who the holding company was. I have 75 students now that can answer that question of what’s the pathway.
RITHOLTZ: How much larger can you expand this to be?
SHAW: So Barry, we will expand the fellowship program ultimately to be round 100 or 120 students, and you know, each year, about 40 or so in each class. We are also partnering with the Wharton School of University of Pennsylvania to develop an institute, the Wharton AltFinance Institute, which will be an online community and platform providing, again, curriculum and content and community, as well as resources to help students at any HBCU gain access to again education, exposure, and opportunities for experience in the space. And so through the institute, we’ll be able to scale some of the best parts of our fellowship, which is a real high touch part of our programming. But we will scale that to the students that are at HBCUs that we don’t partner with directly.
RITHOLTZ: Really, really quite fascinating. I know I only have you for a couple of minutes more. So before I let you go, I want to ask the standard questions that I ask all of my guests, starting with, what have you been streaming these days? What’s been keeping you entertained post lockdown?
SHAW: Yeah. So Barry, I would say I tend to read a lot and follow a lot obviously in news channels on finance. On podcasts, I mean, I love Howard Marks, The Memo, and I read his memos that he puts out. But I love what he’s doing in the podcast format that he’s developed. But I listened to a lot of sports. I’m a huge Jalen & Jacoby fan. I love what those guys are doing in terms of sports and entertainment. And so, you know, probably not as heavy as some of the other answers you get. But I love sports talk radio.
RITHOLTZ: That’s interesting. Tell us about some of your early mentors who helped shape your career.
SHAW: So, you know, a couple of the mentors that I had, there was a woman named Stacy Gorin who hired me actually at IBM. And it’s amazing to think this is over 20 years ago. Stacy was a long-term executive at IBM and has now moved to a consulting firm. But what she really helped me focus on early in my career was continuous improvement, right. You think about it as an engineer a lot, right, kind of the Kaizen principle, right, that Toyota use.
But personal improvement of yourself, right, how do you continue to develop as a person? If you’re strong technically, how do you develop into a person that people feel comfortable managing others, and feel comfortable being managed by. And so as I developed into an executive and then CEO, I always reflect on those lessons that she gave me early on, about being vulnerable, and being coachable, even being coached up, right. So having somebody that reports to you have the ability to coach you up on things where you can be more helpful for your organization.
RITHOLTZ: You mentioned books and you like to do a lot of reading, tell us what some of your favorites are and what are you reading right now.
SHAW: Yeah. So you know, a book that I go to often and I reread this probably once every couple of years is Peter Bernstein’s “Against the Gods.”
RITHOLTZ: So good.
SHAW: It’s fascinating to think about this concept of risk, and how it’s affected us since the very beginning of time, right. And then, really how we have taken risk from something that was deified, right, kind of this religious concept, and turned it into an economic tool that we can arbitrage for personal gain. Unbelievable, well written, I love the historical context and bringing into the future. And so that’s one that I go to often.
I’ll tell you a book that I want to pick up and the title here is John Mack’s new book. And I thought it’s interesting because, you know, John is somebody that I don’t know, personally, but I’ve always respected kind of the way that he organized and ran businesses. And you know, it’s of note that he’s dealing — you know, I think has talked publicly about the aging process that he is going through himself. And I found that particularly endearing because it’s something that I’ve dealt within my family. And to recognize that, you know, in this business, we’re still human and we’re not excluded from the human process. And so that’s the book, John Mack’s new book is one that I certainly want to pick up.
RITHOLTZ: “Up Close and All In: Life Lessons from a Wall Street Warrior” is that it?
SHAW: That is it. That is it.
RITHOLTZ: Yeah. That’s a hell of a title.
SHAW: Hell of a guy.
RITHOLTZ: This is kind of a funny question because I ask this to everybody, but essentially, I’m asking you a question which is what AltFinance does, but I’ll ask it anyway. What advice do you give to a recent college grad who was interested in the career in either investments or alternative finance?
SHAW: So there are two things that I tell all of our students. Number one is bigger picture and probably pretty simple, you’ve got to have intellectual curiosity. You can never run out of questions. I mean, you run incredible podcasts. You can never run out of questions. You’ve always got to have something that you’re thinking about in terms of what’s the next layer. How can I think about in a different perspective? How can I put myself in somebody else’s shoes and think about it? And how does that change the value of what I’m looking at? Right? I think that’s critical to being successful as an investor.
Number two is something that somebody shared with me and that’s actually John Rice who runs MLT and is a partner and a great friend, and really one of the great leaders in the D&I space. When you’re young and you’re bright, you’ve got to take risk early in your career. And in fact, not taking risk is actually the riskiest thing you can do. It’s a little bit of a parable, right? But —
RITHOLTZ: When you’re young, you can recover from failure. You don’t have that same luxury when you’re older.
SHAW: It’s so hard to appreciate that when you’re, you know, 20 or 21. When you’re —
RITHOLTZ: You’re afraid of failure.
SHAW: When you’re afraid of failure, when you should actually be seeking failure. Right? You should not be doing anything when you’re 22 or 20 or 21 that you can’t fail it.
RITHOLTZ: Right. Playing it safe is risky.
SHAW: It is risky.
RITHOLTZ: That’s really interesting. And our final question, what do you know about the world of investing and AltFinance today you wish you knew 20 or so years ago when you were really exploring the field in its earliest days?
SHAW: So the biggest thing I would say procedurally that I see in the investment hiring cycle is that you got to be ready for the gig before you get it, which means that the recruiting process for alternative investment, even if you’re going to investment banking as an analyst, it may start before you actually start that job. There may be people that are reaching out to you, trying to assess your interest, and what you’re going to do after banking. And that was, you know, I say, one of the secrets of the industry that, you know, I was well into my career before I knew that’s how people were getting recruited into the industry.
And so you got to have your ear to the ground, right? You got to know who’s who, where the players are, who you should be expecting emails and calls from. And when you get those emails and calls, you got to be ready for it.
RITHOLTZ: Really interesting answer. We have been speaking to Marcus Shaw, CEO of AltFinance. If you enjoy this conversation, well, be sure and check out any of the previous 400 or so we’ve done over the past eight and a half years. You can find those at iTunes, Spotify, YouTube, wherever you get your podcasts from.
We love your comments, feedback and suggestions. Write to us at firstname.lastname@example.org. Sign up for my daily reading list at ritholtz.com. Follow me on Twitter @ritholtz. I would be remiss if I did not thank the crack team that helps put this conversation together each week. Justin Milner is my audio engineer. Atika Valbrun is our project manager. Paris Wald is my producer. Sean Russo is my researcher.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.