Transcript: Ashish Shah, CIO GSAM



The transcript from this week’s, MiB: Ashish Shah, CIO, Public Investing, Goldman Sachs Asset Management, is below.

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00:00:02 [Speaker Changed] This is Masters in business with Barry Ri Holtz on Bloomberg Radio.
00:00:08 [Speaker Changed] This week on the podcast, I have another extra special guest. Asis sha is co-head and CIO of public investing at Goldman Sachs Asset Management, he helps to oversee $2.3 trillion of assets at GSAM. He has a fascinating background, both in technology and innovation in equity, and perhaps most importantly in credit and fixed income. He just has a unique set of experiences that have placed him in the right place at the right time, doing the exact right job. There aren’t a lot of people in the world of asset management who have such a broad and round set of skills and experiences that have led him to this position. Fascinating background, Alliance Bernstein and Lehman Brothers, as well as a couple of Silicon Valley tech startups. I found his discussion about what went on during the financial crisis at Lehman Brothers and the sort of leadership that you didn’t really hear about at the time. You, you only saw the criticism of the c-suite executives who at, at various companies had had kind of run into problems. But underneath that is just a whole layer of people doing their jobs for themselves, their clients, their staff, and, and I just found that conversation to be fascinating and I think you will also. So with no further ado, my discussion with Goldman Sachs asset managers, CIO Asis Sha.
00:01:49 [Speaker Changed] Thanks so much for having me.
00:01:51 [Speaker Changed] So, let’s talk a little bit about your background. You come out of the Wharton School at University of Pennsylvania with a BS in Economics. What was the career plan?
00:02:00 [Speaker Changed] Look, I, I had no plan. I, this whole world was completely new to me, but I knew two things. First, I knew I loved markets. You know, I’d worked for Jeremy Siegel as a research assistant when I was at Wharton, and that really kind of embedded in me this l love of macro and love of markets. And the second thing was, I knew I didn’t want to go into an investment banking track. I wanted something where I could work on interesting problems that would allow me to cast the career that I wanted without being kind of shooed into like this, you know, analyst, associate kind of fixed career track.
00:02:44 [Speaker Changed] And you have some really interesting and unusual experience, both, both as a trader and, and working as an entrepreneur, innovator, and, and startup. Let, let’s talk about some of that. First, you were a, a trader at a hedge fund that was, was funded by Soros, is it Blue Border? What’s the name of the fund? Blue Border
00:03:03 [Speaker Changed] Partners.
00:03:04 [Speaker Changed] And, and what was it like being a, a trader in that space? Yeah, so,
00:03:08 [Speaker Changed] So I, I had joined that organization right after nine 11 and right after I had come back to New York City. And, you know, it was a fantastic experience. The markets were all over the place, but it was a very small organization. There were, you know, five or six of us and we were spread all across the world. It was nice because I got to work with Greg Coffee, who was Oh, really? One of, one of the partners there. And obviously has gone on to fantastic things. But I, I basically sat in a cubicle by myself trying to come up with investment ideas and realized that that is not my best, best place. My performance wasn’t the best. And, but, but I learned a lot from that experience and knowing that I’m very much a team player and I work well in kind of mid to larger size organizations.
00:03:59 [Speaker Changed] And, and you said you came back to New York. I know you were on the West Coast working in a few startups. Tell us a little bit about level three and some of the other work you did out west. Yeah, so,
00:04:10 [Speaker Changed] You know, go back to the late nineties and the internet was all a rage. I had a brother-in-Law that had joined a company called Level Three Communications that was literally building out the internet. Calls me one day, he’s like, Hey, we’re looking for people. They have the following profile. I think you meet it, come visit and meet with our folks. And I was like, this is my opportunity to really build out my skill sets. Right? I, I was a head of a prop trading desk at Bankers Trust. I had a series of skill sets, but I was really interesting in kind of going to business school, but without going to business school. And I saw this was a fantastic opportunity to do that. So I would go out, I learned the telecom industry. I work 120 hour weeks helping level three raise money, build out its business plan. And I learned a tremendous amount of time about business, about startups, about innovation in that period of time.
00:05:07 [Speaker Changed] And, and what was the other startup that you helped to co-found? Yeah,
00:05:11 [Speaker Changed] So, so once I left there, you know, I left there because I saw that the industry needed greater level of transparency and financial discipline. So I went on to found Sage Logics, which was really meant to be, it was a software a SP in the telecom space focused on telecom providers. And my thesis was, hey, if these organizations don’t get their head around their cost structure that they’re all gonna go bankrupt. Reality is, I should have come back to Wall Street and expressed that view in, in 2001, because that’s essentially what ended up happening,
00:05:47 [Speaker Changed] Right. Bidding against stocks instead of trying to advise people, Hey, you better get your act together or else there’s gonna be trouble. Exactly. So you come back to, to New York, eventually you get into credit and asset management at Alliance Bernstein. I’m gonna hold off your Lehman experience for a few moments. Sure. ’cause I know we can spend a lot of time talking about that. So eventually you go to Lehman, then to Alliance Bernstein. Tell us what you did at Alliance where you were CFO and portfolio Manager.
00:06:17 [Speaker Changed] Yeah, so, so I, I was brought in by Doug Peoples and Peter Kraus to lead the credit organization. And I think that, you know, when I think back to that period of time, what they were trying to accomplish is that they had really strong credit capabilities, but they needed to unify a team and they needed to build an investment process that was gonna be scalable. They had some of the most talented portfolio managers and kind of investors in the world. They really understood how to construct portfolios, which were things that I learned from those portfolio managers. Portfolio managers like Shan Distenfeld that leads income at AB today. What I brought to the table was an ability to kind of bring the team together to operate to singular set of incentives IE delivering performance, right? Not being distracted by things. And to be able to do that at scale, I brought the hedge fund skills, the derivative skills that you kind of learn in operating in hedge fund and prop desks to that traditional asset management. And what I learned was how do you construct portfolios in a way where you can stick with your bets over long haul, but at size, right? Where you are the market. And so you don’t have the ability to kind of increase risk, decrease risk, but rather that you are building your portfolio so you can stick with the risks that you think makes sense over time.
00:07:40 [Speaker Changed] What you’re describing sounds like a set of challenges that faces any large asset manager, the ability to scale, the ability to make sure all members of the team are pulling in the same direction to make sure the incentives are aligned properly. How universal are the things that you did at Alliance Bernstein credit to any large asset manager?
00:08:04 [Speaker Changed] Look, the, those are absolutely critical elements, and it’s amazing how as the asset management industry has consolidated and these investment organizations have grown, how difficult it is for those organizations to pivot into those things. Why, why
00:08:21 [Speaker Changed] Is that? Is it just legacy systems that people can’t get past the sunk costs? Or is it something
00:08:28 [Speaker Changed] More, I I I think it ends up being cultural. I think that investing requires focus. And very similar to a lot of organizations, you are built around these teams that are small and agile, right? Because you have to adapt to the market. Sure. But how do you pull those teams together into larger organizations to be able to do bigger things? And I think, you know, that’s where the innovation experience that I had within technology and within software, it really came in handy because I not only understood markets and investment process, but I was able to take kind of how do you invest at scale? How do you bring technology as a force multiplier for your investors so that your investors can focus, they can be in and operate in smaller org teams, make decisions quickly, but at the same time that you can build large scale customization on behalf of your clients.
00:09:25 [Speaker Changed] So let’s talk about a little innovation. You found AB Labs in 2015. Tell us a little bit about what AB Labs did and and what it allowed you to express within that project.
00:09:40 [Speaker Changed] Yeah, so I I, I, when I go back to that period of time, I think there were four of us at Alliance Bernstein that realized there was something materially changing in the market, which was FinTech was really changing and accelerate the changes within the broader asset management ecosystem. And so myself and you know, Vicki Walia, Matt Bass, Carl Sproles, CTO decided that in order to get our organization ready, that we needed to build that muscle, not just at the top down as an initiative, but actually at a, as a bottom up engagement tool for the organization. And so we tackled topics like roboadvisors, crypto, blockchain within that construct as a way to educate the organization much more rapidly and get people leaning forward into innovation.
00:10:36 [Speaker Changed] So was this a pure research group or was this a bit of a venture fund that focused on FinTech? So
00:10:42 [Speaker Changed] It ended up leading to both, right? It ended up leading to venture investments, but in large part, most of that effort was really around building organizational readiness to innovate. And, you know, a lot of the things that spun out of that effort really kind of continue to impact that organization to, in terms of the forward lean when it comes to innovation and the overall operating stack that allows them to, to be able to again, allow the portfolio managers to focus on markets and yet to be able to deliver scalable solutions.
00:11:21 [Speaker Changed] You mentioned culture earlier. How important is it for an organization to have the right mindset to lean into technology, to be aware of the fact that, hey, if you’re not cannibalizing yourself, someone else will?
00:11:37 [Speaker Changed] Okay. I, I think that culture defines success in investing and particularly in investing organizations, that you have to set an investment culture where your investors, first of all are very aligned to delivering performance and the type of performance that’s gonna end up making your clients happy. I think that you need to have a culture where people collaborate. If you don’t, it’s gonna be really tough to have scaled performance, right? You can succeed in one area, but you’re only gonna be as good and have as much insight as that any one, you know, small group, which is gonna limit your success if you try to do other things. And, and the final point, you know, exactly the one you brought up, which, which is around innovation. The world is moving really rapidly. The way you do research, the way you put together portfolios, the way you execute in the market is changing.
00:12:33 And frankly, what end advisors want right? For their clients. And what we as an asset manager have to deliver is changing very rapidly. Everyone wants mass customization, but delivered with the quality of institutional asset management. And I think it’s really requires innovation and technology in order to do that well. And, and frankly, that’s why I joined Goldman Sachs because I felt that you needed the scale resources of that come with a firm like Goldman Sachs in the analytics and the ability to really invest in technology and in data if we were gonna succeed in going to market in the RIA and wirehouse community and delivering to, you know, institutional quality portfolios that really meet the individual needs of every individual at, you know, minimum sizes of a hundred thousand dollars.
00:13:37 [Speaker Changed] Hmm. It’s interesting because in the past what you’re describing has been somewhat mutually exclusive. It’s very hard to deliver institutional size asset management and mass customization together. I’m gonna assume innovation and technology is what bridges that gap.
00:13:59 [Speaker Changed] Absolutely.
00:14:00 [Speaker Changed] So, so let’s talk about a couple of related quotes that you have that caught my, my ear because it relates to where we are in this market adoption cycle of technology and, and how the world is changing. Quote, as a long-term investor, all you do is worry, but it’s not about what you’re thinking, it’s about how you react. Explain,
00:14:29 [Speaker Changed] Yeah. So, so I think that the most successful investors, the way they invest is they decide what works, what they believe works over time, and they’re simply trying to stick with it. And so what is the worry about? The worry is about, first of all, is that thing that I believe works over the long haul. To what extent is it wrong? Because where I’m really going to underperform is if I get a long-term trend wrong. And so you should be constantly challenging your core thesis, but inside of that, you know, I think it’s really critical to be humble and to understand that that core thesis, you have to stick with it over time. And so the other aspect of this is, okay, what can you do to make it so that you stick with your course core thesis? Because if you have an environment where your core thesis, whatever it is you do, whether it’s investing in growth, investing in, in companies that are lined up with a tr long-term trend like technology, you know, you’re gonna be challenged, right? And so the question is how do you construct portfolios? How do you look out for the challenges that are going to cause your clients to fire you? Right? And if you can tilt out of whatever it is that works over the long haul in those periods of time when maybe it’s gotten crowded over, over extended, you’re gonna be much more successful in capturing those periods of when the opportunity is the best. IE buying low and selling high rather than, you know, having to sell low because your investors essentially have lost patients.
00:16:20 [Speaker Changed] So, so you raise a really interesting point about constantly having to reevaluate your underlying thesis, but it, it makes me think of one of the biggest challenges there, which is how can you tell whether or not an underlying thesis is no longer true? Or if you’re just in a period of, hey, this style is out of favor and it this is what happens on a regular basis, value underperforms growth for a while, or international underperforms domestic, how can you identify when you have a giant secular shift versus simply, hey, this has fallen out of favor these days.
00:17:02 [Speaker Changed] Yeah. So, so that, that’s where doing research and developing an investment process are absolutely critical, right? Your investment process makes it so that when you know, there might be a challenge that use other tools like momentum, like, you know, risk analytics to be able to like, not question whether your thesis are out there, but actually reduce your risk before the market has questioned your thesis, right? So nothing may have changed, but if the market is changing the pricing of that risk, right? It matters to your portfolio. So I think that first point is really critical, which is you need to have things that actually diversify you out of that long term, right? And they have to kind of take place before you’ve already lost money. I think the the second thing is that you want to be doing the research and developing your process so that when your style has gone out of favor, that you know when to double down, right? That you know when to lean in and you have confidence to do it. And so that’s a lot of what investment process design is, is how do you stick with the long-term bets? How do you tilt out and tilt in rather than, you know, being kind of and reacting, being back footed or reacting that you’re actually front footed and you’re able to kind of, you know, shallow out the drawdowns and lean into the opportunities.
00:18:31 [Speaker Changed] So we’ve mostly been talking about things that apply to equities, things like momentum and value and growth. Let’s talk about the other side of a balanced portfolio, which is fixed income. How you thinking about fixed income, be it corporates, treasury, or even tips in what’s been a pretty wild environment where the central bank has raised rates 525 basis points in about 18 months. How do you, how do you process that?
00:19:00 [Speaker Changed] Yeah, so from a long-term perspective, the trite to say, but fixed income is about income, right? And so the starting point is evaluating income, evaluating the likelihood that you actually can capture and hang on to the income. Because a lot of the credit instruments, if you have losses in your portfolio, that gives up the income, right? Right. So starting point is income shape of curves matter. So spread curves historically most of the time are steep interest rate curves most of the time are steep. That happens not to be the case today, right? What
00:19:36 [Speaker Changed] Have we been inverted for two years? Just about
00:19:39 [Speaker Changed] Almost
00:19:40 [Speaker Changed] Right? That that’s a pretty unusual set of circumstances, at least in the modern era. Well,
00:19:44 [Speaker Changed] It’s also very, very unusual to see an inversion like this and not see a material slow down in growth, right? Part of the reason why 12 months ago, people were forecasting with high probability that we’d be in a recession is because historically yield curve inversions really kind of announce that we’re slowing down
00:20:05 [Speaker Changed] Pretty good track record historically too.
00:20:07 [Speaker Changed] Yeah. I, I think that what’s changed this time around is that, you know, real rates and nominal rates are high enough that they are slowing the economy down, but there’s enough offsetting fiscal impulse within the US economy at least that, you know, you have growth continuing on. And so you have this interesting situation where inflation has been coming down, right? It may be not in a straight line, and certainly the la last couple of data points that we’ve had haven’t, haven’t really pleased the market in terms of the Fed being able to ease aggressively. But inflation has come down from its peak, but growth continues. And I think that, you know, for, for fixed income and, and the income piece, you’re better off in the front end. Now if you look at value in the curve and from a longer term perspective, look at what are the real rates relative to the real ability for the economy to grow, we’re pretty attractive here. Right? And the one thing we do know is that if growth does slow down in a way that like cascades into inflation, that bonds are gonna do their job on the price side, which is they’re gonna diversify the equities that you hope.
00:21:26 [Speaker Changed] So falling inflation, still robust growth and a decent yield on fixed income, dare I use the word Goldilocks, is this a pretty decent investing environment for relative to what we’ve seen over the past few years?
00:21:42 [Speaker Changed] Look, certainly on a year to date basis, if you look at your full portfolio, you’ve done pretty well, right? And that, that really comes from the starting point, which is, you know, you have high nominal yields and you have economic growth and earnings growth on the equity side, those two things are working together to generate a pretty good return in absolute terms.
00:22:06 [Speaker Changed] Hmm. Really quite, quite intriguing. So let’s talk a little bit about your experience in the two thousands. You came back to New York from the west coast and you ended up at Lehman Brothers working on the credit strategy side. Tell us a little bit about what brought you to Lehman and what were your experiences like?
00:22:26 [Speaker Changed] Yeah, so I was a client of Lehman’s back in the early nineties, mid nineties. And so I had a lot of relationships there and you know, I had always loved fixed income as an investor. Unfortunately, fixed income became a lot less interesting in the later nineties. And so my team had really pivoted towards more equity strategies. And so when I, I was coming back looking to get back into Wall Street from the technology and, and telecom space, Lehman was one of the phone calls I made. Tom Corcoran and Rick Reeder were people that knew me, that had done business with me. And they said, Hey, you know, what would you think about trading prop within Lehman Brothers? And, and I said, look, I haven’t traded fixed income markets for, you know, coming up on five or six years. I don’t think I should be managing capital right away.
00:23:25 But there was a real change going on within fixed income markets and specifically within credit markets, which is derivatives were coming into this space, hedge funds were coming into this space. And so when you looked inside of the credit business at Lehman, the people that understood derivatives didn’t understand credit. The people that understood credit didn’t understand derivatives. And I happened to be one of the rare individuals that had grown up understanding credit, understanding derivatives and understanding what a hedge fund fund, what types of trades a hedge fund would be interested in doing. And so I came into the role, you know, with ostensibly the, the title of hedge fund strategist. And my, my job, my day job was really to work with the traders and the salespeople to come up with trade ideas for hedge funds. And so all I was doing was looking for ideas for myself, right. That I found was interesting. And so that cascaded into people realize that, wait, this, this person understands credit, they understand derivatives, they understand these alternative strategies. And so I was, you know, able to cascade that into running all of credit strategy, including kind of some of the prop prop research analysts that work within the organization. So,
00:24:47 [Speaker Changed] So let’s set the stage a little bit. What, what year do you come back to Lehman Brothers?
00:24:51 [Speaker Changed] 2003.
00:24:52 [Speaker Changed] So it’s implosion. Yep. Technology had fallen about 80%. If you look at the Nasdaq peak to trough suddenly had become very attractive as the Gulf War was beginning. What was that era like at Lehman Brothers in the early to mid two thousands? What, what were you seeing and, and what was the general energy like at that shop? Because I remember that trading floor as being just a monster sort of noise machine.
00:25:23 [Speaker Changed] Yeah. It was super high energy. This was the world of fixed income, right? Fixed income was booming. The growth of structured credit of, you know, mortgage credit, you know, was really kind of expanding the opportunity set and every, there was a lot of credit being borrowed, right? You know, to, to fund companies in the aftermath of 2000, 2002, that credit cycle, there were secondary opportunities from a distressed debt perspective. It it was just a high energy, rapid growth area. And so it was exciting to be there watching what was going on, helping to influence what was going on in terms of product creation and, and client education.
00:26:12 [Speaker Changed] I don’t know if people realize oh three was still fairly early days of the ramp up of mortgage backed securitization. It had already been underway, but nowhere near the numbers we saw a few years later. What was that experience like watching this machine start to develop some momentum?
00:26:31 [Speaker Changed] Yeah, so, so I, I didn’t directly watch the mortgage side of the business. I was on the corporate credit side of the business. But you know, without question, the overall fixed income franchise was growing. And so we were able to cascade that into, you know, growth in our franchise and product innovation that really was serving our clients, which were largely both hedge funds and asset managers.
00:26:57 [Speaker Changed] So you were at Lehman during what probably was the five most exciting years in the company’s 180 year history. Any stories stand out from that period? I would imagine you saw a lot of things happen there.
00:27:13 [Speaker Changed] Yeah, so I I I tell you that, you know, the number of stories I have around the fall of Lehman in 2008, you know, that was a period of time that, you know, o obviously a very difficult time for the economy for everyone involved at the human level. But, you know, it was a tremendous leadership kind of experience because you really got to understand what you were made of, who you were about, and you got to develop a reputation, you know, from my standpoint, you know, the story that stands out to me. So, you know, I had taken over from Rick Reeder doing the weekly credit call. So on a weekly basis myself, you know, or Eric Felder would do a call really surveilling from a macro perspective what was going on in markets and specifically credit markets. And so Lehman had failed on Sunday, right? Gone bankrupt, had gone in, taken my box in and cleaned up my desk, literally
00:28:15 [Speaker Changed] Like walking out with the banker box full of personal items
00:28:18 [Speaker Changed] And, and being interviewed on, you know, on the outside by the media. But Monday morning I walk in, I’m wearing a suit ready to go and saying, and we’re all standing around not knowing what to do.
00:28:31 [Speaker Changed] Post bankruptcy, file
00:28:32 [Speaker Changed] Post bankruptcy. We don’t know if we have salaries or hedge or, or healthcare for that matter. And my team and I are sitting down, everyone’s kind of, you know, at different stages of what do we do? And we have this call that we do every week that is the following mor morning. And so my son,
00:28:56 [Speaker Changed] Wait, just let me make sure I understand this. So Sunday Lehman files, yeah. Monday it’s front page news all over the world. And what time is your call? 8:00 AM It’s,
00:29:07 [Speaker Changed] It was at 7:45 AM
00:29:10 [Speaker Changed] Or so you have to get on the horn and speak to the entire sales team and, and Bond
00:29:17 [Speaker Changed] And all of our clients, right? And I, I sat with my team and I said, look, I want to do this because it’s the right thing to do and I don’t know what our outcome is here, but you know, I don’t want to go out this way. I want to go out with everyone knowing that the last thing we did in our jobs was we tried to serve them. Right? And, and so, you know, one of my team members, a guy by the name of Krishna Hag Day, and I worked till probably 1130 or midnight that night, put together the presentation the next morning. That’s
00:29:56 [Speaker Changed] Till Sunday night midnight. Yeah,
00:29:57 [Speaker Changed] Sorry, that’s Monday night. Midnight call goes on on Tuesday, we show up on Tuesday morning and we’re going over the internal hoot and there’s, you know, probably 300, 400 clients dialed in however many more, right? And everyone looks up and they’re like, we can’t believe these guys are still going. Right? And, and in fact, I think it was about an hour later that over the hoot, the CEO of of Barclays comes over and, you know, announces that Barclays is buying Lehman Brothers, right? Right. The US operations and someone in equities has the, you know, hilarity of playing God’s save the Queen over the hood. But the number of emails that I got around from clients saying, wow, you know, we’ve always respected your work, but to go on and to do your job in servicing your clients on this day of all days is like hats off to you. And so I I think that, like, that was one of the things that I think it’s lost in all the stories and the, the media is that you had a group of people here that really did care about clients and went out of their way even when the chips were down to keep doing their jobs.
00:31:23 [Speaker Changed] So Barclays takes over Lehman us with, I I think there was a fed backing of that, if I remember correctly, or there was some no backing. Was there a guarantee or did they,
00:31:33 [Speaker Changed] There was no backing.
00:31:35 [Speaker Changed] So, but it was post-bankruptcy, so it was post-bankruptcy, all the prior liabilities would go away without a a, a fed banking without a fed backing. And you end up in, I guess it’s a fairly similar role at Barclays, right? Yep. How similar was the transition? How smooth was that?
00:31:54 [Speaker Changed] It was quite a bumpy transition. It’s a pretty awkward position to be interviewing for your own job. We had a fantastic franchise, right? You know, the Lehman franchise was really known for research and for was very, very strong in credit and in the derivative space. And we were known for serving clients right within that space. And so that transition happened. It was messy as you can imagine. But, but also we, we kind of very quickly got back to work ’cause there were opportunities in markets, clients needed advice in markets and we needed to figure out what was gonna happen to the financial system.
00:32:40 [Speaker Changed] So Barclays had, if I, I’m sure I’m getting this wrong, they had a small US presence before the purchase,
00:32:46 [Speaker Changed] Pretty limited US
00:32:48 [Speaker Changed] Purchase. And this gave them a fairly substantial footprint in the United States. Were there a lot of redundancies or did you pretty much just pick up your whole corporate fixed income team and slot ’em into Barclays? Yeah,
00:32:59 [Speaker Changed] So, so there was a, a good amount of redundancy that
00:33:03 [Speaker Changed] Had to be
00:33:03 [Speaker Changed] Painful, which was pr painful. But it was literally the fifth round of layoffs that we went through at the time. And again, it, we said goodbye to a lot of really good people who, you know, thankfully most of the people ended up landing well over time, but it really told you a lot about the people that you worked with and how they, you know, operated. And, you know, for, for me it was definitely formative as a leader to be able to go through that difficult period of time to try to do my best to support my team and to serve my clients.
00:33:39 [Speaker Changed] It, it really looks like Barclays stole, you guys stole the, the crown jewels of Lehman Brothers post bankruptcy when everybody was terrified like, Hey, we can’t figure out what’s going on there Post-bankruptcy, the assumption is all the risk has attenuated and you’re just left with search through the rubble of, of the collapse. And here’s some really spectacular assets, great teams, and a long history of making money. What was the experience like? What was the transition like to Barclays?
00:34:16 [Speaker Changed] Look, you know, I think that it was surreal to go from one firm to another. And it, it’s an experience that most people won’t have, right?
00:34:26 [Speaker Changed] It literally in the same building, right? You just change the sign on the front door
00:34:30 [Speaker Changed] In, in the same building, although we moved around. But, you know, it was surreal. But you know, I think when you work in financial services, you’re used to change. You’re used to disruption, probably not at that scale and at that speed. But, you know, the the other thing I would tell you is that, you know, what the organization was able to accomplish and what we as individuals learn from that experience was just like priceless. I mean, once you’ve been through an environment like that, everything else kind of pales by comparison, right? You kind of wake up and you know, you know, you’re able to deal with any sort of crisis, right? Like I, I’ll contrast that with the, the pandemic where, which was equally kind of a, it was a much more massive crisis at both the personal level, you know, operational level. But, you know, we’d been through crisis and I think for managers that have been through crisis, have had to manage risk through crisis that you, you get used to it. You learn the lessons, you’re able to roll them forward and it, and frankly, it’s one of the things that I think I do really well is in these periods of difficulty and crisis that, you know, I’m able to zoom out and understand how to deal with a crisis, kind of slow things down, get people to pull people together to communicate and to solve things as if there are problems.
00:36:04 [Speaker Changed] That baptism of fire is unique to our generation. I’m going to imagine the previous generation went through the 87 crash and the two implosion sort of was the bridge between the two. I’m curious, how long did it take before you were standing up that weekly credit call at Barclays that used to do at Lehman Brothers?
00:36:29 [Speaker Changed] I, I think it was as soon as we were allowed to
00:36:33 [Speaker Changed] Like, like a couple of months.
00:36:36 [Speaker Changed] It was more weeks.
00:36:37 [Speaker Changed] Oh really? Yeah. And, and you continued doing that at Barclays for, for how long?
00:36:43 [Speaker Changed] It was about 18 months until Alliance Bernstein gave me a call and said, Hey, we’re looking for ahead of credit, any interest in talking to us? Huh?
00:36:53 [Speaker Changed] Really, really quite fascinating. So, so what’s the big takeaway from, from that experience? We, we’ve talked about innovation and culture. Now you bring up the issue of leadership. What did that entire experience leave you with?
00:37:09 [Speaker Changed] Yeah, so, so look, I I think there are a couple of different things that I took away. The, the first and foremost is you take care of your people and you talk, take care of your clients and everything else is gonna take care of itself, right? I, I think that that period of time for me, because I was very involved in working with the New York Fed around what do we do to stabilize things and provided, despite having gone bankrupt, provided a lot of insight and ideas around actions that could be taken to really stabilize the US financial system. And for me it was a calling around, you know, making sure that I didn’t just operate within an organization and with narrow goals, but rather that the importance that the financial system plays when it comes to the, the US economy and the strength of the nation is absolutely critical.
00:38:10 And that we can’t take that for granted. And, you know, there’s a higher calling for anyone that works in a seat like I do today, which is you have a responsibility to make sure that the country benefits from the work that you’re doing. And so I’ve always, through that period of time, one of my biggest takeaways was any policy maker calls, I’m gonna provide them the best advice I can, the best insights I can so that they can do the best job they can for the US economy. And it’s that economy that impacts so many people in the country, both their wealth, their wellbeing, as well as the country’s national security. And I think that, you know, a lot of folks look at our industry and they question, you know, whether, whether you know why we exist, whether we need to exist. You know, I I think that, you know, history has shown that the, you know, the, the ability to grow the country and invest in innovation and infrastructure is really subject to the ability to finance that infrastructure. And so one of the things I find amazing about working at Goldman Sachs is that that is very much our purpose, right? We are here to help fund, you know, the, the growth in the economy. You know, yes, we do that to, to make money as an organization, but ultimately that benefits so many people from their, you know, longer term kind of growth.
00:39:50 [Speaker Changed] So you mentioned you frequently were responding to various policymakers. I’m trying to remember was was Tim Geithner New York Fed Chief when you were at Yes. Lehman or did he come in afterwards? No,
00:40:03 [Speaker Changed] Geithner was, was head of the New York Fed.
00:40:06 [Speaker Changed] So you must have had a lot of back and forth with him over that time. There were some people working both in the, the Treasury Department and in the New York Fed and the Federal Reserve clearly paying very close attention at that point to what was going on. Yeah,
00:40:23 [Speaker Changed] I I I spent more of my time with the New York markets team. So Haley Bosky and, and her team because I was a technical individual, right? Like I’m a market expert, I’m not a policy expert, right? But, but I, I would say that some of the work that I did ended up turning into some of the programs that the Fed actually launched, including the talf where, you know, I can trace back through some of the books that have been written, including the one where I’m a small character that, you know, some of the work I did turned into policy, which was, you know, reassuring to know that I did work that helped students get student loans through that period of time when banks weren’t able to finance those loans.
00:41:11 [Speaker Changed] Huh. Really, really fascinating when everything was, was frozen. Hey, the policymakers go to the experts ’cause they don’t have that expertise. So let’s talk a little bit about your role as a CIO first. What is public investing? Are we referring to public stocks and bonds or what, what does this include? Yeah,
00:41:33 [Speaker Changed] It includes public stocks and bonds managed both fundamentally and through our quant business and in individual sleeves as well as multi-asset portfolios.
00:41:43 [Speaker Changed] So multi-asset could be a hedge fund or is that internal? Is that outside it?
00:41:49 [Speaker Changed] It’s all internally managed, but it, it could include a hedge fund, it could include a more traditional mutual fund or an ETF.
00:41:58 [Speaker Changed] So prior to this role, you were co CIO of fixed income at Goldman for a couple of years. First question, co CIO always seems like that’s challenging when there’s multiple heads. How do you run as co CIOs?
00:42:13 [Speaker Changed] Yeah, I, I I would say rather than challenging, it’s actually fantastic because really you have a partner, obviously it takes effort when you have a partner, you have to invest in a relationship, you have to communicate and over communicate, but it’s fantastic what you can accomplish where you have different perspectives, different points of view, and the geographic and kind of resource span of two individuals. So my co-head and co CIO, when I, I was leading fixed income sat in London, and because of that we were able to cover more of our investment leaders, gather more perspectives, wider set of perspectives on investing markets. He came from more of an emerging markets background. I’ve, from more of a, a dev developed market credit background, we mixed kind of macro and bottoms up and were able to do, I felt a really good job. But it requires investing in the relationship. You have to make sure you’re communicating all the time, you’re doing a lot of kind of weekend calls to make sure you’re caught up. But it can be quite powerful and, you know, it prevents you from missing things,
00:43:22 [Speaker Changed] Especially they’re starting out six or eight hours ahead of us, you’re ending a couple hours after them. It, it, it allows pretty much almost a full day of coverage that you wouldn’t necessarily get if both of you’re in New York or both of you in London. Absolutely. So let’s talk about your, your current role, CIO of public investing. That’s kind of an unusual title. I don’t know a lot of firms that break the world down that way. Tell us a little bit about the thinking behind public investing. Why did Goldman structure it that way? Yeah,
00:43:57 [Speaker Changed] So, so we have a very large effort to invest in private assets across credit and equity in order to make sure that we were also investing in our public investment strategies. We felt it was important to kind of unify those strategies under public investing, you know, structure. I think that when, when you think about, and look at the evolution of public markets, there’s a lot of change going on. And both from a trading perspective, a market structure perspective, you know, hedge funds, non hedge funds, ETFs, passive active. And in order to really leverage the capabilities we have from a data analytics perspective across all these strategies, we felt bringing these historically kind of completely independent strategies together to deliver better performance for clients made a lot of sense. Huh?
00:44:57 [Speaker Changed] That, that’s really kind of intriguing as opposed to saying fixed income, public and private equity, public and private, you guys are, are, are using the divin line as public versus private, obviously very different asset classes and different structures. So I i, I kind of get a better sense of, of that structure. Tell us a little bit about what is the day in the life of Goldman Sachs, chief investment officer of public investing for the asset management group. What does that look like?
00:45:27 [Speaker Changed] Yeah, so I, I think like a lot of investors, like frankly a lot of advisors, you know, I wake up every day get in and the first thing I’m looking at is markets and the prior days worth of performance, right? Performance is job one for any investor. And so that’s exactly what I’m, I’m kind of focusing my time. And then from there, it’s really gonna go around three things that deliver performance over the long haul, which is people, process and platform, right?
00:45:56 [Speaker Changed] Say that again. People process, platform. Yeah. Okay, got
00:45:59 [Speaker Changed] It. And people is obvious, you’re investors, making sure you’re checking in on them, investing in them, catching up with them on, you know, what they’re focused on, what needs they have, what resources they need, process. We’re constantly doing performance and process reviews across our different strategies. And really the goal there is to make sure that our team members are learning from best practices across the entire platform. And that we’re bringing the insights across not just public, but public and private into our portfolios and our portfolio decision making. The final thing really goes back to that story around in innovation, which is, I don’t think it, you know, a lot of asset managers out there are like, oh, we have systems, we’ve outsourced our systems. That’s a good way to fall behind the evolution in the marketplace. If you look at thing innovations like what, what’s happening in ai?
00:46:58 The only way to keep up and deliver strong performance going forward is gonna be to be investing in your data and analytics. And that requires a scale and a focus that very few CIOs actually put in. And so for, from my perspective, you know, all those things come together in delivering strong performance. But it, but you know, I think the other dimension of this is that clients are looking for more than just a return number, right? They’re increasing looking for customization so that the returns match up with their needs and that they’re delivered in a tax efficient manner and delivered customized specifically for them. And so when it comes to direct indexing, you know, when it comes to a SMA of munis and taxable fixed income, those are things that we’re able to deliver with the, the quality of institutional quality portfolio construction and insight, but all the way down, as I mentioned before, to a hundred thousand dollars minimum size. And we’re able to kind of take all this knowledge, all this investment expertise and really use it to solve client problems, which is the solutions dimension of our business.
00:48:17 [Speaker Changed] Hmm, really interesting. Your recent background was more credit and fixed income earlier in your career. A little more on the equity side. What’s it like being responsible for the whole public investing side, especially given how much things have changed on the equity side,
00:48:37 [Speaker Changed] I gotta say I have the best job in the world, right? I get to see every investment process, every investment decision I get to interact with the smartest people that genuinely care about delivering performance to their clients and solving, helping their clients solve their problems. Like every day I wake up and I can’t believe how lucky I am to be able to walk in and learn something new from my investors every single day. And, and that, that frankly is one of the things I think differentiates our organization. Every organization has smart people, but the density of smart people and their, their humility and willingness to learn from each other and willingness to teach other people, and particularly newcomers, but even for me as a CIO, you know, one of the most senior people within the investment org every day I’m learning from my team
00:49:30 [Speaker Changed] And we keep coming back to culture, which you talked about earlier. How important is culture towards those sort of values?
00:49:38 [Speaker Changed] Look, culture is foundational. You can’t succeed without it. And every day we wake up, we ask ourselves what we can be doing to improve our culture, to continue to invest in our culture and our people because that’s the only way we keep up. This is a competitive environment, right? It’s one of the most competitive games in the world is markets. And so if you’re not always training to get better, you’re gonna fall behind. And we’ve seen plenty of players do that. Their performance wanes and you know, suddenly you wake up, they’ve been gobbled up by someone else or you know, they’re outta business.
00:50:16 [Speaker Changed] So you, we mentioned that your focus is on public investing, but Goldman has a very substantial private investing side where it’s either private credit or private equity or a lot of different things that on the equity side as well on that are privates. How, how do you interact with your peers on the private side and how does that integrate into Goldman Sachs asset management in total? Yeah, so
00:50:44 [Speaker Changed] One, one of the cores to our culture, core values of our culture is around collaboration. And so on a regular basis, IE you know, weekly and monthly we have collaboration across public and private investing where we share again with, you know, with appropriate governance around it so that we’re not sharing things we’re not supposed to, but we share insights around what’s going on in, in markets for the benefit and broader benefit of our investment teams and ultimately, or our clients that we’re investing on behalf of.
00:51:19 [Speaker Changed] So, so i I I would not be doing my job if I didn’t ask you a few questions about stocks and bonds and especially some quotes of yours. One thing that leapt out, you had said late last year, I think 2024 is gonna be the year of the bonds explained. Sure.
00:51:39 [Speaker Changed] So we had seen late, late last year really started, I think I, that quote was from either late October or early November, we had seen kind of a steady pace of inflation coming down. So the fed’s hikes were working, the economy was normalizing, and we felt that rates were too high relative to what was necessary to continue to see inflation come down. I think in six weeks of 2023, we ended up seeing the rally that we were hoping to see in 2024,
00:52:11 [Speaker Changed] That that was huge. And it was like the last couple of months of the year, just a giant a hundred basis point move in, in yields, which is kind of unusual, isn’t it?
00:52:21 [Speaker Changed] I it’s a reminder of when the coast is clear, everyone’s gonna go for yield and it’s gonna be too late, right? And so, you know, since then we’ve seen kind of the data revert a bit, growth has been strong, which is good, right? We want growth to be strong, you know, for our overall portfolio. But inflation has ticked up a little bit. So it broke its, its near term path. Every, every data point that we end up seeing kind of confirms that the long term trend is to still towards inflation normalizing. And so, you know, our, our ethos, our focus has been, look, you’re gonna get these periods of time of retracement, you wanna make sure you have room to add into those because you don’t wanna miss it because you know, when inflation turns it’s gonna turn quickly and everyone is gonna jump in.
00:53:16 [Speaker Changed] That kind of reminds me of another quote of yours. The market still has runway. Explain what you mean by that. How much runway is left?
00:53:25 [Speaker Changed] We have been watching growth very carefully. As I mentioned, central banks outside the US are actually becoming more accommodative with the exception of Japan. And underlying growth is actually looking pretty good and diverse, right? Economies are growing and companies are being very disciplined on the cost side, which is leading to earnings growth. That’s out outpacing kind of nominal growth. And so for those reasons we do think that, you know, equity markets have continued runway. Having said that, you know, the other thing we have realized is that parts of the market, and you know, particularly around technology and AI have run up so fast, right? That the risk return is setting up for potential for, for corrections. And so you,
00:54:11 [Speaker Changed] They’re, they’re definitely ahead of themselves.
00:54:14 [Speaker Changed] And so there are these long-term trends in places like Japan and India and you know, a lot of value even in other parts of the market that we think represent, you know, near and longer term opportunities to diversify your portfolio. And, and so we, one of the things we think a lot about is when something’s gotten overdone, when it’s crowded, right? How do you tilt out of that area and into places that are good gonna work for you either in the short term in the long term. And we see that as material opportunities, particularly in India and Japan that are gonna be long term and even more broadly in the industrial space when it comes to global equities.
00:55:01 [Speaker Changed] And let’s talk about an area that’s had some challenges. Some of the treasury auctions have been pretty mediocre over the past couple of sessions. You mentioned, hey, at a certain point, auction buyers just, you know, shrugged their shoulders at the whole process. Tell us your thinking about what’s going on with treasury auctions.
00:55:22 [Speaker Changed] Yeah, so, so I, I think the comment was more around, and it probably came from the fall around we will get these times, the treasury has to auction off a lot, right? The deficit is quite large and structural. And so to the extent the curve doesn’t represent value, it is going to cause auctions to tail, right? The, this is not gonna be the first time that we’ve seen it and it’s really critical for both the US government, right, US treasury to focus on kind of managing its its liability side as well as investors to be thinking about whether there’s good value or not. I think that, you know, a lot of investors are very concerned about the long-term stability of running deficits at the pace that we are and that’s gonna require political solutions and choices over the coming years. A lot of this is tied to demographics, social security, you know, Medicare, you know, and, and frankly these were things that we were looking at 30, 40 years ago when I was in school and are finally taking place, which is we’re having the baby boomers retire and the fiscal, you know, costs of that are now have to get charged the economy.
00:56:47 And so I think in the near term, you know, we’re in pretty good shape because duration does represent value on a real basis, right? And we are growing, which is a big, big deal to grow. Nominally actually is a fantastic thing for debt load, but it’s something that we’re gonna have to be very focused on as debt investors. We talk a lot about within our fixed income org debt sustainability and the, the types of things that would worry us.
00:57:16 [Speaker Changed] So when rates were zero, nobody really seemed to be worrying too much about debt. You had the usual suspects come out and say, oh, debt’s unsustainable, but they’ve been saying that for, for forever 525 basis points higher suddenly, hey, the interest income on this is substantial. Is there any pressure on the Fed despite a slight uptick in inflation to say, Hey, we gotta bring rates down a little bit just to make the fiscal side more sustainable. Or is that just not part of their charge?
00:57:51 [Speaker Changed] I don’t think that’s part of their charge. They do look to liquidity in treasury markets, which is absolutely critical. But I, I think with this level of debt and this cost of debt, if we don’t grow, if growth slows down, it can slow down really hard and that can cascade into a real problem for the Fed, which is employment. Hmm. Right. And so, you know, I think the Fed is watching very carefully the evolution of some of the, the debt stacks where, you know, in commercial real estate, let’s say, where rates are very high and it’s impacting the value of that commercial real estate as it sits in the banking system in other financial institutions. And we’re that to become even more problematic and spill into growth and, you know, cause deflation then I think you would see, or disinflation, I think you would see the, the fed move pretty rapidly.
00:58:47 [Speaker Changed] Let me ask you one curve ball question before we get to our favorite questions, which is you’re on the board of Directors for Minds Matter, a nonprofit that focuses on helping to prepare young people from low income families to, to become ready for college. Tell us a little bit about the organization and, and how you got involved with them.
00:59:09 [Speaker Changed] I got involved with Minds Matter because I followed a girl that I really liked. She was volunteering every Saturday and this May is gonna be the 30th anniversary of me being married to that young woman. So, you know, my wife introduced me to Minds Matter. I’ve always cared about education as a path for people to be able to better themselves and, you know, minds Matter, you know, serves over a thousand students in 14 cities across the country. It helps those students get into college, it helps ’em believe that they belong in college and succeed in college and then it helps them post-College build the network that they need to, to succeed in life. Huh,
00:59:56 [Speaker Changed] Really, really interesting. Alright, let’s jump to our favorite questions that we ask all of our guests. Starting with, who are some of your mentors who helped shape your career?
01:00:07 [Speaker Changed] Yeah, so th three that stand out to me early in my career, Dr. Jeremy Siegel at, at the Wharton School, who I worked for three years was just fantastic in terms of educating me in terms of frankly feeding me with the, the pay he gave me. And you couldn’t find a better person to learn about markets and, and macro than, than Dr. Siegel.
01:00:36 [Speaker Changed] And, and, and he’s probably the person that got this inflation cycle more right than anybody else out there when, when the first Cares Act passed, he was the first person saying, you realize how inflationary this fiscal stimulus is gonna be. And everybody looked at him like he had two heads turned out to be dead, right?
01:00:56 [Speaker Changed] He, he’s, he’s such a fantastic individual. I I own a lot of my career success. So others, the two others I would call out Eddie Raja, who is my first trading boss, ex Solemn Brothers Trader is out there in Duncan Heni, who ran markets at, at Bankers Trust, ended up being one of the CIOs at Soros group. You know, three kind of really early mentors and then more, more recently, you know, at, and my former employer was Peter Kraus for giving me the opportunity. Learned a lot about leadership from, from Peter as well as Doug. Peoples learned a lot about investing and, and asset management from Doug. So really, really appreciative of, of there. There’s a long, much longer list of people that I would love to shout out because I’ve, I’ve learned from pretty much everyone I’ve ever worked for.
01:01:53 [Speaker Changed] So let’s talk about books. What are some of your favorites? What are you reading right now?
01:01:57 [Speaker Changed] I, I would say I read a lot outside of industry, but things that are going on and then I love me a good like, you know, Navy Seal that is going and taking down the terrorists and defending a country kind of book. So in that genre I read a lot of Brad Taylor, Brad Thor, Vince Flynn, you know, gimme anything that’s like a techno thriller and I’m there when it comes to reading for, for content. One of my favorite books I’ve read kind of more recently in the last 12 months has been Chip war. Like the history of the chip is amazing. The gene was like eye-opening around, you know how genetics really works and there are a lot of, there are a lot of implications to investing and the way you design investing systems, particularly with ai. The hard thing about hard things by Horowitz is a great kind of leadership and startup book and how to think about kind of running an organization. And I’d also throw in that the latest Elon Musk book is, is fantastic. It’s a really interesting read, kind of an interesting personal dissection, but a great read around how to think about value engineering in a physical sense, not in a computer sense. So, so those are, those are a couple that
01:03:21 [Speaker Changed] Stand out. That’s a good list. And our, our final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing or asset management?
01:03:32 [Speaker Changed] Yeah, so, so the first thing I’d tell you is read voraciously about markets and then build yourself a model portfolio. Because the best way to learn is to actually be doing things. To use that, to figure out your style and from a style investing style perspective, read about other investors. You know, every investor has a tale of how they’ve lost money and the lessons they’ve learned through that. It’s a lot easier to learn from someone else’s mistakes than from your own. You’ll make plenty of your own, but like, make sure you’re reading about how others failed and, and really try to get to the core of it, not the, the kind of polished version. And, and then the third thing I would recommend them do is be process oriented. Right? Build a process, say, you know, be really conscious about how you’re making decisions and why you’re making decisions and what is going into each of those decisions. Hmm.
01:04:32 [Speaker Changed] And our final question, what do you know about the world of investing in asset management today? You wish you knew 30 or so years ago when you were first getting started.
01:04:42 [Speaker Changed] I leave you with kind of three observations that strike me or, you know, that, that have really kind of accumulated over the last 30 years. So, three things. You know, the first is discipline works over smarts. So the smartest people lose the most money. You know, the most discipline people actually generate strong returns over time. The second thing is, when in doubt, do what works over time. Don’t try to time the market, just, you know, be humble in what you understand about what’s going on, and then do what works over time, because that’s the highest likelihood you are to deliver returns. And then the final thing, you know, I wish I had learned this one earlier in life, is that particularly as an an individual investor, that if you don’t think about after tax returns when you’re making investment decisions, you’re missing the whole game is the highest hit ratio, the lowest cost that you will ever face is to really align your investing approach to be low, to be tax efficient. And I think your taxes change over time, particularly given the fiscal situation. If you’re earning good money, your taxes rates are likely to rise, right? And you should be happy to pay them that you’re, you’re successful enough to pay them. But, you know, make sure you’re investing your money through a tax efficient lens. Huh,
01:06:18 [Speaker Changed] Really, really quite fascinating. Asis, thank you for being so generous with your time. We have been speaking with Asis Shah co-head, and CIO of public investing at Goldman Sachs Asset Management. If you enjoy this conversation, well check out any of the previous 500 or so we’ve done over the past nine and a half years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Check out my new podcast at the Money Short conversations with experts about your money, earning it, spending it, and most importantly, investing it. Find that in your Masters in Business Feed or wherever you get your favorite podcast. I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Sarah Livesey is my audio engineer. Atika is our project manager. Sean Russo is my researcher. Anna Luke is my producer. I’m Barry Riol. You’ve been listening to Masters in Business on Bloomberg Radio.




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