Chris Brightman Discusses the Investment Industry
The masters in business. Podcast is brought to you by Invesco every day at Invesco. We bring together ideas with technology data with inspiration and investors with solutions. Let's invest in greater possibilities together. Find out more at Invesco dot com slash together. You're listening to masters in business with Barry ritholtz on Bloomberg radio this week on the podcast I have a special guest and his name is Chris Brightman. He is the chief investment officer of research affiliates, better known as RAFI the firm, which is one of the prime drivers behind the trend toward smart beta or fundamental indexing as it is more accurately called a we go off into the weeds about portfolio construction what drives returns what are the best ways to approach. Constructing a portfolio a research affiliates their models. Run about two hundred billion dollars worth of offerings. This is quite a fascinating conversation. And I think you'll find it very intriguing. So with no further ado. My conversation with Chris Brightman of research affiliates. This is masters in business with Barry ritholtz on Bloomberg radio. My special guest today is Chris Brightman. He is the chief investment officer of research affiliates, whose investment strategies currently manage over two hundred billion dollars. He's previously, he was the board chair at the investment fund for foundations he was the CIO of the strategic investment group, and director of global equity strategy at UBS asset management, Chris Brightman. Welcome to Bloomberg. Thank you for having me. So that's a really interesting resume. You've worked at some very storied places. What I attracted you to the field of investment management. I arrived at my university for Jin tech having been accepted into the liberal arts school and after listening to. The dean of the liberal arts, school address the auditorium of new students explaining why you'd made the right choice. I approached the podium and said, I think I'm in the wrong place. I want to go to the school of business and without missing a beat or even seeming to notice, the irony. The, the dean said, oh, yeah. Well, you walk down three know buildings over that way. And, and I changed before I even began classes to the business program, mostly because I figured you have to understand this is the seventy s I wanted a job when I graduated, and I felt like majoring in business would would be more likely to lead to a job than liberal art that was right. But that's, that's what I did. And then I killed clearly works, right? Those finance because it was more interesting than accounting. And for some of our younger listeners, the nineteen seventies was a period of stagflation. High inflation and high unemployment. What was it like coming out of school into that environment? The I graduated in the early eighties. And the early eighties were an awful time, there was a nasty recession, and I was really lucky session. Yeah. Right. Eight hundred eighty two was horrible eighty three was a little better. And I was lucky to graduate in eighty eighty four and eighty five was boomtime great. But, but I graduated in eighty three and. What I think really got me into the investment management industry was an internship that I had with first ACOG. Oh, in nineteen eighty-two over the summer and my internship was with the institutional trust department at First Chicago, which later became First Chicago investment advisers, which later became Brinson partners. And Gary Brinson, the founder of Brinson partners, was one of my was really my first mentor in the business beginning in nineteen eighty two. So you will working on the endowment side of the St. how does the endowment side differ from working with retail investors and people with money as with 4._0._1._K's in IRAs, etc. I've had about a three and a half decade career thirty five years in the business of which I took a rather brief five year detour into the nonprofit area managing the university of Virginia endowment, and it differs in a number of ways, probably the most interesting to an outsider is the access that one gains two elite investment managers, how big was the endowment at the time. Little over five billion. Okay. So that's real money. I think interestingly, though, it's less challenging it's an easier job. I'm so surprised you say that. And maybe this is me projecting. But I would imagine that running endowment and my frame of references all the craziness, we've seen with the Harvard endowment over the past twenty years, and what recently happened with the Ellen dominance. Swanson, I would imagine there are so many political constituencies to deal with you were the CIO at the Virginia university of Virginia endowment and that covered what school or schools, UVA this just one endowment, five billion dollars. A actually fascinating Lee enough. It's much more complicated than that. The university of Virginia has dozens of nonprofit organizations. All of whom have their own fundraising staff. Off their own endowments and the university of Virginia investment management company, may five oh, one three c nonprofit Craciun with its own board in its own audit its own charter, etc. Serves as an investment advisor to those various pools of money. So in many ways, while I was there, I did have to address many different clients, and it is very political. You're quite correct about that. Do they all invest the same way or does each of them have different investment philosophy in different set of goals, and therefore a different portfolio? Look, you've Inco the university of Virginia investment management company, pools, the money and invested in one fashion that said on all of the different pools of money don't have to invest with the university of Virginia investment management company. They can if they choose or they cannot. Or they can invest part of the money for many years. The law school wasn't convinced that it wanted all of its money in the in the pool. So just part of the law school endowment was invested in you've so I would imagine that investing, on behalf an endowment today is even more challenging complex given everything we've seen with socially responsible investing low-carbon pick pick your poison. I can imagine. That's what I meant by the constituencies, because when I you and I are about the same age when I was in college, I remember divestment from part tied and people wanted to pull money away from South Africa. I can't imagine what it's like today in the college atmosphere. It seems to be everybody is much more sensitive to specific causes than perhaps, when you and I went to school. It was that was present when I was there, I don't know that if I really can't say whether it's gotten. Better or worse. You brought up the interesting example of the Harvard management company, Jack Meyer, truly a great investor was essentially chased out by alumni, who thought it was obscene that investment managers were at the Harvard management company were compensated as they were. And that's probably the highest profile political snafu, but it's by no means limited. I recall you Tim Kelly university of Texas investment management company reneging on their incentive compensation plan that they had promised to their staff that would be get litigation. At least a now, not now, the, the, the, the staff, they were very high integrity, people. They just they just sucked it up and took the hit to their compensation. Continued on. Yeah. See, I think you encourage bid behavior when you allow people to not honor the written contracts. So I, I don't want to be that moral hazard is a problem for me. But when I said, getting back to I said, I think it's a little less challenging the, the job is very straightforward. You understand who is the beneficiary of the assets being managed. You understand what the objective is. And you have a very clear notion that I'm, I'm investing for the university to generate funds to pay scholarships to advance research to support the university's general mission, and you're not competing every day for a fickle group of clients and investors, the for profit investment management industry, where I've spent thirty years as opposed to. Five years, you have all of the same complexities and difficulties and challenges of investing, which makes the job so fun and interesting, but a whole additional layer of complexity of competing in the business of the investment management industry. My special guest today is Chris Brightman. He is the chief investment officer of research affiliates, who strategies run about one hundred seventy billion dollars in assets. Let's talk a little bit about smart beta, which is really a phrase of research affiliates. Founder, rob are not is credited with if not inventing will certainly publicizing, tell us what smart beta is. And why investors should be thinking about it. Well, smart. Beta is a fun and provocative label for a. Substantial and important evolution in the investment management industry. We are able today to take well, researched and well understood principles of investment management and use that information to create simple, transparent, low cost investment strategies that deliver more of the return to the end investor and consume less of the return in the fees and expenses charged to a typical active manager. So, so here's the pushback that, that the, there's a group of folks who, who look at smart data and say, well, it's going to be a little more expensive than just straight up indexing up until the fourth quarter anyway, the S and P five hundred a market cap. Weighted index has been on a legendary streak. From the lows and nine till let's, let's call it September twenty eighteen that's a solid decade market effectively. Tripled why shouldn't investor go with a fundamental way to index as opposed to a market cap weighted index likely S and P five hundred? That's a great question. And it depends, I believe on what an investor is trying to achieve. The advice given by many for example. One of my heroes, Jack Bogle from vanguard that most investors would be better off investing in a very simple portfolio of mutual funds that track capitalization weighted indices and do nothing else. Would be far better off, if we look at what investors actually doing. There's considerable research on this subject. They tend to chase fads chase performance and. Generate returns that are approximately two percent per year below simple cap weighted indices before high fees and expenses. They do that bad. That's what the typical individual investor does and Jack bogus quite right. That they would be far better off simply having a completely passive investment in local, low cost capitalization weighted index funds. However, there are people on the other side of that trade. Where does that two percent go, that, that, that some investors are under performing the market somebody else has to be outperforming the market zero gain for every loser? There's a winner and vice versa. Correct. And we know where it goes. It goes to the re balances the people that are selling the market, what the market wants to buy when the market wants to buy it and buying from the market. What the market wants to sell when the market wants to sell it. And the fundamental index is a simple. Elegant way of. Automatically pursuing that contrarian trading approach of rebalancing against the market. So that's very much value driven strategy. You're, you're selling, what everybody wants, which probably means it's pricey. And it's had a good run, and you're buying what everybody hates which means it's probably cheap because it's so disliked fit. Fair statement. It's exactly correct. And the market has to pay a premium for that rebalancing thinking of it as market, making or being the house, providing insurance in order for the market to clear there has to be that premium. Now it's easy to say and it straightforward to do, but it's not easy to do. It's not easily east not easy emotionally to do. And that's why having simple transparent rules-based process aids in that kind of rebalancing and those investors earn a. Return over the market, but unless you understand, and unless you can stick with the approach, it's probably not right for you. So, so let, let me let me jump in here because I want to address that unless you can withstand unless you can stay with it value goes through these periodic cycles where it's underperforming, the broad indices and up until September twenty eighteen what was it a decade of underperformance by value over growth that seem to have begun to reverse in the fourth quarter. So first question is, is the underperformance period of value? Always seeing that regression to the mean where value is going to catch up and pass growth. How do you see the current environment for value given the long-term underperformance? And by the way, on a regular basis value, leg growth, and then catch up and pass it we've seen it in every bear market. What all the hot? Stocks get crushed value blows right by at. How many times have we heard? Warren Buffett is washed up in all never turns out to be true. I think you said it well over the long run history teaches that a value, investment strategy outperforms growth. That's been confirmed in every long-term study of every market around the world. However. The market will test your patience. The there will be long and difficult periods of underperformance for a value strategy, and only by sticking with it over the long run, will you actually succeed if you throw in the towel in one thousand nine hundred ninety eight and nineteen ninety nine and by you know AOL and Cisco as folks did right to their great regret. What I can say is that the dispersion between the pricing of value and growth stocks. Reached in the last year or two extremes that we almost never see not quite to the extreme of the tech bubble. But about as significant as we see, that's perhaps an indicator that the cycles about to turn. And then, of course, we've seen a lot of market turmoil suggestive of an inflection point. So I, I wouldn't confidently predict that the cycle has turned value is going to go on a along tear of outperformance. But the environment does seem to suggest that, that's a distinct possibility. And, and last smart beta question, some folks have said the advantage of smart beta, and fundamental indexing. Is that the outperformance comes from taking additional risk Burton, Malcolm, other folks like that of said that? What, what are your thoughts on that? I find the debate about whether factor returns, and of course, the most the largest, most persistent and longest discovered factor is value or. Generated by risk or generated by behavior and inefficiency the truth of the matter is, it's both. They're intertwined. There's feedback the a real world is much more interesting than these dry, theories and models. And I guess I would say there is a risk component, and we should be thankful that there's a risk component to the value factor returned because it means that it can't be in won't be arbitrage away. So let's talk a little bit about institutional and retail investors. You've worked with both. You've alluded that there are some differences, previously. What is the most consequential difference between how institutional investors operate and how mom and pop retail investors think institutional investors operate in a? A governance structure in an environment that prevents the worst investment mistakes retail investors. Don't. There are many advisors that try to bring this sort of discipline and structure to the practice of retail investing, and I think some many have great success. But not as much in as the institutional context. Let me give you a. General concept of what the results look like the results look like retail investors on average through being to emotional trading. Too much generally lose on the order of two percent, a year of their returns, relative to the broad markets, institutional investors, something remarkable happens when just the right elements. Come together ideas with technology data with inspiration investors with solutions. This is what Invesco does every day because they believe the possibilities of life, and investing are greater when we come together from ETF's to mutual funds to alternatives. Let's invest in greater possibilities together Invesco. To learn more, visit Invesco dot com slash together. After fees and expenses, generally get about market returns. If you look at the returns before their fees expensive and costs they beat the market. But most of that is absorbed by the fees expenses and costs, the staff, the investment management fees that absorbs most if not all of the outperformance, but that's two percent better than the retail investor. And I think that's from superior governance structures that prevent the worst mistakes. So now there have been a number of studies that have come out about both retail and institutional. I recently saw something out of NYU stern school of business of 'bout the underperformance of foundations and endowments versus a simple, sixty forty portfolio and according to. To that research. The institutions are barely doing a whole lot better than individuals. At least at these nonprofit foundations endowments at cetera. So cost is clearly a factor. What else is the driving factor? You brought up it's zero sum. So for everyone, or there's a loser are the institutions winning at the expense of the retail investors, or is there, a, a win and loss. Component between different endowments some dwell some do poorly, but on average they get as you said market returns. Well, there's a cyclical in a secular time horizon on the secular time horizon. I think we find nonprofits, particularly large university endowments tend to get the best results pension funds public pension funds. Get as I said, just a moment ago about the market return after their fees and expenses. And retail investors lose about two percent a year that two percent a year is mostly paid to a professional investors and value investors. Now that gets to the cyclical component if we evaluated the performance of the endowments up until the global financial crisis. There were many books written about their remarkable decades of outperformance, we've been in a cycle, a ten year horizon, where growth is outperformed value. And to over simplify most endowments are going to be value, investors. So I think you've seen a period where value investors have struggled, and it's been a difficult time for the value Oreo. Rented endowment model, but I think is it twenty five years from now looking back, you'll still see the success of that model so I'm going to ask you to go a little outside of your comfort zone using that same secular versus cyclical time period, the pre-crisis era. We saw a lot of investments in venture capital and private equity and hedge funds that actually had done pretty well and since the mid two thousands in venture capital has lost a little bit of it's shine. None of the big, well, no names or performing as well as they did. Previously, same with a lot of the hedge fund guys that used to shoot the lights out. They seem to be struggling, what is it about this past decade? That's been so difficult for so many different styles of investment investing. Well, there's a couple of things one, we've had just a stupendous roaring bull market. And so it just is. It is easy to comprehend from first logical principles that a strategy that is one hundred percent long. Stocks is going to outperform a strategy that is both long and short stocks during a monumental bull market. So that basically explains the difficult performance environment for hedge funds. What has worked what kind of alternative investment if you want to use that label has worked over the last ten years, well, private equity, why? Well, because they don't just go one hundred percent long. They go hundred percent long with some leverage, so that works pretty well in a roaring bull market. I would guess if I had to put my money on who outperforms over the next ten years, it would be on the hedge funds rather than the private equity funds because markets. Don't always go in straight lines up. A lot of your research, in commentary that I find quite fascinating. You're very good at at crafting a headline that is intriguing. And I want to just throw a few of them at you. And, and see what you what you have to say about that. One of them was are we at peak profits? And I have to ask the question because people have been saying were peak profits for, I don't know four or five six years. This whole run-up we've been hearing people say that are we at peak profits. We discussed all of the monopoly rents, and the other issues. With crony capitalism earlier, organically, speaking, have we hit the point where profitability can't go higher or commits trend continue for the foreseeable future. Until policy changes, the trend will continue, and I see no evidence of policy change coming out of the divided government. We presently have in Washington. However. Markets are forward discounting the amount of the value of the S and P, five hundred or any given stock in the s and p five hundred. That is the dividends that are going to be paid over the next two or three years is trivial. Most of the value is discounting future cash flows over the decades. And I believe that we are seeing an increasing likelihood of a very significant change in policy, perhaps, as soon as the twenty twenty one new administration, I would expect and this is an interesting forecast. I if you wanna if you wanna handicap who's going to be our next president, take a look at who seems like a twenty-first-century teddy Roosevelt. Meaning. Trust buster. Correct. Someone who's gonna come in and say, hey, you know ninety three percent of the search being with Google who I'm okay welcoming goule as our new overlords. But I understand the antitrust argument against it or half of all online retail transactions being with Amazon, that's an immense concentration of power in a very small number of hands. There's been almost no appetite for antitrust enforcement. There's been no appetite for preventing these giant mergers, the when was the last time somebody other than CNN, and I forgot who was even the, the merger was with that the president was unhappy with, because he doesn't like the CNN coverage, but that whole Time Warner CNN whatever the last broadband merger. Other than that, one political example, has really been much in the way of stopping big companies from becoming giant companies in order to preserve a fair and competitive landscape. No, there has not been and, and we have it. A strange. Economy as a result, one that is not working for the average worker, let we're known at research affiliates for being leaders and factor investing talk to you about the most recently discovered factor, and how it relates to this issue of monopoly profits and stagnating wages. Among academic researchers. We all understand this new factor called investment. Not not many retail investors. I think are aware of this, the, this new factor that was researched by Manny, and popularized by pharma, and French in French, now, the famous inventors of the three factor model the market value and size now have a five factor model. They've added two factors profitability and investment and investments. The one I wanna talk about investment refers to a very strong empirical relationship. A scientific finding that the more company, invests the lower the returns are meeting capital expenditure, actually works against the returns. Right. As Warren Buffett's been telling you for a long time. You don't want companies that have to invest to create their profits. You want companies that have a moat and generate monopoly profits. Right. And. The less accompany, invests the more the rewarded in the stock market. And so we have don't have much investment. We don't have much capital investment, you get some cash. What do you, do you buy back, your shares or you buy your competitor? Maybe you do a little of both, but you don't invest for the future. That's the this is a scientific finding that comes out of the academy that comes out of finance professors. It's the new factor. In the pharma, French five factor model is go find companies that don't do any investing that's responding to the environment. That's be created the the the environment. The rules of the game that we have is not competitive capitalism, where innovating and investing for the future creates wealth. It's manipulating the system to create monopoly rents. That's how you create wealth. And until we change that system. We're not going to change the results. How do we change that system? Is it simply just a matter of saying, hey, your cap axe expenditure is a separate line that doesn't affect your profitability, but you share buybacks does how can the rules have can the regulatory and tax environment? I'm assuming you're saying, we want more capital expenditure. We want more investment in the future. How can we encourage companies to think long term when the market is rewarding companies that don't I don't know if I'm overstating it. Sure, I think the biggest the simplest way to describe. The problem is regulatory capture the Indus, suitable oil and energy, go down the list finance, for sure. Yeah. Finance and banking for sure. And I'll Lou back to the longer version. If you want wanna, if you want to understand the economics, I think you can do find no better discussion than Edmund, Phelps amass flourishing. And if you want to understand the legal tool. Rules to address the issue. Read Tim Wu that there are tools. We can do this. I mean, the the the robber barons were running the economy before teddy Roosevelt showed up. There's going railroad trysofi going on the list. Yeah, telegraph quite fascinating. I have to tell you, that's an intriguing thesis, you've laid out. I don't disagree with it. I'm I'm a little surprised at how forceful you articulated. I certainly think you're, you're right. And I've heard this from both the left and the right. Scott Galloway at NYU stern wrote the foreign and his recommendation was that apple Amazon Google and Facebook, get broken up there, too powerful. That's correct. It's quite quite amazing. So let's jump to our favorite questions while while we still have you tell us the most important thing. Most people don't know about your background. Boy, that was going to go with you from west Germany originally. I was I was born in west Germany. But I was born to my data mom, who my dad was serving in the military at the time. So that's really much less interesting than it sounds. How about I have never lived in one house for as long as I've lived in Newport Beach, California where I've lived for eight years? This is the longest I've ever lived in a house in my entire life. Well, every army brat tells the story of getting moved around from, you know, assignment to assignment and I guess that that stays with you. So you met, let's talk about your mentors. You mentioned one of your early mentors who helped shape and God, you career over time. Yeah, I have had the privilege of. Learning from a number of charismatic leaders one and the I was Gary Brinson. I don't think I would be nearly as successful in investment management industry today without without Gary's example, second was a fascinating woman, named Hilda Ocho Hilda was a refugee from Venezuela, who ended up at in the PHD program at Harvard University ran the pension fund of the World Bank spun that out into strategic investment group. And when I left Brinson partners, I ended up at strategic investment group, as the as the eventually the CIO, they are held us in fascinating, innovator and entrepreneur. And while I was the Charrette tiff, I had the privilege of working with a fascinating individual named David Salem probably less known than some of these others, but nonetheless, a fascinating figure in the nonprofit investment world. And now, finally, rob are not who quite well known. So if I really had the privilege of getting to know a lot of fantastic investors. Welcome to the podcast. Chris, thank you so much for doing this. We met some time ago. And I've been looking forward to having this conversation. I know rob are not the founder of RAFI for a long time. He's a fascinating guy. Must be fun to work with urine a you here hero. You Newport Beach located in Newport Beach. Yeah. That's quite that, that might be one of the most beautiful places in America to, to go to work every day. I joke with people, I ask them. Do you know why were headquartered in new? Beach because you can that's right. For for those listeners who may not have ever been to that part about an hour, south of LA, maybe the little less depending on traffic. It's just this Balboa island right over there. It's just this gorgeous part of Southern Cal everything you imagine. Southern California is. But nicer. I mean it really is kind of ridiculous. Everything's wonderful, except for the traffic. No. They traffic is almost non-existent in Newport. If you live in Newport Beach, and work in Newport Beach, wonder the problems are the price of real estate and the taxes price of real estate. So funny, say that a friend who I won't mention was having a conversation with rob about, you know, if you move to Nevada you live in Las Vegas, you won't have to pay state taxes, and his answer was hip. But then I have to live in the vodka and he goes, I'm in what might be the most beautiful place in the world. I'm going to have to pay the, the Vig first thing. There you know, I spent a decade in Chicago, and I have a lot of friends in the business in Chicago. And I was there not too long ago saying. Boy, higher taxes are in your future. I I've been paying attention to what's going on with the pension problems, Nagin and Illinois for sure, and the only in the places. So you're going to get California like taxes in your future to fill this hole in the pension. Vanity says, you know, we can't do that Chris as I we have to thirteen percent state income tax in, in California. It's that high thirteen percent. Wow. That's a lot. And he says you don't understand you can raise the taxes to, you know, ten fifteen percent, California, and nobody they're not going to move to Nevada. Right. Some people, of course, do moved in oughta by, but there's a magnet to the west coast and -fornia. He said. Illinois doesn't have that people will move to anywhere Wisconsin. They'll move to Indiana. We can't take taxes up to, to that love Chicago happens to be a very reasonable city. It's a reasonable. It's big enough that it has whatever you want, but it's not as big as New York's where it's completely overwhelming. And their prices are much more reasonable than the coasts. The problem is your weather is much nicer when you have southern California weather, you could charge thirteen percent. And in Chicago, if they in Illinois they raise it at a certain point say, all right. I'm going on. This is this tau high taxes, plus terrible winters equals. I'm out and that's been the shift southward across the whole country. People have been making the argument. It's political, but I really think it's weather based. I think it's both. I think taxes, I think it's regulatory environment and I think it's the weather, so let's talk about you mentioned some books, you mentioned Tim Wu and Edmund Phelps books. What other books, do you think are essential reading? Or what are you just like to read, if you wanna relax? By the way, this is everybody's favorite question. People want reading suggestions more than anything. They don't know which of the three hundred thousand books that come out each year to read, so they take these very seriously. Yeah. Sure. If you want to understand the future of markets, and the intersection of public policy and markets, the three books that I just mentioned are the ones of the dozens that I've read over the last few years, that I think are most important, Phelps Wu. And what's the third one Jonathan Tepper? Oh, okay. It's the myth of capitalism. When I want to escape, I don't read about economics and policy. I read a science fiction Matz ablest, so nothing wrong with that. What do you like under Sifi? I guess under fantasy instead of sci-fi. I loved the game of thrones. And I loved it so much that after watching the series, I then read all of the books, and then I went back and rewatch the all of the series. I also read one of one of my favorite sell though. You're seeing less get published, as in a sort of sub-genre called cyberpunk are you a Neil Stevenson fan? Absolutely. I just got haven't read it yet, but I, I have sitting on my desktop seven Eve's. That's what is literally sitting on my night table. I read it. It's fab. Really? And then also on my list, I, I'm going to throw you books that people have recommended me that I haven't gotten to yet the three body problem, people have raved about that trilogy from the author out of China and really fascinated by by your list. So what are you most excited about right now? What, what is the part of the industry that has you really enthusiastic? I am very enthusiastic about the opportunity to use twenty-first-century technology and part of it is financial technology. Part of it is financial modelling and predicting what's going to happen. But importantly, a lot of it is communication technology, what we're doing right now to help educate investors to achieve a better outcomes, and I am very pleased to see the costs being a reduced in the industry. The provision of investment strategies. At couple of basis points. Right. It used to be a hundred basis points, one hundred and fifty basis points was the cost of investment strategy. Now it's twenty basis points or ten basis points or five basis points, and providing the average investor the ability to compound wealth, for their retirement without intermediaries gobbling up, so much of the, the, the returns, tell us about a time you failed and what you learn from the experience, I left UBS, so a Brinson partners where I kind of got my start we sold ourselves. I was a partner of the firm. I made a little money on that sale to UBS, and I learned after a time there that, that was not the place for me. I'm better off in smaller employee owned investment management firms than large institution. Scott God, love the people that thrive in large. Petitions because the world appears to need them, but it's not a good fit for me. And I tried to start a quantitative equity market neutral hedge fund in nineteen ninety nine to two thousand with some backing from a firm called Greenwich capital grant, listen around anymore. But I had some friends at the top of that door organization that were interested in exploring getting into the asset management industry and market neutral in ninety nine two thousand should've done not too bad, right? It would have been a wonderful time, but as the environment turned less conducive to risk taking or perhaps, I was just not as persuasive as had been the year before they decided to pull the plug on that endeavor. But I learned a lot in that a period of time. I'll give you a lesson about. Marriage and a, a lesson about the structure of the quantitative investment management, distri after I determined, I was going to be unsuccessful in starting that business. I just hung around the house for a while. I helped coach, my son soccer team, and I got a lot of cycling in and I just spent a lot of time around the house, and my wife explained to me, you know, Chris for better or worse, but not for lunch. You need to go back and. Better or worse, but not for lunch. That's great one of the fascinating discoveries as I was recruiting people to join my never to be quantitative equity market neutral global hedge fund was how many of the best staff I was recruiting. How many people I was interviewing didn't work at what you and I think of as an investment management organization, but worked at family offices right here in Manhattan, and family offices of former prop traders, people that would leave Goldman Sachs prop desk or Leman brothers or Morgan Stanley with enough money that they didn't need to manage money for anybody else. And they would hire these incredibly gifted clots from India are from China, and I think people. Don't realize that most of the money that is made by arbitraging inefficiencies in the capital markets. These days is not in funds that are invested investing, the, the money of Harvard University or the state of California's pension fund. It's mostly private money, and, and that's where those those prophets go. There's an enormous amount of professional investment expertise supplied to the management of individual family money, not investable to the public not investable to the public. They're not even they're not even registered investment management, companies. They're just Friday office, and they don't want to track detention mutt. My favorite part of the renaissance. Technology story with Jim Simon's was at a certain point. They realized their ability to generate alpha was limited and only scaled up, so large, and when their own investments at that point, they told their outside investors. Hey, thanks so much for coming by, but we, we don't want your capital anymore. We we're gonna take this ourselves. And that's a well known example, what I found is that there are dozens, perhaps hundreds of similar outfits here in New York City, that never took private money, ever, never took outside money, and these aren't giant multi-billion necessarily giant multi-billion family offices. These are fifty a hundred two hundred fifty million dollars in my ballpark. I don't think we know they don't have to tell us that that's quite fascinating. You mentioned cycling. What do you what do you do for fun? What do you do to relax? What do you do to, to stay trim and fit? I one of the benefits of living in Newport Beach in southern California, is that I can cycle all year round. So I both get out on my road bike and a spend time on my mountain bike. And then I go to the gym a few times each week because I have to keep fit so that I can I can cycle and I can ski and I can hike the that southern California last. I'll sounds increasingly attractive. So a millennial or recent college grad comes up to you and says, I'm thinking about going into finances, a career, what sort of advice, would you give them? Here's some advice my daughter Amy when she was growing up. She wanted to be in fashion merchandising, but then she went to college and decided, you know, maybe I should be a little more practical. And she started her major in economics after a few years in economic, she decided that, that wasn't really where she wanted to go. She wanted to she switched to psychology and one of the things that Amy found is that she had taken a full raft of stats classes, freakonomics. And then when she switched to psychology they said, oh, no, no. Those are econ stats classes, you need psych stats classes. So she had to take a double load of statistics. Amy started a digital advertising agency here in New York. And when she was talking to her younger, sibling, my son, John when he was entering college. She said, you know what? You really need to take stats that's been the most helpful thing for me in my career in digital advertising in it's equally. True, I think in the investment management industry, become numerous take statistics. The, the, the world has become the, the professional world puts a premium on numeracy. I think that's great advice, and our final question. What is it that, you know, about the world of investing today that you wish you knew thirty five years ago when you first started humility is enormously important to professional development can say, disagree with that any particular reason that led you to that, and you're not the first person who has mentioned it, but as I've advanced in my career it. Has become more and more important to inspire other people to build a team to nurture and help other people grow and one can't do that affectively without a humility. I for me to succeed. I have to lead a group of people all of whom at least many of whom are smarter, better educated and more productive than I am. And, and one can't do that without a considerable, a degree of humility quite quite fascinating. We have been speaking with Chris Brightman. He is the chief investment officer of research affiliates if you enjoy this conversation. Well, look up an introduction an inch on apple I tunes or Stitcher overcast wherever you're finally podcasts are sold and you can. See any of the other two hundred fifty such conversations. We've had over the previous five or so years, we love you comments feedback, and suggestions. Write to us at 'em IB podcast at Bloomberg dot net. I would be remiss if I did not, thank the crack staff who helps put together this conversation each week. Cowan O'Brien is our audio engineer Taylor rigs is our Booker slash producer, a Tico Val Braun is our project manager and Michael, Nick is our head of research. I'm Barry ritholtz. You've been listening to masters in business on Bloomberg radio. The masters in business. Podcast is brought to you by Invesco every day at Invesco. We bring together ideas with technology data with inspiration and investors with solutions. Let's invest in greater possibilities together. Find out more at Invesco dot com slash together.