Investment Titan Rethinks the Active Management Model

Published on
June 12th, 2019
Duration
84 minutes

Investment Titan Rethinks the Active Management Model

The Interview ·
Featuring Peter Kraus and Grant Williams

Published on: June 12th, 2019 • Duration: 84 minutes

Peter Kraus, chairman and CEO of Aperture Investors, analyzes the enormous misalignment of incentives in the active management industry, and reveals how he plans on combatting the secular rise of passive management. Kraus discusses his former career as head of Investment Management at Goldman Sachs, his experience behind closed doors with Hank Paulson during the financial crisis, and his time as CEO of Alliance Bernstein, in this unique interview with Grant Williams. Filmed on June 6, 2019 in New York.

Comments

Transcript

  • JS
    John S.
    20 June 2019 @ 22:15
    The government got their money back for a bridge loan to wreck less and soon to be bankrupt fools and the fools got to keep the equity. Yeah, no moral hazard there! Anger is not at Wall Street is not misplaced. Self preservation was priority number one in the back rooms.
  • AC
    Andrew C.
    19 June 2019 @ 09:51
    I was surprised (and disappointed?) that Grant said "sure, sure" (instead of really pushing-back) to "You want people to actually-- meaning investors who are watching this-- to actually believe they can if not predict what you're going to do, at least not be surprised by what you're going to do. Because the surprise element creates a lack of confidence and lack of confidence creates volatility. And then it's much more difficult to create the stability that you're actually looking for." No we don't want "stability"; we want investors to cover their arses, and be aware that anything can happen. That way they are taking risks being fully aware what the downside really is (losing it all?). A measure of volatility all the way along means it doesn't build pressure inside the system, and we don't blow the world up (again). Regular small forest fires, and all that... I thought (and perhaps mis-understood) Grant wanted the Fed to just shut-up.
  • NR
    Nelson R.
    19 June 2019 @ 03:03
    I think this interview could have been better received if it focussed solely on the last 20 minutes (i.e active vs passive / beta vs alpha).
  • JV
    Jean V.
    17 June 2019 @ 15:32
    Very disappointing conversation. Calling Kraus a "titan" and covering him with praise and adulation, just seemed weird. The part on the GFC was comical. The discussion on AB, where as far as I know Kraus's results were disastrous, was strange. Finally, the disruptive business model, makes no sense, and seems only aimed at exploiting unemployed portfolio managers. Kraus completely contradicts himself by earlier criticizing the industry for focusing on short term performance and then setting up a business model where his managers are paid on short term performance. The incentives are all wrong. Surely, the business will fail but Kraus will come away with another big financial gain.
  • AG
    Alex G.
    16 June 2019 @ 18:12
    Great interview. Always appreciate the stories and industry insights from people that have been in the business for years. Thanks GW and PK. Keep it up
  • MK
    Mohammad K.
    16 June 2019 @ 16:00
    Did any one else hear the Grindr ringtone at 00:05:46
  • MK
    Michael K.
    15 June 2019 @ 21:46
    This man has a god complex and I felt reminded of the “reality force field” that Steve Jobs was described with as a model for his imposition of reality and conclusions when there were emergent challenging perspectives. It seemed clear that Grant squirmed a little, it reminded me of “being told how things are around here” across the decade I spent across primarily two investment banks. I’m dramatizing certainly, he must have great kindness and cooperation and self reflection too. But i got a little bit of the heebie jeebies. Sorry for being negative just gut feel.
  • SS
    Shanthi S.
    15 June 2019 @ 08:59
    Last part of the interview was great. Who could disagree with well aligned incentives all the way up? Sounds uncommonly sensible. Not so sure about the first part.
  • TE
    Tito E.
    14 June 2019 @ 20:19
    First sentence of Policy path post crisis section: "..and then the question was, well how do we re-engineer risk-taking?". Did he realise he actually said that out loud?
  • JB
    James B.
    14 June 2019 @ 15:06
    Checked in to Aperture and they only have one fund advertised on their platform. I think there is going to be a resurgence in active management. Index investing has problems. Investing in the whole market and not really giving a hoot who wins or loses in an industry is not how the stock market was designed. Activist investors are needed to keep management honest. Love the fee structure and I hope this becomes the standard model.
  • MM
    Matthew M.
    14 June 2019 @ 06:22
    The most uninteresting waste of time I could possibly imagine, did GW even speak? Make that money RV
  • GF
    Gordon F.
    14 June 2019 @ 04:26
    Although listed as a single interview, this really comes in two parts. The first part about the GFC was revolting, as he implicitly seems to equate saving the banks with saving the bankers whose corruption and criminality brought on the crisis, and a second part where he talks about a new investment model that really appears to be a massive improvement on the crumbling hedge-fund model. With regard to the first part, if common citizens had been unable to access their money for a few days - until emergency measures were worked out - we would have survived just fine as a nation, even if Wall Street was devastated. But the way they used public means - TARP, QE, etc. - to save the big banks and the big bankers, well, let's just say that my perspective on that is totally different than that of Mr. Kraus.
  • JH
    Jesse H.
    13 June 2019 @ 22:36
    On the one hand, Kraus is diplomatic, personable and well-spoken (vintage CEO). I initially got a good impression. On the other hand, as this interview progressed, I started to have major misgivings about his judgment and character. It is deeply troubling to me that he suggests (a) the lesson of ‘08 is that “collaboration in a crisis is essential” (mmm, yeah of course it is, but what he really means when you study his profile further is that “Collaboration”...among political and financial elites, even if it comes at the expense of the broader public...is “essential”); and (b) “populism is dangerous” — yeah, it sure as heck is dangerous if you’re a highly overpaid banker who benefited from what amounts to playing fast and loose with the public trust, effectively usurping taxpayer dollars, and then walking away with a nice, hard-earned “handshake.” What a crock - I’m sorry. I have the utmost respect for GW and RV, and love the work you do overall, but this interview made me so angry at a certain point I had to turn it off. Fewer “fat cats,” please - I don’t like to sound judgmental, but I am afraid this guy just rubs me entirely the wrong way, and the actions he and his associates took and were complicit in were utterly despicable, and ended up costing honest, hard-working Americans years of savings and indeed their very dreams.
    • JH
      Jesse H.
      13 June 2019 @ 22:43
      We all know where the “bail outs” went and why eg. The fine art market and NYC prime real estate market ended up seeing Weimar-level inflation. Indeed, the bail-outs went largely into financial markets and into the same banks who committed the sins which cost everyday Americans so dearly. These same top executives then walked away with colossal sums, which they used to become even more obscenely rich than they were previously. Even as an empathic person generally, I have little to no empathy for people like this. Their egos and lack of basic character are a large part of what is wrong with our world. They are part of the greater “oligarchy” at work.
  • BM
    Bryan M.
    13 June 2019 @ 04:56
    Sorry Grant but this guy is an ego ridden fat cat who thinks all is well as long as he is well. My opinion of course but I wouldn't trust him as far as I could throw him. So...how much did he pay RV for the airtime?
    • MK
      Michael K.
      15 June 2019 @ 00:43
      I agree with you but from body language and segueing I get the feeling Grant felt some of the similar misgivings. At the same time, RV is a platform for voices, and that gentlemen has a valid voice to hear from. And it is offered in the context of an uninterrupted interview with a nimble and tactful agency or Grant. Despite being neutral on this video, I’m thankful RV continues to print diverse content. I’m just as concerned about the hate and desire to censor “normie” “mainstream” “boogie” “elite” “globalist” etc voices. Everyone has a motive. We don’t have to silence those who aren’t woke in the way we think we are.
  • BM
    Bryan M.
    13 June 2019 @ 04:50
    Sorry Grant ok by
  • IH
    Ian H.
    12 June 2019 @ 23:23
    Brilliant business model.
  • AV
    Adam V.
    12 June 2019 @ 22:46
    Peter Kraus came into AllianceBerstein after the horrendous performance during the GFC and instead of cleaning house of under performing portfolio managers, he updated the executive floor and bought expensive artwork. That should give you a glimpse into his leadership. While attempting to pivot the firm towards Alts, he failed to realize that he should have been doubling down on the Berstein Wealth Management division. He also made a half-hearted effort to acquire some RIAs. Just some "inside baseball" for those that are interested.
    • LC
      Louis C.
      13 June 2019 @ 04:21
      "AllianceBernstein's Kraus Walks Away With $99 Million After Exit" https://www.bloomberg.com/news/articles/2017-05-01/alliancebernstein-names-jpmorgan-s-bernstein-ceo-as-kraus-exits
  • DG
    David G.
    12 June 2019 @ 21:54
    We need more thumbs up buttons here... sometimes one is not enough! 👍👌👏
  • AB
    Anne-Marie B.
    12 June 2019 @ 20:56
    Grant Williams does an amazing interview - and Peter Kraus has a new management model, that if it catches hold - it is going to be revolutionary - incredible for investors and only the cream will rise WITHOUT the measure of added risk. For those that turned him off early, they missed something big here - most enjoyable and will have to give it another listen soon
  • HH
    HODL H.
    12 June 2019 @ 20:22
    36 minutes in is where you lost me. Everyone lost everything but wealthy got to keep their inflated assets and Wall Street still got paid. I feel very bad for the people who lost all their equity gambling with 20x leverage. At least Peter got his $25mm https://blogs.wsj.com/deals/2008/12/22/merrill-lynchs-peter-kraus-collects-25-million-then-resigns/
    • CM
      C M.
      13 June 2019 @ 03:05
      Totally agree. I almost choked on my bourbon when GW asked PK about lessons learned from '08 and PK's immediate response was the Wall Street "did an exemplary job..." Good God. Where do I begin...
    • CM
      C M.
      13 June 2019 @ 03:08
      Say nothing of the grown man's RIDICULOUS socks. Is he 60 or 6? Seriously...
    • CB
      C B.
      13 June 2019 @ 22:51
      Can’t you proles understand we need global elites like PK to siphon off wealth via fractional reserve banking! In seriousness, what an incredible view into selfish psychosis that drove the outcomes of ‘08-‘09. PK’s lack of creativity around how that set of predicaments could have been resolved, is extremely useful as a tool for understanding the limitations of global policy makers.
    • RO
      Robert O.
      15 June 2019 @ 03:27
      https://www.khanacademy.org/economics-finance-domain/core-finance/current-economics/paulson-bailout/v/bailout-14-possible-solution?modal=1 Sal Khan received an e-mail from a friend in his Harvard Business School class who outlined a solution to the credit crisis that is much less expensive and does not have the moral hazard of bailing out the banking system. This was proposed in 2008 and Sal gave a CNN interview talking about this plan. https://www.khanacademy.org/economics-finance-domain/macroeconomics/macroeconomics-income-inequality/the-2008-financial-crisis/v/cnn-understanding-the-crisis
  • KC
    Kirk C.
    12 June 2019 @ 14:27
    His revisionist history of the financial crises led me to doubt everything that he said thereafter.
    • PE
      Per E.
      12 June 2019 @ 18:03
      Completely agree. Had to turn it off there..
    • HH
      HODL H.
      12 June 2019 @ 20:23
      Well said
  • JS
    John S.
    12 June 2019 @ 10:58
    Nothing is perfect he says..... And how about jailing a few bankers?
    • JM
      Jan M.
      12 June 2019 @ 21:53
      He’s 100% sales. And that’s that. Oh, the poor bankers lost their stocks during the GFC. Really?? What a poor guest on this otherwise great show.
  • SR
    Steve R.
    12 June 2019 @ 09:46
    Its refreshing to see alignment with investor's interests since the so-called "Wealth Management" industry is largely just a "Fee Generation" business, often at the expense of the investor. Great and insightful interview.
    • rr
      rlw r.
      12 June 2019 @ 17:45
      Steve , yes I agree with you the concept looks interesting & promising. A much better take than hammering on about who never went to jail last decade.