Resolve Riffs Investment Podcast

This week we had the pleasure of hosting our friend Jon Aikman, President and CIO of ReSolution Investments, for a broad conversation on the three-lettered acronym that has taken the investment world by storm in the last few years: ESG – Environmental, Social and Governance. We covered: How a background in law, banking and academia developed into a passion for impact investing While the environment has drawn most of the attention, we shouldn’t overlook the social and governance agenda Untangling definitions and acronyms Anti-carbon policies running ahead of replacement technology Oil isn’t going away any time soon – think carbon sequestration Environmental goals at odds with shareholder value maximization One man’s waste is another man’s biofuel Investors’ time horizons are often too short to take long-term externalities into account Any time people make investment decisions for non-economic reasons, opportunities arise How dislocations impose ripe opportunities for active management Green washing, opportunism and gaming the system Incorporating inflation hedging within an ESG framework The temporal question – developed nations evolved and polluted, emerging markets want the right to do the same The tough economic decisions governments, companies and individuals are likely to face in the coming years   Thank you for watching and listening. See you next week.   This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

Tom Morgan is Director of Communications and Content for the Knall/Cohen/Pence (KCP) Group at Stifel. He writes a weekly missive called The Attention Span, which curates and synthesizes content, ideas and frameworks to help readers make sense of an increasingly complex world. Tom, Richard, Mike and Adam wandered into a wide range of topics, but the central theme orbited around humanity’s universal craving for meaning and connection in the vacuum created by the post-modernist Western focus on empirical rationalism. Along the way we touched on the following subjects: The central importance of authenticity and following your passion to stand out and build community in an increasingly hostile information ecosystem The importance of intuition as a connection to the “extended mind” and the example of George Soros’ sore back The human obsession with the sacred and the profane, and how this need manifests in tribalism in the absence of religious context The West’s devilish obsession with left-brain priorities like data, taxonomies, definitions, and process, which are devoid of context and meaning The critical role of emergent dynamics in shaping our world from the bottom-up The potential for evolutionary processes to converge on awful solutions Potential dangers in applying constraints or directions in complex dynamic systems How asymmetrically powerful actors like Facebook’s engagement AIs might corrupt natural evolutionary processes and lead us down a dark path Why we are accelerating toward universal irrelevancy and must soon rethink the value of individuals and our social contracts How to “dance” with complexity and find the joy in adapting rather than controlling Why all meaningful change happens at the border of order and chaos Why the most important leaps forward always seem insane right up to the point when they are universally accepted This is obviously a long list, but there is so much more between the lines and in the connective tissue of the discussion. The ReSolve crew had a lot of fun with this conversation and we think you will too. Thank you for watching and listening. See you next week. This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.  

Wes, Patrick and the Alpha Architect Team are long-time friends of ReSolve, and were gracious enough to join us last-minute to discuss their huge win in the ETF white label space, with the launch of the ARK 21Shares Bitcoin ETF. Wes and team are known for their pure factor ETFs, but in the last few years they’ve pivoted from asset management to create an ETF Architect division, offering the “picks and shovels” for external managers to offer niche strategies with tight operations and low costs. Wes and Patrick give us the straight goods on what it takes to launch a successful ETF, including: Overcoming their academic focus on factor-oriented quant strategies to entertain more diverse offerings How “ETF Innovation” differs from traditional approaches and fund conversions The “minimum effective dose” of operating capital and market buy-in necessary to facilitate a successful ETF launch A deep dive into the levers of economics and margins for launching and operating an ETF Insights on changes to tax and regulatory rules proposed by the Biden administration, and the economic merits of equalizing ETF and mutual fund tax treatment Evolution in market access – how investors access ETFs vs mutual funds and how to get shelf space for fund products The special considerations involved in launching a Bitcoin ETF Overcoming the negative roll yield typical of Bitcoin futures The state of arbitrage in the digital asset space, and why juicy returns will probably persist You will not find a more candid, competent and credible team than Wes and Patrick to get the unfiltered version of what you need to deliver a successful ETF launch. It was also amazing to learn more about the machinations involved in standing up a crypto asset product, and getting a glimpse into the future of the space. Thank you for watching and listening. See you next week. This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management. *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

Traditional portfolios are faced with the prospects of depressed expected returns in the coming years, as implied by current stretched valuations of stocks, and near record low rates and credit spreads for bonds. Our recently released paper – Return Stacking: Strategies for Overcoming a Low Return Environment – co-authored by Rodrigo and our good friend Corey Hoffstein, shows how investors may materially improve their chances of success by allocating to uncorrelated managers that may offer more ‘bang for your buck’ and free up valuable ‘portfolio real-estate’. Fielding questions from the ‘Twittersphere’ as well as our live audience, this episode covers: The pitfalls of emulating large institutions with limited portfolio agility and mandate flexibility Stellar returns and recency bias – why so many investors remain anchored to the ‘60/40 portfolio’ Why stocks and bonds are structurally not designed to thrive in high inflation and/or low growth environments How loose fiscal policy, layered atop highly expansive monetary policy, strengthens the case for persistent inflation A trip down portfolio theory memory lane Risk transformation and financial alchemy Leverage aversion – concentrated bets vs capital efficient diversified return streams Structural diversification, tracking error and absolute returns Return stacking as a form of liability hedging for advisors Finding structural edges and tilting the odds in one’s favor The team also discussed the importance of separating the underlying components of any strategy, not only across asset-classes, but also beta, alpha, styles, and tilts, in order to use them as building blocks to create tailored portfolios with desired exposures. There’s also an “Easter Egg” where Adam discusses the results of a forthcoming paper on the shockingly large potential benefits of trade and fee netting in multi-strategy products. Thank you for watching and listening. See you next week.   This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

Whether stemming from a recession, a policy shock, a terrorist attack, or a global pandemic, financial markets periodically go through major selloffs. It has always been this way. Euphoria eventually leads to panic, every time. Another way to look at these crashes is through the lens of volatility (and its commensurate rise), which has become a fundamental component of investment decisions. As time goes by, innovations can (and will) suppress volatility and can sometimes give the impression that risk has been eliminated, but that is always a fool’s dream. Eventually the piper must be paid. Our guests this week were Benn Eifert (Founder & CIO) and Scott Maidel (Head of Business Development), of QVR Advisors, a boutique asset manager that specializes in strategies seeking to profit from volatility and all its downstream effects – including attempts to suppress it. We covered: How markets fundamentally changed following the Great Financial Crisis Call overwriting – the favorite strategy of yield-thirsty institutions Why ‘selling vol’ is too broad a term and has all but lost its meaning Everybody wants protection – reflexivity and the options tail that wags the equity dog The behemoth equity hedged strategy that now moves the market at the end of every quarter “Gradually, then suddenly” – the nature of volatility Gamma & Vanna – the second-order ‘Greeks’ and their outsized influence in short-term moves Execution is key – don’t trade against the Flash Boys Buying what you don’t want to build Systematic vs Quant Benn and Scott also described in detail QVR’s two main lines of business – absolute return and tailored solutions – providing insight into their processes and competitive advantages. We also discussed the distinct nature of different market crashes, trade monetization, rebalancing, and much more. It was a fascinating conversation and a true lesson on the current structure of equity markets. Thank you for watching and listening. See you next week.   This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.    

We had a very special guest this week – Roy Niederhoffer, founder and president of R. G. Niederhoffer Capital Management, a NY-based quantitative investment firm. With a strong musical background and an original plan to become a neuroscientist, Roy might have led an academic life if it weren’t for his programming skills and an offer to join his older brother’s hedge fund, one that he couldn’t refuse. He joined us for a fascinating conversation, covering topics such as: His early life, a diverse set of interests and becoming a highly-skilled generalist Striking out on his own – why would an institution ever invest with a 26-year old running computers in his living room? Developing short-duration strategies that are uncorrelated to both traditional and alternative investments Long volatility vs short volatility strategies The inescapable dopamine rush of capital markets and the importance of managing emotions Trend-following, convexity, and why the frequency of observations matters so much Behavioral neuroscience applied to markets Leaning into the work of Danny Kahneman and dissecting his magnum opus over dozens of weekly sessions Identifying price patterns that will trigger predictable emotional responses from market participants – therein lies the edge The difference between strategy management and risk management Printing of fiat money and the conditions for an elimination event that can wipe out multi-generational wealth He also summarized his general investment theory, which seeks to identify asset-class characteristics that can be generalized, those that will remain idiosyncratic, and some that might eventually spill over into other markets. Roy is a true polymath, with a unique perspective and a generous disposition to share his knowledge.   Thank you for watching and listening. See you next week.   This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

“The unfortunate truth is, very few want to hear an optimistic take on the world during a pandemic.” Human beings evolved to pay closer attention to negative vs positive information. For our ancestors, the cost of seeing danger where there was none was a cortisol spike and an unnecessary sprint, but dismissing a real threat might have led them to be a predator’s next meal. Our guest this week was Laurence Siegel, Director of Research at the CFA Institute Research Foundation and author of “Fewer, Richer, Greener: Prospects for Humanity in an Age of Abundance”. We discussed the main themes from his book, including: The case for techno-optimism Demographics, healthcare and lifespan Inflation, deflation and hedonic adjustments Pollution, climate modelling and the wide range of possible outcomes Why nuclear power is a crucial component of a greener energy matrix Differences across geographies Economics, capital markets and realistic expectations We also debated the future of cities, real-estate costs and possible changes to the jobs market if we extrapolate current trends. Thank you for watching and listening. See you next week.   This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

“Don’t hide from risk; find it and attack it.” We were joined this week by none other than Tom Basso (Enjoytheride.world), trend following legend, author of Panic-Proof Investing and The Frustrated Investor and known as ‘Mr Serenity’ from his depiction in Jack Schwager’s best-selling Market Wizard series. From his ten-dollar a week paper route, to earning enough money to buy his first mutual fund, our conversation spanned a few decades and included: A chemical engineer’s approach to capital markets Commodity futures as the ultimate training ground in the 1970s Black Monday, Dotcom Crash, GFC and Covid – a career shaped by ‘crisis alpha’ A business mindset to asset management, and early struggles as a salesman Retiring from money management, and smiling ever since Taking much more risk in retirement than when he managed funds Improving his techniques and the evolution of his edge Solving the investment puzzle – codify your rules, size trades appropriately, and most important, work on your mental game We dug deeper into the latter point, discussing the benefits of stoicism, meditation, journaling and other techniques that can improve one’s mental game, both in trading and in life. Tom also shared insights into some of the different strategies he runs and parameters he watches closely, as well as his friendship with Eric Crittenden and becoming chairman of Standpoint Funds. Thank you for watching and listening. See you next week.   This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

As a growing percentage of Baby Boomers prepare for retirement, they are confronted with the uncomfortable prospect of record stock and bond valuations. Even the most optimistic capital market assumptions suggest the 60/40 portfolio is unlikely to deliver the returns many nest eggs have been built for. To help us get a clearer picture of the challenges and opportunities faced by retirees in the coming decade, we had the pleasure of speaking with Michael Finke (Professor of Wealth Management) and David Blanchett (Managing Director and Head of Retirement Research at QMA). Topics included: The crucial importance of updated and realistic capital market assumptions Lifespan, “healthspan” and the prospects of retirements that last well over 30 years Why ‘probability of success’ is no longer an adequate yardstick for retirement planning How to prepare if we are indeed stuck in a perpetually low interest rate environment The fundamental dynamics of sequence of returns Guaranteed incomes, utility and nuance – true outcome vs probability of failure The difference between a TIPS ladder and an annuity Longevity annuities and optimal spending rates Purpose Investment’s Longevity Pension Fund – combining a tontine, an annuity and a balanced portfolio Analyzing other tailored products We also discussed how any tool, no matter how sophisticated, is still bound to the ‘GIGO (Garbage In, Garbage Out) problem’, why these problems are not limited to retail investors, a highly effective cake analogy to describe solutions to longevity risk, and much more. Thank you for watching and listening. See you next week. This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

A casual observer of modern economies might be forgiven for feeling that life is pretty good. And they might reasonably credit neoclassical economic principles for facilitating what appears to have been a great leap forward in global prosperity. At the same time, we are occasionally confronted with news of looming global calamities, which are a product of the exact same policies that brought about this apparent prosperity: irreversible climate change, unprecedented global private credit, global asset bubbles to name just a few. Our guest this week, Professor Steve Keen, has spent a lifetime demonstrating why neoclassical economics is fundamentally self-terminating because it fails to account for realities imposed by the physical world. He walks us through the root issues and describes an economic framework for sustainable growth and more even prosperity. In particular we discussed: The roots of the 2008 global financial crisis and how he predicted it in advance How the 1972 report “Limits to Growth” successfully forecast how the global economy would run headlong into resource boundary conditions Richard Vague’s findings that accelerating growth of private credit has presaged every major financial collapse in the past few centuries How the misguided work of two economists in the early 1990s has led to catastrophic policy and climate consequences The financialization of housing and its impact on home prices, demand for private credit, and a return to feudalism How to incorporate resource consumption and waste into modern economic models The character and potential positive impact of a modern debt jubilee   Professor Keen is not a man who minces words. Pour yourself an Irish coffee and settle in for a jarring ride. This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management. Thank you for watching and listening. See you next week. *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.