“Everyone talks about being a long-term investor. Almost no one is able to invest for more than a 3-5 year horizon… you can’t be wrong for too long in this business.”
Ted Seides is the creator of the podcast Capital Allocators and recently published a book under the same name. He discusses lessons and best practices for money managers.
Money managers should always start by understanding the purpose of the capital and its return objectives. This can vary whether it’s a pension fund or a multi-century oriented college endowment. Despite understanding the need for long-term patience, in reality most investors’ returns are judged on 3-5 year timelines. A passion for constantly learning from people across the investment landscape has been the driving force in growing the Capital Allocators podcast. “When I focus on the compounding of the relationships, the returns have been amazing.”
Bitcoin and blockchain-powered technology represents potentially the next major investment opportunity. Interest in Bitcoin has accelerated as a hedge against inflation due to expansion in the money supply. The continued development of blockchain infrastructure will only make related technologies more attractive to major institutions. “Around 20% of all the super talented programmers and engineers are doing things on blockchain protocols. That’s a classic venture investment: follow the talent.”
LISTEN AND SUBSCRIBE
SPEAKER
Ted Seides
Host
Capital Allocators Podcast
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darcie: (00:06)
Hello, everyone. Welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks is the same as our goal at our salt conferences, which is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're thrilled today to welcome Ted [inaudible] CFA to salt talks, Ted site, he's created capital allocators, LLC to explore best practices in the asset management industry, after a long story career in the industry, uh, which is still in the midst of, I would add he launched the capital allocators podcast in 2017 and the show reached 5 million downloads in January of 2021 alongside the podcast.
John Darcie: (01:03)
Ted works with both managers and allocators to enhance their investment and business processes. In March of 2021, he published his second book, also named capital allocators, how the world's elite money managers lead and invest in order to distill the lessons from the first 150 episodes of the podcast from 2012 to 2015, Ted was the founder of protege partners, LLC, and served as president and co-chief investment officer in 2016, Ted author, his first book called. So you want to start a hedge fund lessons for managers and allocators to share lessons from his experiences. He's a trustee and member of the investment committee at the winter grand foundation, a member of the advisory council for the Alliance for decision education and an active participant in the hero's journey foundation. He previously served as a trustee and the head of the program and committee of the Greenwich round table and a board member of citizens schools, New York hosting today's talk is Anthony Scaramucci, the founder and managing partner of SkyBridge capital. It's a global alternative investment firm. Anthony is also the chairman of salts. And with that, I'll turn it over to Anthony to start the interview.
Anthony Scaramucci: (02:13)
I just want you to know how things go down at SkyBridge. He's there in the beautiful background with assault picture and the sole logo on trapped in the conference room with the echo chamber microphone. So I just want to make sure that you know who the important people are at SkyBridge. Okay. So it's, it's nice to see you, you know, I'm a huge fan. We go back a very long time, but having said that I'm lying about my age now society. So, you know, what can I tell you? I, I'm only going to tell people we know each other for 10 minutes, as opposed to 20 years, let's go right to the book. Congratulations on it. Uh, tell us about the book, how the world's elite money managers manage money, what they think about, uh, and his F Scott Fitzgerald, correct. Are the bridge different for the rest of us?
Ted Seides: (03:03)
Um, well the book came out of the podcast, I suppose there was always a book in the podcast, but as you know, from having written a bunch of them, you really scratch your head and why anyone would bother writing a book because it takes up so much time and a bunch of your resources. So, um, pandemic hit, I had some time on my hands and, and there were a few things that I had learned from doing the podcast that I really wanted to go back and try to figure out like, what were those lessons? And it really started with decision-making. Um, I had interviewed Annie duke a number of times, Michael [inaudible] and it just started there. And it, it, you know, it grew from there and we can talk more about it, but are the rich are the, are the elite different? Um, in many ways they are there the institutional investors, if you want to call that entire class, that sort of elite, they do have access to resources and people that, you know, a lot of retail investors, don't,
Anthony Scaramucci: (03:58)
There's, there's no instruction manual, uh, something that you, uh, have made clear from your podcasts and the other books that you've written. And so people are finding their way. There's a little bit of a matte sailing race. And what I mean by that is people are looking at each other's sailboats, and they're trying to figure out how they're going to need to, uh, make the terms pursuant to what other people are doing. But what are some general axiomatic observations that you've made in your story career? Yeah,
Ted Seides: (04:28)
Well, I, you know, there, there wasn't an instruction manual once it was Steve Swenson's book, uh, pioneering portfolio management. Um, and I started my career working for David and he was just an incredibly disciplined investor. And one of the things I learned from him is this whole framework for investing. That's, that's common. That started.
Anthony Scaramucci: (04:48)
I'm going to stop you for a second, just for our young viewers. Uh, David Swenson was, is the Yale endowment. He's the chief investment officer there. About 20 years ago. You wrote a legendary book called pioneering portfolio management, which all of us, Fred, uh, I just wanna to throw that in there to ensure good news is for you. You've got all these young people, hopefully these young people are ground by your book. I just want to explain to them who we
Ted Seides: (05:15)
Is. I know it's, you're reminding you reminding me of our age now, Anthony, that I think you're right, that some people wouldn't have David Swinson is really the Warren buffet of institutional investing. And in this book you referred to, he described how he had invested at Yale at that point in time for 15 years. And now he's been there for 35 or 36 years, and it became known as the Yale model. Um, and that book describes kind of a multi-asset class framework. He started with the first principles of if you're managing an endowment, which has a really, really long time horizon. You want to be equity oriented, you want to own things. You want to be diversified. And he was a big believer in active management. And he described in that book, a lot of the academic research and the framework for how he went about investing successfully at Yale, what he didn't do in that book was described, then how do you go do it?
Ted Seides: (06:13)
So it's good to have a framework. And one of the benefits I've had from being able to interview all these terrific people on the podcast is you start to figure out how did they do it? How did these people go about figuring out what their strategy will be? How do they go find the money managers they want to invest with? What kind of research do they do once they make decisions? How do they make those portfolio decisions? And then how do they monitor those decisions over time? And so there's a whole section of the book called investment frameworks that tries to walk through that process for how did the people sitting really at the top of the food chain of capital go about their day to day,
Anthony Scaramucci: (06:52)
I'm going to lay out the organic ingredients. You tell me what I've gotten right and wrong. You've got actuarial goals, you have risk and volatility that you need to deal with because God forbid you need to build a building. And then the market drops like in 2008, you have ESG goals where you're worried about the social impacts of investing. Uh, tell us, uh, how you bake that cake with all of those ingredients on the table today. Uh, what, what do some of the best capital allocators do? 10? Yeah.
Ted Seides: (07:28)
So it starts with, what is the purpose of the capital? So in a pension fund, you mentioned it could be this actuarial assumption. We need to earn a certain return because we have to fund the retirement of our constituents. If it's an endowment, it could be, we need to support the budget of the university for decades to come centuries, to come at it in some instances. And then we also have spending along the way. So a lot of it turns to just starting with the very basic of what are your return objectives, what are your spending needs to achieve the goals you're trying to for that pool of capital. And it's very different. If it's an endowment, a pension fund, it could be an individual. Um, and, but that's where it starts. And then from that, you start to draw things like what's the duration of the assets.
Ted Seides: (08:17)
Like how long can you be investing? Um, what strategies do you want to pursue? How much risk do you want to take? So when you, when you get down to it for these particular pools of capital and it's quite different from individuals, um, it started with that Yale model, which was equity oriented, diversified multi-asset class. And the evolution you've seen since that has to do with what's happened in the capital markets. So, you know, if we look at, uh, today, um, just owning us equities at whatever valuations they're at, just owning us bonds at zero or one and a half percent on the 10 year, it's not going to get the goals that most of these pools of capital need to earn, call it six to 8% a year. And so what you've seen is this evolution away from kind of pure asset class buckets, and more towards the importance of active management and manager selection across these asset classes. Because if you just invest in us stocks, a lot of these CEOs don't think that's going to be good enough to meet their objectives.
Anthony Scaramucci: (09:22)
So there's the stark reality. We were in super low interest rate environment. You're talking about, I'm going to throw out a number. So the pension funds common assumption to meet their needs 7%. Is that the right time? It's about 7%. So with rates, let's call the 10 year for the purposes of this conversation and it between 1.3 and 2%, let's just call it that. Um, so you've got 500 basis points over the 10 year that you effectively need to make to hit your actuarial goals. Stock market seems to produce that with the varying levels of volatility. So let's say I'm coming to you with a 30 billion, a billion dollar endowment tag. What are you telling me to do?
Ted Seides: (10:13)
Yeah. Well, you said a key word in there, which is the stock market has produced that. I think a lot of the people in the seat don't think it will going forward. And so you do want to own equities because over a long period of time, you probably will get to those rates of return, but you might have some volatility along the way. A lot of these asset class strategies, what you see is they're very diversified. So there'll be U S equities and international equities. There's been an increasingly increasing move over the last 10 years into private equity. There's a lot of good reasons why, um, and certainly venture capital with the top managers. And then you have a fair amount of hedge fund exposure to managers trying to earn those equity like returns, but with less correlation to the equity markets. And then you'll see things like real estate and timber investing and real assets. It's really global and completely sort of across the landscape in terms of the different opportunities that these people will pursue
Anthony Scaramucci: (11:10)
For the individual. Ted, do you think the 60, 40 classic portfolio allocation model is dead? Is that in the museum now? Or is that still life to be breathed into it? Yeah.
Ted Seides: (11:24)
I mean, there's an argument. You could make that any of these portfolio structures have a framework that might start with 60, 40, or 70 30 or 80 20, depending on what it is, but just owning the 60 and just owning the 40. It doesn't look very good for the next 10 years now, the problem is we, you know, we wouldn't have, we could have had, we probably did have this conversation 10 years ago and 20 years ago, it didn't look good then either because you really don't know what's going to happen in markets. And that's been a very, very tough bogey for anything else over the last 10 years. But most of the people that look at market history would say the probability of achieving anyone's goals for 60, 40, that's, that's pretty dead, um, underneath what you might do to change it. There's still some risk construct that might look like 60, 40, but you're just not going to achieve it, owning the 60% stocks and the 40% bonds.
Speaker 4: (12:16)
So, so you've done 200
Anthony Scaramucci: (12:18)
Interviews, which is a sensational amount of interviews for some very eccentric people that you've met.
Speaker 5: (12:26)
You're just talking about yourself or the other 199. You see, I got to see them
Anthony Scaramucci: (12:30)
At the top of the list in terms of the exec tricities, but, but tell me some of the memorable quotes, tell me some of the memorable observations, tell me when you clicked off the microphone and said, okay, wow, I've got that in the can. That's going to be relevant or timeless. Give us some of the, uh, stories from your podcast. Amazing
Ted Seides: (12:52)
Thing about the podcast is without, you know, without, um, stretching. I think I felt that way. I'm probably 175 of the conversations. And part of that is having been in the business for 20 years and knowing great people to talk to, you know, who have really interesting stories to tell. So there's a lot in it. One of the things I did in the book there's the book is structured in three sections are sort of a toolkit, which are disciplines and skills that CEO's need that you're not taught in the investment world. There's this investment framework section I talked about. And then there's this last section, which is called nuggets of wisdom, and there's 184 quotes that come out of 3,500 pages of transcripts of some of the most interesting quotes across investing and life lessons. And, and then at the end of that, there's a top 10 list.
Ted Seides: (13:41)
So there's a little bit of everything. Um, but just to give you an example of one of those kind of frameworks, that's distilled in a quote, and I'll give you two examples of quotes. One of the most surprising things that I found from doing this conversations is that everyone talks about being a long-term investor. Almost no one is able to invest for more than let's call it a three to five-year horizon because the whole governance structure that goes into a decision-making process for investing has a lot of people involved. And if you're, if you underperform for too long, and it doesn't even matter if you're an endowment with a multi hundred year horizon, you're not going to be in the seat for too long. And so people have condensed that time horizon. So one of the great quotes, Andy golden, who manages Princeton and Princeton's endowment said to finish first, you first have to finish. So let me give you a slightly more colorful version of that. That's in the book from a young aspiring good-looking gentleman named Anthony Scaramucci, who you, you may not remember this quote, but it came from
Speaker 5: (14:42)
The show. Here we go. You ready for this very good hair?
Ted Seides: (14:47)
You said we're in the investing business, but it's sort of like in the fashion business, skirts come up and down in our industry.
Speaker 4: (14:56)
And
Ted Seides: (14:57)
That's the same framework to say, look, you can't be wrong for too long in this business, because if you just are, if you're just a, the like long skirts do, you might be out of favor, you know,
Anthony Scaramucci: (15:11)
You and I were at the trial three at Della art day talking about this very topic because in 2007, everybody was investing like an endowment at 75 year horizon, 2008 comes. Now we have a 75 minute Arisun and everyone wants their hedge fund manager to have an ATM machine in the lobby of the hedge fund. Then we're going into private equity. Now we're going into crypto, which we're going to get to in a second. But yes, I do think we're in the fashion industry. There are trends, uh, on top of, uh, the fundamentals of investing. And then the other issue for me, which I would add is that everybody is a long-term investor 10 until they have short-term losses. The minute they have short term loss, if they start freaking out it yet, uh, which SkyBridge experienced in March of last year. Now I will point this out.
Anthony Scaramucci: (16:03)
And you know this about the way the world works. There were five obituaries written about SkyBridge after our disastrous, March of 2020, we're up like 40% since then, no one's writing about the Renaissance. Trust me. Okay. It's just the way it works in our lives, but Dorsey's is chomping at the bit here. He's got that beautiful background behind him. I'm stuck in the large conference room with the microphone. And I want to make sure that my producer puts the word in there because this is for John Dorsey right now, but I got two last questions for you. Your career, I think has been absolutely fascinating. You worked at the Yale endowment, you were in the hedge fund, seeding business. You made a bet with Warren buffet. You're now doing something that I think is even in my mind, more fascinating because it was an academic lilt. What you're doing, describe your career to us and tell us what's the future for Ted sites.
Ted Seides: (17:01)
Wait, uh, well, you walked through it. I don't need to do that, but what, but what I'll tell you is in my early years, working for Dave Swenson, I got really lucky to learn the business the right way, learn great lessons about investing before I had bad habits on my own. And, and it's so fortunate to have a mentor like that earlier in your career. I tried direct investing after business school. I worked at a private equity fund that worked at a hedge fund and I was surprised, but it just wasn't for me. I didn't enjoy it as much as I enjoyed investing in people. And then as you know, when we first met, I guess it probably was about 20 years ago. Um, I was in the hedge fund business and what I found from doing it, I love the investment process. I love investing in people.
Ted Seides: (17:46)
Um, the end goal of let's just make more money. Let's just make more money for our clients. There was just something slightly off now don't get me wrong. It's fun to make money. It's great to have it, but I never felt a hundred percent fulfilled in that. And I didn't know what to do when I left. We talked about, yeah, should I come join? Or it's when I left. And I was like, I'm not sure I want to do the same thing. The podcast came out of that. And it took, it was, I was doing it alongside of a bunch of other investment
Anthony Scaramucci: (18:16)
We're snap people. We were trying to recruit you because I think you're, I think you were growing with guy. I mean, you know, books ahead, keep going. Yeah. So I was doing a bunch of other questions you said no. So I don't know what that actually means about me and Darcie, but that's a keep going sideways. I wasn't
John Darcie: (18:32)
Here at the time. He might've come. If I was making the [inaudible]
Anthony Scaramucci: (18:37)
Let the guy finish. Okay.
Ted Seides: (18:40)
So the podcast came out of it. I was doing a bunch of other investment projects all along the way until about a year and a half ago. And then really from some of the people I had on the show, some of the really talented leaders guys like Shondra and Thomas at Northern trust asset management and Greg Fleming at Rockefeller capital, who I've just become close to. I realized these great leaders do the same thing. That's part of what I put in the book. You know, they create a vision, they repeated all the time and they motivate people using it. And so I started to think very carefully about what is it that I'm doing and what do I enjoy about it? And I came up with this, this idea of the vision of capital allocators to learn, share, and implement the process of elite investors.
Ted Seides: (19:25)
Um, learning is a lifelong thing for many of us implementing is the process of okay, taking those lessons and investing what's different today. From what I used to do is sharing. And I come from a family of teachers in many ways, and I have found that incredibly gratifying. So you then take that and put it together with a bunch of, you know, values, to statements that how you want to behave. And I, and I looked through that and I said, boy, what this is really about is what I refer to as compounding knowledge and relationships. So what I found is that if I'm entering into relationships, whether it's people on the podcast or the investments that I'm making, you know, for my own account, I'm not so interested in transactional things. I'm not interested in investing in something that I don't really know who the people are, but they might generate great returns.
Ted Seides: (20:16)
I'm interested in finding things where I can contribute to the success of what they're doing. And that can compound over time. That the relationships that I have are, you know, multi, like antsy, we've known each other for 20 years, you call me and say, you know, email me and say, Hey, you want to come on salt talks? And I say, of course I do. Right. I get those requests all the time. And 90% of the answer is, you know, I don't have time for that. So that's what matters to me. And then what I found is that when I focus on the compounding of the boy, oh boy, the returns have been amazing and it's not so much like, am I investing in something because I think that's going to be the highest return. I do invest in things where my instinct tells me they're going to be, you know, very good outcomes, but it's that, that development of the relationships and the development of the knowledge and sharing it and what comes from that, that's just excited me. Like nothing else I've ever done before.
Anthony Scaramucci: (21:11)
Well, I was uncomplicated by you coming on, but I, I, and I also feel that you're, you have this intrinsic value about yourself, um, um, is there's a common sense wisdom to the things you do. So this is my last question that I am going to turn it over to John, lots of young people, uh, on Ted, uh, when you're getting young people advice about the investment oral in terms of what to read and how to grow their careers and those good habits that you're talking about, uh, share with us some of that, uh, advice and mentoring wisdom. Yeah.
Ted Seides: (21:47)
Well, I mean the, the things that I learned and I would say, I wish I learned them a lot earlier in my life. Um, for a whole bunch of reasons. Mentors are really, yeah, mentors are really important and, and the other one for me, and I think like a lot of my audience is male. I'm hoping to diversify that over time, but I think it's true of men. Um, it's okay to ask for help. You know, in fact, it's great when you can't make good decisions on your own, in a vacuum. And I, for whatever reason was terrible at asking for help throughout my life. And, and that's a big one that I have. I'm constantly pushing myself now. And lo and behold, when I do that, wow, you get to answers faster, you get better answers and you really get to involve people in what you're doing. So, you know,
Anthony Scaramucci: (22:36)
It's a male thing by the way.
Ted Seides: (22:38)
I do a little bit. Yeah, yeah. Definitely more than female. I mean, it may not be all men, but it's certainly true for me. I'm only going to point the finger at me rather than generalize it. Um, but I think that's a big one. And then when it comes to people's careers and, and you know, this passion matters a lot more than money, you know, when people ask me, what would you do? You know, if I were starting off, I wanted to follow what you did. Howard marks has this great line about, like, what would he tell someone who wants to start an investment fund today? He says start 40 years ago because you always want to be in a place, um, where there are tailwinds. So, you know, we, whether we're going to do it with John, we should talk a little bit about crypto because that's, you know, interesting.
Ted Seides: (23:18)
But the industry that we're in, that we started in doesn't have the same tailwinds that it did, you know, 30 years ago. And so, you know, I, I think that's fine. If people are passionate about it, they love what they do or what part of the investing world they occupy. There's nothing wrong with that. But if they're just doing it thinking they're going to get riches, because there are very wealthy people who have succeeded in that over time, you know, they may find that 10, 15 years down the line and they put their blood, sweat and tears into it and they didn't get that outcome. That's if they were outcome focused, instead of process focused, like we talk about in investing, you got to think about that with your life as well. Great. Go ahead, John. All right.
John Darcie: (23:57)
Well, yeah, Ted, it's a pleasure to have you on, uh, Anthony asked you about the podcast and some of the more memorable quotes and learnings that you have from those podcasts and having listened to many of the episodes, I can agree with you. There's something profound that comes out of each one, but what's something that surprised you as a common thread, either across many of your interviews or a few of your interviews about the way people think about investing. Yeah.
Ted Seides: (24:21)
The biggest surprise to me was that when we look at these chief investment officers, we think that they are the top of the food chain, that they are the decision maker. And what I kept hearing over and over is this notion of the governance challenge. And I wasn't sure exactly what that meant. And so I started asking certain questions about, you know, where are you getting to? And ultimately what you find is that you could have an investment team that an investment office managing billions of dollars, that they want to invest in the SkyBridge crypto fund. And they've done all the work and you've met with them 10 times and they tell you, they're about to, you know, they're about to invest. They're going to make a recommendation to their committee. They go to the committee meetings, it's totally opaque to the entire money management committee, unless you have money managers that happened to sit on these investment committees and the recommendation gets turned down.
Ted Seides: (25:18)
And so they've put all this time and effort in, and in fact, they weren't able to make the decisions they wanted to make. And so that governance challenge of how do you work with a board? How do you communicate with them? How do you define roles and responsibilities? How do you make sure your incentives are aligned? That is something that was far more challenging than I had understood. And part of that was because a piece of Yale success is a very effective governance structure. And so I was never privy to these situations where the governance, it doesn't work seamlessly in my entire career until I started talking to all these other CEOs and you find out, wow, yeah, they're sitting at the top of the food chain, but they also have someone to answer to. And most of the time in the money management world, the managers have no idea what that piece of the process is like, right.
John Darcie: (26:09)
Talking about, you mentioned the SkyBridge Bitcoin fund, and I want to talk about crypto for a minute. So you you've launched a series of, uh, episodes on your podcast focused on crypto and Bitcoin. Uh, and it's, we've done the same thing on salt talks, just the demand from the community to learn more about the asset class is astronomical. And I think our friends over at Morgan Stanley have experienced the same thing in terms of their clients and their advisors clamoring to have an offering on their platform. And they were the first recently to announce that they're onboarding to Bitcoin funds to make it available to their clients. Why did decide to launch into the crypto world? What's the feedback that you're getting from people in the institutional investment community about whether this is a investible asset class. There's obviously a wide range of opinions on Bitcoin and crypto, but what are you hearing? And what's your view on the asset class?
Ted Seides: (26:59)
Yeah, let me give background, cause I love showing my own hearing melody. Uh, we had a wonderful chief technology officer at protege guy named Alexi Biederman brilliant Russian guy. And in something like 2012, he said, I want to do a luncheon. We did these talking luncheons and I want to talk about the Bitcoin. We were like, okay. And he gave this talk and I was like, can we, can I just go back to work now, completely missed it in 2012. So I started paying attention, um, really in 2017 when Bitcoin was running and I, you know, through the podcast is how I originally met. Patrick O'Shaughnessy is a dear friend of mine. And he had done this fantastic miniseries called hash power before he did it. He and I did a bunch of hikes together and he was explaining to me what all this stuff was.
Ted Seides: (27:46)
So I was, I was really interested in it. I bought Bitcoin for the first time. Then I bought and sold it since. And throughout that time, um, I should, as an aside, I'm on the advisory board of block tower capital, which is one of the leading hedge funds in the space. And I S I joined their advisory board in early 2018. And throughout that time, Ari Paul, who I had in, on the show in the miniseries and Matthew gets his partner would say to me, Hey, we want to get a group of these institutions together to talk about crypto. And I would kept telling them, no, one's interested. No one's interested. No one's. And I could explain why, but no one's interested. No one's interested. And then around the turn of the year with this most recent surge in Bitcoin, what, what I found talking to a lot of these CEOs was they started getting, they started asking the question, okay, I remember 2017, this thing ran and collapsed, and now it's back again.
Ted Seides: (28:40)
This is technology what's happened. What's happened with the technology infrastructure. And so even from the fourth quarter of last year to the first quarter of this year, Matt gets said to me, Hey, can we bring together a bunch of people to talk to Michael Saylor from micro strategy? And last year I said, no. And this year I said, yeah, it's time. And we reached out to about 30 CEOs and every single one of them either participated in this or sent their number to, to participate in it. It's still early innings. And so what I found was that the investment case, let's just say, Bitcoin, they're starting with Bitcoin is the, exactly the same thing as it was in 2017. So you could think about it as a hedge against Fiat money debasement you could think about it as a, another venture capital type opportunity. And then because of the money printing and COVID, and the rise in Bitcoin last year, people said, okay, I now have to take this seriously.
Ted Seides: (29:36)
And lo and behold, there's been a lot of infrastructure development, you know, across custody trading, everything you would need. Um, so that it's closer to being ready for institutions. And so what I wanted to do was dive in and just keep it simple. Like what, for an institutional perspective, what do they need to like, what's the macro case. I had Eric Peters from one river on now, how do you get entry at Michelson and China for sound to shine from, um, gray scale and then two hedge fund managers, Ari, Paul and Seth. Jim's like, okay, if you're an active manager in this space, what are the opportunities where are the inefficiencies? And I'll, I'll do more of these episodes over time with great people in the space. And so what, what I learned was, um, that it's almost ready. Now. There's a question of, it's almost ready for what, and I would say that in the, the level of understanding of people start with Bitcoin, they, they look at Bitcoin as this interesting asymmetric hedge in this portfolio of risk assets.
Ted Seides: (30:44)
That one way or another is dollar based and say, wow, you know, if this really continues, maybe this is digital gold, and I'm going to need to own some of that. Um, very hard to price. And we know all the, all those issues, more of it, you say on top of it, after 2017, so much money came into the space from all these ICO's that if you talk to the people in Silicon valley, what you find is something like 20% of all the super talented programmers and engineers are doing things in blockchain protocols. So that's a classic venture investment of just follow the talent. This is where the talent is going. I can't tell you, I know anything about what that means for the development of applications of the blockchain, but you're starting to see improvements in the base layer protocols. You're starting to see everyone talks about defy, decentralized finance.
Ted Seides: (31:36)
What does that mean? Lending on the blockchain, um, um, trading payment platforms. And then I get to bring it back to my real world, hedge funds and investing. So the best example I could give to people is everyone has heard about what happened with GameStop and all the stocks around game stop. And you could ask the question of why could a stock be 140% short? Why could there be 140% short interest? Now it's entirely possible. It comes because stock can get lent more than once, but stock shouldn't be able to be led more than once. So shouldn't stock lending, uh, tracking stocks, tracking, stock ownership.
Ted Seides: (32:23)
I went, of course it should. And I'm sure that 10 years from now that the record heard of who owns what stock will be in some type of technology where it's not just that I own a share of Berkshire Hathaway. It's I own that chair. And if I lend that share, there's a record that shows, you know, the person I lent it to can't go read, lend it again. So there are all these little things that I started to understand that said, wait a minute, this makes sense. You've got all this talent working on it, you know, developing technology that I'm never going to understand. And I know I'm never going to understand. So the institutions start with Bitcoin. They then say, oh, all of those protocols are getting built today on Ethereum. And you know, maybe, maybe there'll be another technology that's better. And there's all this.
Ted Seides: (33:10)
I don't even understand that. So I, today I own about 80% Bitcoin and 20% of Ethereum. And then as you start to learn more, you say, whoa, what's the stuff with NFTs. And I had a long conversation with Ari about how is it possible that I could go, I was kind of like, what's this NBA top shots. Like, what is it? And I went on their website and I watched this amazing clip of Zion Williamson blocking the shot way into the stands. And that was somebody bought that on the blockchain for $250,000. I said, wait a minute. I just watched the clip. It's the same clip. It's not in the glass case, like a Honus Wagner baseball card. Just, I understand that. How is that possible? And you start to have conversations about what's the difference between a Picasso and a forged Picasso. What's the difference between a Birkin bag and a mockup Birkin bag that came from the same factory and you start to realize, wow, there is something to scarcity and branding, and it's not any different with NBA top shots than it is with a whole litany of things that have had value in the eyes of the holders for many years.
Ted Seides: (34:16)
So you start pulling all these threads and as you get a little bit deeper, people get more interested and they realized this could be, you know, web 3.0, this could be the next big ecosystem. So you start to pay attention as you're an institution, you start with your venture capital managers that you trust Chris Dixon at a 16 Z that's when, when Yale was in the press three years ago for ingesting and Bitcoin, they didn't, they just invested in another venture fund. And now you see Bitcoin purchases and we're going to see more and more. I think there's a tidal wave of coming into this whole ecosystem over the next five or 10 years.
John Darcie: (34:50)
So Mike Novogratz came on salt talks, and he obviously deals with a lot of institutions relating to Bitcoin. He launched a galaxy, as you know, the pitch for him was you have all these other players in the space. I was at fortress. I know the institutional community. I know the type of touch and experience that you need. He made a comment that he thinks that only 10 to 15% of whales in the Institute of institutional community, so that it could be insurance companies that could be endowments. That could be pensions. He only thinks that 10 to 15% of those who are invested in Bitcoin have publicly revealed their position. So you have 85% of those are long Bitcoin, but haven't announced it yet because of concerns around the stigma of Bitcoin or ESG concerns, whatever it may be. Do you think that's accurate that people in the community are invested into Bitcoin more than we realize, and they just are still reticent to disclose it? Or what do you think the adoption rate within the institutional investor community is? Well, the only
Ted Seides: (35:49)
Way I can answer that by saying, if it's not disclosed, neither Mike, nor I know the answer to that, right. Um, I, you know, Coinbase basis sponsored my show, they sponsored the mini series and Brett fall, who Oak, who runs their institutional sales is a good friend of mine. So recently there was some announcement that there were a few institutions that owned Bitcoin directly. Um, and that I know is true because I was able to confirm it, um, with Brett. Um, I have heard anecdotally that there are a lot more institutions that do own Bitcoin directly in particular. Um, but I have no way of knowing the order of magnitude at this point in time.
John Darcie: (36:31)
Right? So you talked about how COVID sort of poured gasoline on the adoption of cryptocurrencies and decentralized finance. You know, it was something that maybe was inevitable, but all the money printing and the move to a completely digital world sort of accelerated adoption, which we're seeing in the price of cryptocurrencies over the last year or so. How did the COVID-19 pandemic also influence if at all institutional investors approach to investing as it relates to different factors? So obviously the value factor hasn't performed nearly as well as technology and growth factors have, uh, since the onset of the pandemic, is that caused a longterm monumental shift in the way these endowments and pensions and insurance companies are looking at portfolio construction, or do they take a long-term enough view that they're like, okay, we can't have a knee jerk reaction to every micro trend in the market. Yeah.
Ted Seides: (37:24)
So in theory, they, they, it shouldn't affect it, um, that they do take a very long-term view. And that having a long-term view means that you ride through these periods of time. Now let's circle back to what Anthony said earlier, which is when you guys got hit at March, 2011, March, 2020, all these long-term investors start saying, oh, you know, let's, let's right. Let's go, let's write to a wary for SkyBridge. And it's just not the case. So what was really interesting, and I did this both in a miniseries last year, and it's a small chapter in the book on kind of crisis investing, which is in theory, they're all long-term in theory. They all stay the course. In theory, they're not performance chasers. That's what everyone wants to be, what actually happened, um, in COVID. And that's only one example because in the markets and particularly public markets sold off dramatically, but then they came back.
Ted Seides: (38:18)
So maybe you could say, that's not that hard of a period of time. And so what I found was talking to baby, maybe a half a dozen CEOs in that moment of time. So April of last year, what I found was they all had the same playbook of how they were managing that period of, so we'll start there and broaden it out. And that was, you start by gathering as much information as you can. People have to calibrate, where are you in your portfolio? Um, what's happened with your assets and some of that's just technology. Do you have the infrastructure to understand your performance, which managers are doing badly, this particular, when people had to pay careful attention to liquidity, because when you can't go back to school and school becomes a virtual, what does that mean for the revenues of the academic institution, which is never something that an endowment manager, you know, in the last 30 years had to think about, right?
Ted Seides: (39:10)
If you're managing a hospital pool of capital and the entire efforts of the hospitals start going towards treating COVID patients and all of the, the high profit margin elective surgeries go away. How do you think about investing the assets when the structure of the, the P and L of the institution has changed? So that's, that's a big step. And before you can even say, I want to make a change in my portfolio, you have to understand where you stand. Then they go into talking to their existing managers, what's happening. Are there opportunities? There were things sold off more than they thought. So they're mining their own portfolio. They, they then have like a wishlist of, oh, these are the top venture capital funds. I always wanted to invest in. Maybe other people are getting shaken out. Now let me reach out to those special managers and see if there are any opportunities to invest.
Ted Seides: (40:02)
And after all of that, they then engage. And when I say engage, they might make a decision. So all of that comes before changing anything in the portfolio. And what I would tell you is this time around, they didn't even get to the bottom of the list before the markets came back. So the biggest difference between these types of investors and say, hedge fund managers, hedge fund managers are in the market every day, they pay attention to what's happening. They're trying to capture an efficiencies. These investors have such long time horizons that they don't need to pay any attention to what's happening in the market in a short-term period of time, even in something like that, that was like a 20 or 30% sell off in the markets over just a few weeks. So the sh the long answer to that short question is absolutely nothing has changed.
Ted Seides: (40:48)
Um, what we saw, right? Everyone has talked about how the trends in place from technology accelerated during COVID. And that's true. So people now think about, well, growth stock investing value stock investing in, right at the point, there's always happens right? At the point when everyone was ready to leave value investing for debt, there's been such a bounce in value stocks that I think value just outperformed growth for the period, going back to January of 2020, because there's been such a strong move. So markets are cyclical. The skirts go up and down. There's only Anthony can say, and most of the people in this seat just, you know, over time they stay the course, they, they stay diversified. So they don't have to make those calls. They're going to have a value manager and growth manager, and one's going to perform well. When the other one isn't
John Darcie: (41:36)
Last question I want to ask you also related to the pandemic and the future has to do with investment due diligence. You know, the most exciting topic that anybody can talk about, but it's, it's fascinating, Anthony. I happened to be in the office today. We're, we're standing 200 yards apart from each other, but we're on different computers doing a, and
Anthony Scaramucci: (41:55)
The fact that he took it, better location, better room rate. That that's how he is. He's just, he's a selfish, selfish millennial. Okay. Here I am. As a struggling baby boomer, struggling, go ahead, Darcie, keep going.
John Darcie: (42:10)
But, you know, during March of 2020, as Anthony talked about, our portfolio got hit, we were heavily allocated towards stuff like structured credit. There was basically a lockup in those markets, despite the fact that we felt that those assets weren't fundamentally impaired, but, uh, in a lot of cases, when you're talking to sovereign wealth funds or pensions or endowments, they, uh, you know, they were reallocating capital to strategies and managers. They knew they were doubling down on things that they were intimately intimately familiar with. But the, at the beginning of the pandemic, at least doing due diligence on new funds was challenging for a lot of firms that are used to in-person meetings and, and an old way of doing things. How much have they adjusted to this idea that investment due diligence now is going to be done on zoom and virtually? Are they comfortable with that? And is that going to be part of the future? Are we going to continue to do these zooms, uh, you know, zoom, uh, due diligence meetings even after the pandemic hopefully ends or, or, uh, are we going to go back to the old way? Yeah.
Ted Seides: (43:10)
Um, I think for a long time throughout most of last year, uh, the, your average CIO was deeply uncomfortable with making a decision to invest in someone they hadn't met before. Um, and they would just hold out, hope that by the time that their, their cue was done and they needed to make changes, like if this lasts for a couple of years, they certainly were going to have to figure out a new way of doing things. Um, I don't think it will change that much. And you can, there are really interesting theoretical questions of whether that's right. Like, do, do you really get a lot of value face-to-face meeting that person? Is there more in the dynamics? And I, I think what people would say is that the part of the assessment that goes with trying to figure out how a team works together is very, very difficult to do virtually it's very rare situation. When you can have an Anthony Scaramucci on a Scot on assault talk and, you know, pretty clearly what this guy is like day to day. Most people aren't that authentic and transparent with themselves and how they're going to work with their team, especially when they're trying, you know, they have a goal to raise money from you and they're going to put their best foot forward. So if there are frictions, it's so much easier to hide them by not having those people on the camera
Anthony Scaramucci: (44:31)
Life. If I was less authentic and less crazy, is that what you're trying to say? Sirens,
Ted Seides: (44:36)
Those are two authentic and crazy are two different things. That's your choice.
Anthony Scaramucci: (44:41)
Most people are crazy. Let's just stipulate that. And what they try to do is hide the crazy correct. We let the crazy go out. Maybe, maybe we'll have a pepper conference before this is over. You never know.
Ted Seides: (44:53)
FinTech is a very healthy thing. I
Anthony Scaramucci: (44:57)
Agree. And it, and that you had that in spades. My
Ted Seides: (45:00)
Friend appreciate it. So, John, I think to come back to that, we're now at this funny point where people have gotten more comfortable with the notion that they can take the risk of knowing that they don't know everything by investing in something new on zoom at the same time, where now you could look six months out and say, Hey, we may be able to travel again. I do think there's going to be incredible, uh, reduction in all of the travel, um, because there is a fair amount of like, if I'm going to meet a manager a times before I'm even going to think of investing, there is no reason at all, why can't do two or three or four of those over zoom, because you're going to basically get same dominant information. What's going to be interesting to see is on the other side, on the manager side and their business development efforts, managers love the fact that they haven't had to travel, uh, public equity.
Ted Seides: (45:52)
But, you know, really when you're talking to private equity guys, but you know, how many they get, they go on a road show because there's a finite date to close a fund and they have the same conversation, 150 times. Um, and so the question is really going to be if the personal connection ultimately matters in winning that sale, who's going to be first. And as soon as you know that one manager's having success, you better believe everyone else is going to be jumping on a plane right behind them. It'd be fast followers. So I think it's really hard to know at this point in time, um, how that will all play out once, you know, hopefully this is mostly passed and we can move around safely. Uh, but I think it will be a hybrid. You know, I don't think we'll go back to every decision is done over zoom, right. Uh, but, but it's been a challenge in, it's created an acceleration of kind of the winners and losers in this field, as well as, you know, a lot of life because all of the new investments are extensively. All the new investments that got made were in pre-existing relationships. If you didn't have the relationships going into the pandemic, it was really hard if not impossible to raise money, you know, over the last year, year and a half, I guess, a year.
John Darcie: (47:05)
Yep, absolutely. Uh, in fascinating stuff, maybe the rise of the introverted investment manager and people that don't have to necessarily wow. People in public and can live more on the strength of their performance, uh, in their process. But Ted, it's a pleasure having you on again, the book and the podcast, both of which are very much worth your time. It's called capital allocators. The book also with the tagline, how the world's elite money managers lead and invest. There's no one that knows that world better than Ted. So we highly recommend you go out and read the book and become a regular listener to this podcast. Anthony, you have a final word for Ted before we let him go is it's
Anthony Scaramucci: (47:40)
Great. It's great to have you on. And, uh, I'll take another run at you when you get more real, you can do your podcast here at SkyBridge, by the way. So I'm just letting you know that recruiting offer still stands Mr. Site,
Ted Seides: (47:52)
Hey, say it through John. Great, great to be with you, Anthony. It is always a pleasure and always a good laugh. We'll put
John Darcie: (47:59)
Them on the spot. He has to come to our salt conference, which is coming up in September. You know, we sorta took a leap of faith late last year and booked the Javits center expansion, which is a new, great venue. They built out over there at Javits with a beautiful roof terrace. That'll help everybody's social distance and all that stuff sort of right. Coming after labor day. Hopefully everybody is chomping at the bit to get back to in-person events. So we'd love to have you there today. Of course,
Ted Seides: (48:23)
It's my pleasure. I says, I said, I know, I don't say no to Anthony often if was trying to capture my whole life. That could be a little tougher, but, but absolutely
Speaker 5: (48:30)
It'd be fun to do it. We'll never know
John Darcie: (48:36)
Anthony out of the recruiting pitch this time and maybe it'll be a little bit more successful, but anyways, Ted, thanks so much for coming on. Thanks again, Ted for joining us today here on salt talks and thank you everybody who tuned into this talk, I'm sure plenty of allocators and managers watching this show as listened to his podcast every week. So we highly recommend again that you read his book capital allocators and listened to his podcast, capital allocators, both tremendous resources, uh, both for people in the industry and people looking to understand, uh, how institutional investors allocate capital over the long term. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them on our website@salt.org backslash talks and also on our YouTube channel, which is called salt too. We've posted all of our episodes there for free. We're getting great engagement and growth on our YouTube channel. So please spread the word as well. Uh, if you find any of these episodes interesting, including this great episode with Ted, please spread the word about salt talks. We're on social media as well. Besides, uh, YouTube, we're most active on Twitter at salt conference. We're also on LinkedIn, Instagram and Facebook, and on behalf of Anthony and the entire salt team. This is John Darcie signing off for today. We hope to see you back here soon on salt talks.