Lincoln: Well, Bob, welcome to the show today. Good to have you on with Unlimited. Thanks so much for having me. Yeah. Excellent. Well, why don't you go ahead and just give me the elevator pitch on Unlimited.

Bob: Well, I've spent 20 years in my career as a systematic investor across a number of areas of the 2 and 20 business. First, I was at Bridgewater Associates for almost 15 years, which is known as the world's largest hedge fund, creating investment strategies there, and also spent some time on the venture side of the world, running a $125 million systematic venture fund that invested in high potential early stage consumer opportunities. And I think my time at Bridgewater as well as my time in the venture side of the two and 20 world I increasingly recognize that two and 20 businesses are pretty good for the manager and not that great for the investor because two and 20 managers generate good returns and also charge high fees. And so That got me to thinking, starting a few years ago, about whether there was a way to bring the concepts of diversified low-cost indexing, which obviously totally changed stock and bond investing, and bring those ideas to the world of 2 and 20. Now, of course, there's a lot of folks who are out there trying to increase access to alternatives. The real question was how do you do it in a way that not only improves access but also lowers fees in the same way that Bogle's efforts in stocks and bonds did exactly that. And to do that we realized that we needed to leverage technology to start to build an infrastructure that would allow us to replicate what these two and 20 managers are doing in close to real time. And because we're using technology instead of, you know, star PMs or direct investments, we could offer it at a much lower structure. And so that's really what we're all about at Unlimited is diversified low cost two and 20 index replications. you know, at a much lower fee structure and available for every investor.

Lincoln: So what's the difference between your funds and like an ETF or a mutual fund?

Bob: Well, we actually have an ETF product in the market. So that is one of the ways in which we make these strategies available to every investor. And that's the beautiful thing about ETFs is it doesn't matter if you have $20 or $20 million, you have the same access to the strategies because of that ETF wrapper making these sort of returns available for everyone.

Lincoln: Gotcha. So you've got one public product, your ETF, and then you run everything else through private funds.

Bob: Yeah. We also have, uh, what we refer to as our agile strategy, um, which, uh, which is. Which uses our technology and our rep replication approaches, and then combines those, uh, hedge fund style replications in ways that, uh, tilts towards those strategies that are likely to be, you know, more, uh, likely to have better returns given the macroeconomic environment and away from those that are likely to have less effective returns given the macroeconomic environment. So we really have two products in the market. You can think about our ETF strategy as like an index fund, a low cost index fund available for everyone. And then a product for institutional investors, which is doing this allocation process on a real time basis between different hedge fund style strategies.

Lincoln: Gotcha. And so those are, they're all actively managed then.

Bob: That's right. I mean, it depends on how you think about, you know, actively managed, I think is more of a continuum than it is a black and white point. You know, what we're trying to do with our technology is replicate what, how hedge fund managers are positioned. Obviously hedge fund managers are very active in terms of their shifting of positions through time. And so in that sense, the strategy is actively managed, but the way in which it's done is by looking over the shoulder of those hedge fund style managers, those hedge fund managers and seeing what they're doing. We don't add in our in our index ETF product, we don't add an additional layer of our own proprietary views. And in our agile strategy, we don't add our views on how hedge fund managers should be positioned, we simply add views on which strategies are likely to do better or worse, given the macroeconomic conditions.

Lincoln: Gotcha. Okay. That makes sense. So tell me about some of the characteristics of these products. I just want to understand your product set before we go any further. So are these, these are all open-ended vehicles then?

Bob: Well, the ETF product, by definition, is an open-ended vehicle. And it seeks to replicate the gross of fees returns to the hedge fund industry. And so you had a much lower fee structure than the typical 2 in 20. And when you look at how hedge funds have performed over time, a lot of times people look at the net of fees returns to hedge funds. And of course, the problem with that is that they're taking off hundreds of basis points in the fees. If you were to look at the gross of fees returns of hedge funds, typically what you see is you see strategies that in aggregate are better than stocks over the last 25 or 30 years, with about half the monthly volatility and about a third of the drawdown. So that's the sort of return profile that could be quite compelling for many investors, assuming that they can get access to it at a much lower price structure, much lower management fee structure. As for our institutional product, what we're trying to do is deliver a product that's competitive in the hedge fund space. And typically, those sorts of products that are competitive have low correlation to 60-40 and have a good product in that space is, you know, delivering net of fee sharp ratios that are expected to be above one with, you know, above 10% returns. And so that's what we're trying to hit on the institutional product. And on the ETF, we're, we're mostly trying to hit that aggregate hedge fund industry return.

Lincoln: Gotcha. And so how much are you managing in both of these product sets right now?

Bob: Yeah, I mean, first of all, the business has only been around for less than 18 months. Our first product, which was the ETF product, currently has just over $40 million in it, which is quite, we like to think, quite an accomplishment given the fact that hedge fund managers have navigated the last year in a way that's much more conservative than how index investing has gone. And so that is, I think that's a testament, the dozens of independent financial advisors that are invested in that product, I think it's a testament to the value proposition that that product offers. And on the institutional product, we just kicked off that process recently and have our first client relationship in the last month.

Lincoln: Excellent. Excellent. And so what does the future look like for unlimited? Uh, you bring in multiple products to sets or you just optimizing the ones that you have right now, or what's kind of the, what's kind of the roadmap for your firm?

Bob: Well, I mentioned that what we're trying to do is build a set of two and 20 index replications that make those strategies available at low cost for every investor. And so when you think about the advisor-directed retail investments, what we see, our first product that was out there, the aggregate hedge fund industry, ETF was really focused on creating sort of a standard benchmark or index-like product at a low cost for every investor. Our next steps forward on that and that side of the business is we've actually filed for and gotten approval from the SEC on a suite of underlying sub-strategies, so not just the aggregate industry return product, but actually all the replications of the underlying sub strategy. So things like equity long short managed futures fixed income managers global macro those different pieces because often when we talk to advisors what they say is that they're interested in putting together They might have an equity long short manager they like, but they don't have global macro coverage. And so they'd love a low cost index fund for global macro or vice versa. And so we're going to make those individual pieces available for every investor. And then over time, what we're working on is not just, we've talked a lot about that sort of hedge fund approach that we're doing. Over time, what we expect to do is to create replications or we've already started working on replication strategies for liquid private equity and liquid venture growth to sort of round out that whole two and 20 world of low cost index replications.

Lincoln: Gotcha. Okay. Fascinating. We're going to come back to this. I want to dive deep into, you know, some of these products and strategies, but first let's take a step back and I'd love to hear a little bit about how you got to this point. I'd love to hear more about your, uh, your time at, uh, Bridgewater, uh, and you know, some of the things that you learned and applied there. Uh, why don't you take us back a little bit about kind of your, your career and how you got to where you are.

Bob: Well, I always like to mention that my career in investing certainly didn't start with an academic experience. I was a botanist in my academic experience with actually an interest, a personal interest, in development economics and public health. And through that experience, I sort of increasingly recognized that macroeconomic dynamics are, frankly, a big driver of how public health, growth, economic outcomes occur for most people in the world. And so that got me interested in macro, not an academic sense, just a curiosity about how development works. And so I went to Bridgewater really with the intention of just being there for a short time and kind of getting paid to learn a lot about how the macro economy works. And really through that time fell in love with markets and macro in a way that has kept me passionate even to this day about what's going on. And I think a big part of why I find it particularly interesting is I think you can see the macro economy as sort of a big complex system that you're constantly trying to learn and understand. particularly from the sciences background, that really resonated with me. And one in which the sort of truth can be seen on a day-to-day basis through the lenses of the asset markets. And so that's kind of an interesting experience, because you can actually get that real world feedback. Like, do you understand how the world works or not through that perspective? And so that got me really into sinking my teeth into macro. And then also my time at Bridgewater really deepening my understanding and approach related to systematic investing, which I think personally find very compelling in terms of developing investment strategy really focused on systemization. And the reason why that is is that investing is not just an understanding game. Frankly, it's a head game. And the head game is being able to effectively execute your game plan day in and day out. Because if you have edge and you can keep betting that edge effectively, and you can bet it over many markets and over time, odds are you'll do pretty well. Sometimes randomness will go against you. Sometimes it will go in favor. But if you can keep on the field and keep betting based upon your edge, you can really succeed over time. And I found, you know, I really clicked with systemization because it really is a great way to reliably and in a disciplined way, follow your edge when you're thinking about markets. So really stuck my teeth into that. And basically those approaches, the deep understanding of macro and how investing works and how managers work with the systematic investing is really at the core of what we're doing now at Unlimited.

Lincoln: Hey guys, thanks for listening.

Bob: As you know, we don't run ads on this channel, so if you could really help me out, if this podcast has added any value to you or your business, please subscribe, rate, and review. I would appreciate that greatly.

Lincoln: Thank you. OK, so let's talk about systematic investing there a little bit. So you are developing rules and processes in your investment decision that you're going to apply irregardless of maybe global macro trends and strategies. Talk to us more about how you actually apply a systematic approach to investing.

Bob: Yeah, so I think our replication technology, I think, is a really good way of thinking about systematic approaches. In many ways, what are we trying to do? We're trying to understand the exposures that hedge fund managers have on from a bunch of different hedge fund styles. And the way that we do that is we look at the returns of those managers, and we compare them to the asset markets they could be invested in. And we essentially back out. how they're positioned using machine learning approaches. And one of the way to contrast a systematic approach from a discretionary approach, if I was trying to do that in a discretionary way, what would I do? I'd pull up the returns. I'd eyeball them. I'd say, my gut's telling me these managers are long this and short that. And I'd probably be kind of right over time. But what a systematic approach does is it says, instead of doing that in each month or day, continuously trying to eyeball it and make a gut feel based upon my understanding, take the decision making that I'm essentially doing. What are those heuristics that I would use in a discretionary process? And take that understanding and write it down. and write it down in a way that basically takes in inputs, in this particular case, asset returns and manager returns, and runs the sort of calculation approach that I would want to do in my own head, and frankly, runs it a lot better than I can do in my own head, because there's just a lot more computing horsepower that you can apply to these sorts of problems than what I can just sort of come up with in my mind at any point in time. and then comes up with an answer at any point in time that is not just the computer running on its own. What it's intended to do is reflect the best, most disciplined understanding of the decision rules that I'd like to apply to that problem. And so that's literally what we do. We've created a technology that seeks to replicate these managers' returns. And I think the thing that's really compelling about that way of thinking is first, it has the discipline. So you don't get distracted by this thing or that thing when you're trying to meet your investment mandate, the distraction of the day-to-day incremental information, right, where I could, you know, read this piece or that piece or Bill Ackman is positioned this way or that way. I could say, you know, if I was doing it discretionarily, that might influence my views. in a way that is inappropriate relative to the information value. So it helps with discipline. And then the other thing it really helps with is leverage. One of the challenges of being a discretionary investor is there's so much information out there. But by systematizing your approach, what it allows you to do is the day-to-day, essentially what you know already, is reflected typically in that approach and allows you to spend more time triangulating whether what you understand is right or wrong and evolving the way of decision making. So there's a lot more learning, like systemization is beneficial for learning more than anything, discipline and learning.

Lincoln: Okay, so how you know you've alluded to this several times. So you you do in indices on other alternative asset strategies. So like, you know, a hedge fund, you alluded to long, like a long short, maybe an activist approach like Bill Ackman. So I think You know, the premise of this all comes from good data, I assume. You know, so where are you getting your data, you know, your source data to track and trend on these other alternative asset managers?

Bob: Well, I think the great thing is there's a ton of data available on how these asset managers are, what their returns look like at any point in time. There's, you know, six to eight different performance aggregators in the hedge fund space. There's many, you know, there's a half dozen performance aggregators in the private side of 220, like, you know, venture capital, private equity, private credit, et cetera. And the reason why that is is, you know, and if you look under the hood, basically every fund that you know is reporting to one or more of these different indices. And the reason why that is is because all of the funds interested, all the funds involved in the industry want to be able to have that sort of universal benchmark that they can point themselves to, right, compare themselves to. And so through that sort of collective action, basically we have that good really, that set of data that we otherwise wouldn't have available to us to really understand how these managers are positioned, or how these managers are, what their returns look like at any point in time. And so that's what we're leveraging to get that understanding. We see some of that information on a daily basis, as well as very high quality information on a monthly basis as well.

Lincoln: Gotcha. So from an index perspective, how are you actually able to replicate their returns? Uh, you know, it's not, are you going out and you're taking the same positions that these funds are taking? And well, yeah, first answer that, you know, like, are you, are you taking, go ahead.

Bob: If you think about it, at least on the public side, on the hedge fund side, there's $5 trillion of hedge fund assets out in the world. And that's a huge amount of investment capital. And if you think about that, what that means is that even though any one fund might be invested in some bespoke idiosyncratic security, to invest $5 trillion of capital you basically have, you can only invest in the 60 or 80 most deep liquid markets in the world. Because otherwise, the markets are just too small to absorb a significant, you know, that significant amount of capital. And so we identify the largest liquid markets that are most relevant to a particular strategy. So you can imagine a global macro manager, you know, they're investing in currencies and commodities and fixed income and equity indices, et cetera, versus an equity long short manager that might think about things from the perspective of, say, you know, stock sectors or factors or geographies or things or size, things like that. And so but you put that together, it basically adds up to, you know, somewhere between 60 and 80 of the major liquid markets in the world, basically explains all the inevitable risk taken by these hedge fund managers.

Lincoln: Gotcha. Okay. Crazy. Fascinating. Um, so the, the name of this podcast is, uh, you know, called funds that one, uh, where we, where we interviewed, you know, different investment managers across the alternative landscape. And so I, I do want to ask you the question, Bob, you know, in your opinion, what makes a fund win?

Bob: Well, I think it comes down to the value proposition more than anything. And because you can get lucky, or you can get unlucky, and you can be good, or you can be not good. But what does the investor actually care about? And what they care about is the value proposition. And what I mean by that is, what is the nature of the returns that they're seeing, frankly, relative to what they're paying? And I think in a lot of ways, what we see in this industry, in the hedge fund industry, I'll focus on in particular, is that there are a lot of people who are paying very high fees and getting something that is not that great, net of fees. Right, I always like to talk about, you know, let's just say we took the generic 10% returning hedge fund, 10% target returning hedge fund. Well, that 10% target returning hedge fund, first, you've got your two and 20 fees. So let's bring that down to six, right? Then you've got a situation where, let's say, if you're a taxable investor in these products, right, the government's taking half, let's bring that down to three. Then let's say you've got an advisor who sort of got you into this product. They're taking one. And then maybe there's some platform fees or something like that in order to get into a particular funds, you know, through the various distributors. So maybe 50 basis points, 25, 50 basis points. Now, hold on. What we've done now is the person who's put their capital on the line has paid the manager, the government, their advisor, and the platform distribution all before they have collected 1.5% or 2.5% net of all of those different folks getting paid along the way. 1.5%. Now think about that, right? 10 to 6, to 3, to 2, to 1.5. 1.5% is the net of fees, net of taxes return. And that's all that the investor cares about, right? Investors only care about their net of fees, net of taxes outcome, because that is what they have in order to build wealth. And so when I think about what this industry looks like, it has, particularly for taxable investors, a fee problem and a tax problem. And so how do you start to develop strategies and how do you win in this environment is by addressing those two key issues. And that's really what we're focused on with this idea of diversified low-cost indexing in 2 and 20, which is to say, cut the fees down from 2 and 20 to under 100 basis point management fee, and cut the taxes down by structuring these portfolios in something that is much more tax advantage for the everyday taxable investor. And when you do that, that changes the fundamental economics of the whole picture, right? And puts these strategies much more on par with what you'd get from traditional index investing, or frankly, better.

Lincoln: Okay. Let's, so let's break this down. So you, so what are your fees then? What, what, what fees do you pay?

Bob: For our publicly traded product? It's, it's under, uh, it's 95 basis points of a management fee.

Lincoln: It's about a 1%. Okay. So let me, let me ask you this question. We're going to, we're going to break away from your fund a little bit. I want to talk, you know, kind of industries here for a second. So the private markets, why, why would an investor go to the private markets instead of the public markets?

Bob: Well, I think, you know, why does the investor go to the private markets? What they're looking for is differentiated returns that improve their risk return profile. That's what they're trying to do. Anyone can buy 60-40, right? 60-40 costs literally zero and has, you know, immediate liquidity and serves as the foundation for basically every investor when they're thinking about, you know, what the sort of core portfolio element is, core portfolio holdings are. at any point in time. So then the question is, what are the assets, the incremental assets, that meaningfully improve holding a 60-40 portfolio? And that's really where something like Diversified Alpha, hedge fund style strategies, have the opportunity to improve investors' risk return profile, right? And in particular, reducing the volatility of their portfolio without giving up meaningful return, if you look at your traditional hedge fund, investment returns.

Lincoln: Okay, let me ask you this question, then I'll promise I'll group them all together. So where do you see the future of the alternative landscape, going future of alternatives over the next, let's call it two decades, 1020 years?

Bob: Well, I think there's going to be a huge fee rationalization in the industry. If you think about the industry as it stands right now, there's something like, you know, 13 trillion dollars of assets and 700 billion dollars a year in fees paid to these managers. If you add that up, what that means is a 5% annual fee on average across 2 and 20 managers. That's hedge funds, venture, private equity, private credit, 500 basis points a year. And the amazing thing, the really amazing thing about it is that the industry as it stands today literally looks the same as it did 40 years ago. Right? Hedge funds, they're basically charging $2 and $20. Instead of $2 and $20, maybe they charge $1.45 and $16 today. But look, the basic economic structure exists. And it's basically highly paid PMs who are earning that fee structure. Look at venture capital. It's the same thing. GPs looking, entrepreneurs in the eyes, and hoping to divine whether or not they're likely to be successful. Looks the same today as it did 40 years ago. Same with private equity, buy the company, cut the cost, put in the leverage, try and get out of there in five years, right? Like same exact basic scheme. You know, there's been some improvements, some technology, some of this, some of that, but the basic economics, The basic economics of the business haven't changed. And so that's really going to be the question, which is how investors are going to increasingly refuse to stomach paying such exorbitant fees when their net of fees, net of taxes outcomes are so weak. to an industry that's basically become complacent, that just looks the same today as it did 40 years ago. And so my guess is what we're going to see is a big divergence in the market. There are managers that justify high fees, absolutely, that generate consistent alpha over time, that justify the fees that they're charging. Those folks are probably going to get bigger and better. And then there's going to be a huge swath of the industry that frankly can't compete with replication technology, like what we're building. And those managers will fall out of it. They'll lose. They'll lose because investors will look and say, why would I take a chance on an underperforming manager and pay those incredibly high fees when I have something over here which is liquid, low cost, tax efficient? And that will set the new benchmark for what you can get cheaply and efficiently versus something special on top, just in the same way old equity mutual fund managers are dying a slow death because index investing has beaten them out of their game. We'll see the same thing in 2 and 20.

Lincoln: Gotcha. But if everyone does in indices and index funds, there's going to be nothing left to index.

Bob: Oh, if we get there, I'd say there's two things. First of all, if we get there with our indexing, if let's just say a few trillion of that $5 trillion in hedge funds ends up being indexed, we'll be OK. I'll be long gone if that happens in terms of building this business. That's the beauty of the asset management business. It's a hugely scalable business. A $10 billion AUM business is wildly successful and represents just a teeny tiny portion of a $5 trillion industry. So there's a lot of room for replication to come in and be very successful without disrupting the overall industry. But I also think to the extent that replication is able to outcompete existing low quality managers, that actually is a good thing. for the replication process. And that's because bad managers falling out of the index will no longer be replicated, which means those folks who are focused on replication will be focused on higher replicating higher quality managers and creating even better returns through the replication process. And so the death of poor quality managers is actually good for the replication industry, not bad.

Lincoln: So do you think it's better for retail investors to allocate? I mean, obviously, this is probably a pretty loaded question, bias in your favor. But you would prefer that the retail investor utilizes public products, like ETFs or something, to get their alternatives exposure? Well, the institutional grade maybe works more with direct investment and allocation to alternatives. Is that an accurate statement? Is that kind of how you

Bob: Well, I think the right way from a portfolio management perspective is to build a low cost diversified portfolio of alternative managers where the fees that you're paying are justified given the returns that you're getting. And I think one of the really interesting things about the industry is if you let's go to the institutional managers. What are the most sophisticated institutional managers doing? What they're doing is that they invest in a lot of managers. They could do anything. They have all the capital in the world. But what you see these managers do, say big sovereign wealth funds, big publicly reporting sovereign wealth funds, what they'll do is they'll invest in 50 hedge fund managers. They'll invest 20% of their portfolio in 50 hedge fund managers. And the dirty little secret is, because they have so much capital, what they do to each one of those hedge fund managers is they tell them, we're not going to pay your 2 and 20. We're going to pay a third the fees, because it's going to be worth it to you, right? Because the incremental dollar doesn't take that much more effort. And so what they're doing, what the institutional investor is doing today, is building a diversified low-cost index product of direct investments into these managers. Right? It's just that they have the capital available to force that to happen. And so all we're saying is, hey, that is the right way to manage money. Right? It makes sense. Institutional managers have seen this way of working. And I've worked with some of the biggest, the most significant sophisticated asset managers in the world and seen this up close. Why not take that idea? That is, that is the right way to manage money and just make that available for the everyday investor. And that's really what we're trying to bridge. We're not, we can't go to all these individual funds and beat them up on fees because, you know, we don't have three, $300 billion to invest in these funds. But instead what we can do is we can use technology to create something that looks a lot like what the institutional managers are doing.

Lincoln: Interesting. So they basically, you're saying these, these, these bigger funds are leveraging their big check sizes to negotiate down fees, uh, to basically create their own index funds themselves.

Bob: Uh, that's exactly what they're doing because they have the power to do it. And if you're, if you're a fund, you know, a major name fund, if someone's like, well, how, you know, first, I'll invest a billion dollars in you. And you're like, okay, that's a great deal. And they're like, how about essentially, for free, I invest $2 billion for you. And you're like, well, you know, like, you know, I'll, you know, if that's, if that's the deal, then, you know, the incremental cost of running between a billion dollars and $2 billion for them, for any asset manager isn't that big a deal, right, you'll take the deal, and they effectively get because of their economies of scale, much lower fee points than would occur for, you know, for a small scale investor. And this is the problem for a small scale investor. Yeah. Is that a small scale investor, you know, they're paying rack rates on these, you know, if they have access, if they're qualified and can invest in these things. The problem is they're paying they're typically only investing in a small handful of funds. The ones that they have available to them have negative selection bias, because who's taking $200,000 checks? That's not a good indication for funds to be taking those sorts of checks. They're being charged rack rates of $2 and $20, and they're being charged platform fees. So what the everyday investor is getting that could invest in these funds is they're getting the exact opposite of diversified, low cost, tax efficient, exposure, they're getting high cost tax inefficient, you know, highly concentrated exposures. And that's what we're trying to bridge that gap between how the institutional asset managers are operating and how and what is available to even I mean, frankly, not not just every investor, but even, you know, relatively wealthy investors, right, who are still stuck in concentrated two and 20 style funds.

Lincoln: Yeah, no, I gotcha.

Bob: Hey guys, so if you want to learn more about investment funds, how they work, how they're structured, if you want to become a fund manager, how I became a fund manager, visit our YouTube channel for more free value. The link is in the show notes. Thank you.

Lincoln: Well, first, first point on that, on this thread, is that have you seen the SEC new private letter ruling where on side letters, you know, with these big LPs that they basically now, if an investor offers it to one individual, they have to offer it to everyone type thing. How do you think that's going to affect, you know, the industry?

Bob: Well, I think a lot of those things around transparency, particularly transparent information being distributed to all stakeholders in a fund, I think is a really good thing. And look, I come today from the 40 Act world where transparency is is a requirement right daily transparency is a requirement and the assets are held by a third party in a third party trust right to ensure that you know we don't as a manager We don't touch the money directly in a 40 and no manager touches the money directly in a 40 act product. And the reason why that is that structure exists is is is for the good of the investor to ensure that there is independent oversight on the funds that are being deployed. Now, that is strictly a benefit for the investor. And for so long, what we've seen, particularly in private vehicles, is an attempt to obfuscate positioning, information, holdings, all of that stuff. And there's a reason why fraud exists in private funds and not in public funds. Because private funds have lots of different ways in which they can obfuscate their positioning, their securities, their holdings, all of that stuff. Public funds regulated under the 40 Act have no similar ability. to hide what's going on. And so it is strictly in the best interest of the investor to move towards a structure where increasingly they have access and confidence to the information available to what's going on with where their money's going, right? That is a good thing for the market. Why are hedge fund managers, you know, objecting to this? Because I don't want to do the work. Well, like, look, take it from a guy who's in the 40 act space. Like that's the trade off. You get the trust. You have to put in the work, but the benefit is huge because you get the trust. People will trust what you're doing in terms of your strategy.

Lincoln: Love it. Bob, speak to me on the real here. How hard is it to go out and start a fund?

Bob: Maybe that chuckle gives you a little sense as to what it's like. I'd say two different things. One, particularly in the ETF space, it's never been easier to create a fund that can be available for everyone. There's been, for two main reasons. One, there's been a real expansion in ETF white label providers, where fund managers can basically hire specialists who do the operations. related to ETFs at a pretty low cost, all things considered, to launch funds and put them into the market. And the great thing about an ETF through most of these white label providers is that once they're launched, they're available on your Robinhood account, on your interactive brokers account, all of those different places. Those products are readily available. So we've had a real ability, a real shift uh in the access of if you have an idea that could be good make make a good etf or 40 act product you can get it to market way more cheaply way more efficiently than you ever have been able to do and then the second thing is there's been a bunch of regulatory changes which most of which went effective in 2001 and were missed by many people because it was COVID and stuff like that, which allows you to run a lot more sophisticated strategies in the ETF wrapper without getting special approval from the SEC. Now, ETF nerds can dork out on this topic for hours and hours, and trust me, I love hanging out with them. They can, but I will spare you the details other than to say as long as you institute, frankly, institutional quality, reasonable risk controls, and have transparency into what your funds positions are. I think there's basically a lot of flexibility today to run sophisticated strategies. The flip side of this whole thing, which is a lot easier access to run more sophisticated strategies, is that there's now a lot more funds that are getting out there. Right. There's 3000 ETFs out in the market. How do you differentiate what you're doing relative to others? You know, if you're the 78th dividend weighted ETF, it's it's a real challenge. And so, you know, the space is really about how do you create a product that is unique and differentiated and that provides a unique value proposition for for investors? And then how do you get the word out about what you're doing? So, you know, with great access comes great challenge.

Lincoln: Yeah. So I have all these new managers that I work with all the time. And they have an investment strategy that they've spun out or that they've been working on for a while. And then they want to take it to be an investment manager. And I always tell them, I'm like, look, you can either go private and set up a private fund, Reg D. You could go public. But I always tell them that to start a public product is going to take way longer. It's going to be way more money. Uh, in startup costs and it's a lot more of a compliance headache, but ultimately, you know, once you get it up and running, then, you know, you can scale a lot faster. Um, what would you add to maybe advice as, as, as emerging managers are deciding whether to pursue, you know, or execute on their investment strategy via public vehicle, like an ETF versus a, a private fund.

Bob: I think it really comes down to your ability to generate interest in your product. So if you think about the white label provider costs these days, you can get basically most of them, you get to break even in terms of the operational expenses at about $25 or $30 million AUM. And so the question, I think, for many investors is, do you have a clear path from where you are today to that sort of AUM threshold? And then, of course, beyond that, you start to make incremental profit on the particular product. And that path is not necessarily obvious, right? Not every investor has the ability or the game plan to go raise that sort of capital amongst the public market, in the public markets. And so I think if you're talking about a very small scale investor, that's really the question. Do you think you have a path? uh, to get there or not, because if you don't get there and, you know, you, you are trying to build a track record with a publicly available product for a period of time in order to then, you know, make a good, a better case for what your strategy is. You can frankly lose a lot of money along the way, a lot of operational costs along the way as you're launching the product. And so in that case, if it's not obvious. how you're going to get there. Thinking about SMAs or a very small fund structure is probably a slightly more efficient way to operate until you get the economy of scale. The reality is when you get into the public markets in particular, It's about the quality of your investment product, but there's lots of great investment products. It's also about your ability to do marketing, sales, and distribution. And I won't pull any punches to say that a big part of my day-to-day is not is that exact activity, marketing, sales, and distribution. So if you're a person who's like, look, I'm a fund manager who loves running money, but I hate talking to people, a public product is not the right product for you. If you're not willing to go out there into the market every day doing that sort of sales and distribution activity, it's not the right space for you. But for me, I really love it. I love interacting with, you know, the world and on Twitter and YouTube and social media channels we've been able to create and get interested in, which is, you know, meeting advisors where they are and talking to, you know, fascinating advisors with, you know, interesting client circumstances that I, that I think is very exciting and enjoyable, but you really have to be ready for it. And if you're not ready for it, it's not going to work.

Lincoln: Yeah. Uh, what advice do you have for someone who's just starting out?

Bob: Well, I mean, I think my biggest advice is get on the field. And that is the world has changed a lot in the last couple of decades. If you go back 20 years, if you were a small scale fund manager, you just didn't have access to institutional quality infrastructure to be able to start to run relatively sophisticated strategies. you know, today, just think about it, like, if you, you know, if you want to test out a strategy, you can go open up an interactive brokers account in, you know, five minutes, and have access to every essentially every security in the world, right. And, and that is, that is an incredible, incredible, opportunity, that means that if you've got an idea or a thought and you can start running money on it, you can easily get access to at least the ability to start running those strategies, again, for the vast majority of investors. Of course, there's idiosyncratic stuff maybe you can't do. But you can get on the field relatively quickly. And I'll tell you, having been in the investing space for a couple of decades now, There's also no better learning that occurs than when your money's on the line, right? It's very easy to speculate what's going on. It's very easy to build, you know, simulations or make paper trades. Like, there's nothing like that first point where you open up the book and you're like, you're down, you know, 2% on the day and you're sitting there going, OK, now, now, now we're going. Yeah, there's no better learning in this world than losing money. And I fortunately made many bad trades as a as an early an early investor, which taught me a lot of humility in this business. And so, you know, thank God it happened then, because it definitely was a lot of help through the course of my career.

Lincoln: Bob, how'd you end up, like, how'd you develop the courage to step away from, you know, a great job at a big firm? I mean, there's so many people, you know, probably listening to this podcast and out there that have, you know, got the great job, they've got a great salary, and, you know, it's time to, you know, to build up the courage to separate and, you know, run your own business and your own investment practice.

Bob: Yeah, yeah. I mean, I think, you know, for me, I, I'd always enjoyed being in entrepreneurial environments. Actually, my father was an entrepreneur for a long time. And so it's funny, if you look at studies of this, the kids of entrepreneurs are like multiples time more likely to become entrepreneurs themselves. And I think that's because you see the great aspects of it. Let me say, it's not all great. You know, there's a lot of hard work, as anyone who you talk to has been an entrepreneur before says. But I've always been drawn to that, even when I was in high school and stuff like that. And I went to Bridgewater at a time when it was very small and it was a challenger. And for me, I really wanted to get back to that. back to the small environment, everyone can fit into one room who's trying to hash things out, and really get back to that sort of challenger type mentality. It's very, very hard to be a real challenger if you're sitting inside a big institution. And so if you're sort of drawn to that idea of you know, if you're drawn to innovation and challenging the status quo, then there really is, you know, very few organizations truly value that, because by definition, the large organizations are, you know, are the status quo. And so it's really about that personal motivation. And I'll tell you, I'll tell you the I'm working harder today than I've ever worked in my career. And I've worked damn hard in my career. And nonetheless, it's a lot. more fun and enjoyable because it's a mission. It's a clear mission to try and do something innovative with people who are around me who are really passionate about that same thing. And I'd also say in industry, the ETF industry, that really by definition is the David taking on the Goliath of the asset management world. And so that part is really fun as well. The ETF industry, for those of you who aren't involved in it, is so incredibly collaborative and supportive and positive in a way that Let's say the hedge fund industry typically doesn't exhibit that those sorts of properties.

Lincoln: Yeah. Let's see. Did you start this business with partners or did you go on it by yourself?

Bob: Yeah, I had a couple of co-founders that my day-to-day co-founder, Bruce, was in the hedge fund business for many decades as well, as well as some old friends from both Bridgewater and college who helped stake us and helped develop the original business plan. So I think it speaks to, you know, part of the success of getting a business off the ground is also recognizing that you, you know, you're going to need help. Yeah, like that's the reality. Any person who is likely, you know, even a person who's super skilled in one particular area, there's a lot that you're not going to know. And building a good team of partners and advisors and initial capital and things like that is so incredibly useful. I think the world is super focused on this individual entrepreneur you know, single, the single man entrepreneur, right? Traditionally, man, the solo entrepreneur, as if that is how this works. And that is not how I mean, even if you talk to those folks, that's not how it works. The success of these businesses is built on teams, teams of people who are committed, who bring diverse sets of skills to a common mission. And even though that one person may be out there as in the limelight, so to speak, the functional reality is that anything, any enterprise that's successful starting from scratch is successful from a group of people coming together you know, internally and externally when it comes to partners and things like that, getting things off the ground.

Lincoln: Love it. What a fun conversations. We wrap up a couple, uh, just personal questions here. Uh, any, any, uh, either personal or professional habits that you feel like have contributed to your success?

Bob: Yeah. I mean, I, I think, um, part of, uh, what I did, uh, a lot at. at Bridgewater and I think really shaped my way of thinking as an investor is having a lot of discipline about thinking about what's going on in markets and then writing those things down. And I'm talking about markets because that's what I'm working on and on a day-to-day basis, but I think the idea is very pertinent to basically anyone who's in a knowledge style industry and a fast evolving knowledge industry, which is, you know, for me, every day, you know, I wake up, I look at the markets, I try and understand what's going on. I am curious about it, and I write down the things that I'm seeing. And actually, I think when I was at Bridgewater, it was for the widely read Daily Observations, which is an institutional research piece that gets read by many of the clients and passed around. And after I left, finding that opportunity to do the same thing in places like Twitter and YouTube, where it's building that conversation, the forcing mechanism of writing down your thoughts, And then being open minded to getting the feedback on why those thoughts might be good or bad or what you might be missing is really been sort of central to what I'm doing so it's it's almost you know to developing as an investment professional and so it's it's kind of funny like I it's almost like I can't get out of the habit. Like how do I understand what's going on in the world and managing money and on a day-to-day basis? It's just doing that same thing day in and day out. Wake up, look at the markets, ask questions, explore ideas, write them down, get feedback, wake up the next day and do it again.

Lincoln: So when you say look at the markets, like when you wake up every day, like what are you doing? You go to Wall Street Journal, you open up your interactive brokers portal, you open up Bloomberg, like what are you consuming on and what are you looking for specifically every day?

Bob: Yeah, I mean, I think if we tie it back to earlier in this conversation, markets are a lens of what's going on in the global economy, the macro economy at any point in time. And so what I'm doing, I mean, just very functionally, there's lots of totally free resources that are out there, is opening up my Bloomberg app and looking at the market action across all the major asset classes in the world, currencies, commodities, fixed income, You know, equities and saying and looking at all that market action and trying to under trying to think through what is this combination of of dynamics that are going on in the world today that would lead to that combination of market outcomes. So maybe it's a European inflation report comes in weaker than expectations, or maybe it's there's increased geopolitical conflict, or maybe it's a hot jobs report. What are the things that are going on that drive that market action and essentially solving for that process? If we talk about the habit, that's the habit more than anything I've done literally every day for 20 years. that has helped deepen my understanding as a market professional. And often, so I'll look at Bloomberg, which is, you know, whatever the Bloomberg app on your phone is pretty good in terms of giving you the major liquid markets. And it costs, I don't know, a couple hundred bucks a year to get access to all the market pricing on your phone. You don't need a terminal to basically know what's going, you know, to know what's going on. And then also I use Trading Economics, also free, Uh, as well, which gives a really good, rich understanding of all the major economic macroeconomic releases, uh, that are going on in the world. Um, they have a calendar function, very efficient and, you know, every morning, uh, you know, uh, that, that's what I'm looking at. Those two things.

Lincoln: How long are you looking at that data for?

Bob: I mean, usually I'm looking at it for a relatively short period of time, you know, five or 10 minutes just trying to get a scan of things. But what I'd emphasize is it's not just that five or 10 minutes, but it's that five or 10 minutes and then thinking about it and then writing about it and then getting feedback about it in order to sort of square that circle of you know, really trying to richly understand what's going on and and and getting that thought set of thoughts out there and then getting the feedback. Now, of course, any one day I might write about one particular topic or another. But, you know, over time, essentially continuously in that conversation about trying to understand what's going on and what is likely to transpire in the future.

Lincoln: Excellent. Love it. Love it. OK, last question. On the flip side of that, what are some either personal or professional pet peeves you have that people do?

Bob: Oh, pet peeves. Probably my biggest pet peeve is shading the truth. Asset management, it's a business of trust. There's lots of ways in which the people who are sitting at the table, like ourselves, the asset managers, are in a highly advantaged position when it comes to their understanding of the markets and when it comes to understanding the strategies that they're talking to investors about. And from that advantage comes a lot of privilege and responsibility to act in the right way towards the clients who may not have nearly as much understanding as you do. And there is, it is easy in this business to misrepresent what the reality is of an investment strategy or a set of outcomes, or the likely success of investment strategy, etc. And, and that is breaking your fiduciary responsibility to the client. And so, I mean, just the other day, I was looking at something and I and I and I said, I would rather fail and be honest than shade the truth and succeed. And in this business, if you're not willing to adhere to that principle, you are not acting in a way that is responsible to the client. And so every single decision you make comes down to that. Are you doing what's in the best interest of the client and what is as closely adhering to your best understanding of the truth? Or are you shading things for your own personal advantage and way too often in this industry, people are doing the second and that. It's hurting the clients on the other side.

Lincoln: Love it, Bob. Thank you so much for being generous with your time and coming on and talking about unlimited. It was a, it was a great conversation.

Bob: Thanks so much for having me. It was a lot of fun.

Bob: All information shared are the sole thoughts and opinions of the author. Do not take any information as legal or financial advice. You should seek a certified accountant and a professional legal team before taking any further action. We are not selling or soliciting a security in any way, shape or form. This content is for educational purposes only and is not to be construed as financial or legal advice. Clients of FundLaunch or Black Card Capital Partners may maintain positions and securities discussed on this podcast.