This was an opportunity to speak with an amazingly accomplished portfolio manager and entrepreneur. Right now, the specter of interest rate volatility, market volatility and inflation risk have investors’ full attention. Nancy Davis’s fund, IVOL, was built on her experience dealing with these issues and has received a lot of positive recent notice. Nancy began her career at Goldman Sachs where she became the Head of Credit, Derivatives and OTC Trading. She went on to be a portfolio manager at HighBridge and taking on management responsibilities at Alliance Bernstein before taking the leap and founding her firm, QUADRATIC CAPITAL LLC in 2013. It is there that she has built a unique business around her expertise. In this episode, we talk about her background, what problems her strategies try to solve and how she does it, and the decision to structure her fund as an ETF.

Describe your background and what led to the founding of Quadratic-

The experience at Goldman Sachs, HighBridge, Alliance Bernstein

Getting back to being a Portfolio Manager and forming your own firm

Interest Rate Volatility

Increased Inflation

Investment expectations and market volatility;

Where would IVOL normally fit in an asset allocation?

Generationally low interest rates vs the Federal Reserve with its foot on the interest rates 

Interest rate jumps that are big on a percentage basis but not that big in terms of actual BPS

Financial industrial complex where expertise in dealing with rising interest rates is retired or dead

What is the difference between interest rate volatility and equity volatility- how do you exploit this? Recent examples

How does your strategy try to address that?

The fund is made up substantially with TIPS, but also with other securities and options- Why are TIPS not fully adequate?  How does being invested in OTC rates improve upon other methods?

How does the IVOL implement its investment strategy (TIPS + other options/FI)- Why is this preferable?

Traditional Fixed Income – IVOL holds TIPs and is long-volatility, which can act as a potential diversifier to a fixed income portfolio centered on the Barclays Agg.

Real Estate- IVOL may help hedge the risk of falling real estate prices brought on by rising long term interest rates.

Equities- IVOL owns fixed income volatility and may act as a market hedge since volatility has historically increased during large equity sell-offs.  IVOL is potentially defensive for an equity portfolio given its use of US Treasuries. Further, its options potentially benefit from a steepening of the yield curve, which historically has often occurred during equity market declines.

TIPS- IVOL owns TIPS, but they are enhanced using TIPS with options. These options function as options on inflation expectations, because the yield curve is largely a result of inflation expectations.

Floating Rate Notes- IVOL has the potential to appreciate when the interest rate curve steepens and long dated inflation expectations move higher, giving investors a similar benefit to the one they are expecting from their FRN without the credit risk.

Short Duration Bonds- IVOL may help hedge during bond market sell-offs should the yield curve steepen and volatility increase while providing potentially enhanced distributions.

TIPS Bond Price- Rising prices are usually good for the fund

Volatility- Rising volatility is usually good for the fund

Expectations for rate cuts- Increased Expectations are usually good for the fund

Long Dated Yields – Rising yields are usually good for the fund

What are the couple of pieces of news that you are following intently that many investors aren’t focused on?

What went into that choice? Were there drawbacks?

The benefits of transparency, tax efficiency, lower costs for investors

Materials: https://www.ivoletf.com/ivol-materials/

Presentation: https://www.ivoletf.com/wp-content/uploads/2021/01/IVOL-Presentation.pdf

Fact Sheet: https://www.ivoletf.com/wp-content/uploads/2021/01/2020_12_31_ivol_factsheet.pdf

I think direct indexing is going to be a major innovation in the world of wealth and asset management. It will help the RIA and wealth management world deliver on the promise of financial planning. It will also help rationalize the business model of many advisors as clients request more specialization around their affairs. The impacts could be enormous and many players are entering the space. To help us understand the concept of “Direct Indexing”, I spoke with LISA GOLDBERG, PhD.

Lisa is the Head of Research at APERIO– a $41B asset manager with 21 years of experience in the space. Aperio was recently acquired by Blackrock. Lisa is the Professor of the Practice of Economics at the University of California, Berkeley, where she directs the Consortium for Data Analytics in Risk (CDAR).

We talk about what “Direct Indexing” is, how it works and why it will be important for investors.

(DISCLOSURE: This podcast is meant to educate around the topic of “Direct Indexing” and is not specific investment advice.)

In your experience, how are portfolios typically implemented in the wealth management industry and what could be improved?

Describe the concept of Direct Indexing- (1.0 Beta portfolios with fewer positions than the index. This allows buy/sell customization around other metrics like tax lost harvesting, ESG considerations or concentration management) 

Why is this important?

While this isn’t a new concept, why is this a step forward and what allows this powerful tool to be available for more investors? 

Direct Indexing vs Index Funds, ETFs, Mutual Funds

How does this work?

(Without revealing the secret recipe!) What goes into the investment process for your direct indexing solutions?

How do your programs systematize prudent tax loss harvesting?

What factors do you focus on?

Certain sectors and securities often make up the lion’s share of out-performance- what is the process to ensure proper sector representation? 

How do you make sure that the portfolio does not fall too far out of whack?  

What happens when a clients’ preferences or situation doesn’t intersect well with your process?

Focusing on tax alpha (and knowing that each person’s tax situation is different)-

Is there a consensus on how much return on a tax-loss harvested portfolio can add?  Or put another way, how much do investors leave on the table with “non-tax aware” investing?

How does this help deliver on the promises of financial and tax planning?

How does this help clients?  

Are there any long-term projections you can share on how much clients could benefit?

How does this help client advisor’s that implements asset allocations?  

How does APERIO work with advisors and clients?  At what asset sizes does it make sense?

Here is the mentioned “Active Management Tax Insult to Injury” link :

https://www.aperiogroup.com/Resources/Papers/Adding%20Insult%20to%20Injury%20-%202015%20Tax%20Penalty%20for%20Active%20Mgmt.pdf

Why loss-harvesting has worked so well:

https://www.aperiogroup.com/blogs/highfliers-drive-market-returns-losers-drive-tax-alpha

Ken Lassner writes about optimal gifting from a direct indexing account:

https://www.aperiogroup.com/blogs/optimal-gifting-for-financial-and-philanthropic-return

Here’s a user’s guide to separately managed accounts:

https://www.aperiogroup.com/Resources/Papers/ETFs%20vs%20SMAs-A%20Users%20Guide.Paper.pdf

This podcast is off the beaten path from the usual wealth topics, but it’s no less a story of perseverance and vision. It’s a thrill to talk to my friends about their successes. In this case, it has been a long time and a lot of hard work in the making.

Born and raised in Watertown, NY, JIM HARBERSON (TWITTER, INSTAGRAM) has a Masters in Religion and was a lawyer before embarking on his writing career. He has published many horror and sci-fi stories including podcast projects for “Chilling Tales for Dark Nights” and the co-writer of the graphic novel, Stay Alive. Against that backdrop, his new horror compendium is out now via MARKOSIA and can be found on Amazon and Barnes and Noble.

(Cover by STEPHEN BASKERVILLE– his work is here: https://baskervillecomics.carbonmade.com/)

We catch up on a variety of topics surrounding the book, his writing and growing up in the Horror/Sci Fi genre.

We also talk about his foray into graphic novels. His co-authored (with me!) “Stay Alive” was nominated for the prestigious Rondo Hatton Classic Horror Awards (Category 22:  Best Graphic Novels or Collections)  

You can vote for it here:

https://rondoaward.com/rondoaward.com/blog/

Art by STEPHEN BASKERVILLE

Jim was also nice enough to furnish a list of his favorites in the HORROR MOVIE/BOOK space.

Here they are:

Freaks (1932)

The Bride of Frankenstein (1935)

Vertigo (1958)

Psycho (1960)

Night of the Living Dead (1968)

Salem’s Lot (1979)

An American Werewolf in London (1981)

Creepshow (1981)

Halloween II (1981)

The Thing (1981)

Basket Case (1982)

A Nightmare on Elm Street (1984)

Fright Night (1985)

Lifeforce (1985)

Night of the Creeps (1985)

Re-Animator (1985)

Return of the Living Dead (1985)

Aliens (1986)

Manhunter (1986)

Evil Dead II (1987)

The Lair of the White Worm (1987)

The Hidden (1987)

Robocop (1987)

Beetlejuice (1988)

Dead Heat (1988)

Hellraiser II (1988)

Phantasm II (1988)

Bride of Re-Animator (1990)

Robocop II (1990)

The Silence of the Lambs (1991)

Army of Darkness (1992)

Basic Instinct (1992)

Dead Alive (1992)

Natural Born Killers (1994)

From Dusk Till Dawn (1995)

Lord of Illusions (1995)

John Carpenter’s Vampires (1998)

Drop Dead Gorgeous (1999)

From Dusk Till Dawn II:  Texas Blood Money (1999)

Hannibal (2001)

Resident Evil (2002)

Darkness Falls (2003)

House of 1000 Corpses (2003)

Fido (2006)

Halloween (2007)

Planet Terror (2007)

Nurse 3D (2013)

Halloween (2018)

Fiction (H.P. Lovecraft, 1908-1935)

Cartoons (Charles Addams 1942-1988)

Animal Farm (George Orwell, 1945)

1984 (George Orwell, 1948)

The Haunt of Fear (EC Comics, 1950-1955)

Shock Suspenstories (EC Comics, 1952-1955)

Tales from the Crypt (EC Comics, 1950-1955)

The Vault of Horror (EC Comics, 1950-1955)

Amphigorey, Amphigorey Too, Amphigorey Also, Amphigorey Again (Edward Gorey, 1972-2006)

Creepshow (Stephen King, Bernie Wrightson, 1981)

Batman: The Dark Knight Returns (Frank Miller, Klaus Janson, Lynn Varley, 1986)

Arkham Asylum: A Serious House on Serious Earth (Grant Morrison, Dave McKean, 1988)

Batman: The Cult (Jim Starlin, Bernie Wrightson, 1988)

Batman: The Killing Joke (Alan Moore, Brian Bolland, 1988)

Judge Dredd: Necropolis (John Wagner, Carlos Ezquerra, 2000 AD, 1990)

You can find Jim on Twitter: @NovelStay and IG: @stayalivegn

A Disgusting Supermarket of Death:  https://markosia.com/a-disgusting-supermarket-of-death-2/

Stay Alive: https://markosia.com/books/worlds-of-horror/stay-alive/

B&N:  https://bit.ly/ADSODBN

https://www.simplyscarypodcast.com/podcasts/chilling-tales-for-dark-nights/3×05/

https://www.kickstarter.com/projects/craiggroshek/chilling-tales-for-dark-nights-a-scary-stories-col/posts/3129712

On the referral of a colleague, I interviewed the Nashville-based, LEONORA WILLIAMSON. She is an expert in family business dynamics, corporate citizenship and executive coaching and she has unique insights into the world of family business succession. Aside from advising families on the myriad issues, she has lived them herself with her family’s own business.

She is the founder of PLATINUM RULE ADVISORS and a Lecturer at Vanderbilt University on the topics of Negotiation and Corporate Social Responsibility for their undergraduate business program. She is also a board member of Sabre Yachts and has uniques insights into the running and transition of this family business.

This was another episode where we scratched the surface of the issues we have seen and the lessons to be learned. I’ll have to have her on again!

What were some of the lessons you took from this when forming Platinum Rule?

Getting the “Human” part of Human Resources right

Using assessments and analytics to get a hold of the full family picture

Frameworks for getting one’s arms around a big and complicated situation

The Business – Is it healthy? Where is it Going?

The Governance – How are decisions made in terms of ownership and operation? Who is in charge of strategy and who implements that strategy?

The Family – How are decisions made at the family level? How does this intersect with the business?

In family enterprises, the “Human” component can be complicated by family dynamics. What issues do families need to be aware of ? Are there warning signs?

How do you counsel families and businesses on information asymmetry (need to know vs want to know) when transparency is a goal, but some won’t have the tools/discretion to deal with the important information?

What happens when wealth and ownership structure doesn’t interact well with operational structure? 

How do you help executives that work in family organizations deal with change when it’s clear that there is a personality clash or obvious performance problem?

What happens if geography limits the talent pool?

What if you have a leader that has the “raw material”, but is new to being an executive or comes with a different leadership style? 

How do family businesses think about the important benefits of diversity and inclusion?

Where do you think “Work From Home” fits in?

Are relationships even more important in this landscape- how do you foster them in this new world? 

How do you identify / develop talent via zoom?

www.platinumruleadvisors.com

https://www.linkedin.com/company/platinum-rule-advisors/

https://www.linkedin.com/in/leonora-zilkha-williamson/

I’m thrilled to have Ted Seides on the show to discuss his new BOOK, his wildly successful PODCAST, his FIRM’S media and coaching focus and the world of capital allocation. Ted has a unique perspective in the asset management world, having worked for the legendary David Swensen at the Yale Endowment, having conducted thousands of interviews with portfolio and investment managers and having capital allocation responsibility both for others (at Protege Partners) as well as himself. He takes a look back at what he learned and peers into the future of a space that has many challenges.

Introduction

Ted’s Background-

His experience at the Yale Endowment with David Swensen and lessons learned.

What does your BUSINESS do today?  Any particular lessons going strictly from the allocation industry into more of a media focus? How have you taken the amazing access you have to the capital allocation system and used it to build your media focus?

With this being your second book (the first is “So You Want to Start a Hedge Fund”), take us through the book writing process- how did you use the podcast to source material and whom were you writing the book for?

(As an aside, David is famous for having a [losing] bet with Warren Buffett that his allocation to hedge funds would beat an S&P 500 Index- he has talked about that frequently in other venues and WROTE ABOUT IT HERE.)

More specific questions on the Asset Allocation Space-

In synthesizing lessons from your interviews and balancing against your own experience, what was the most surprising common theme that resonated through them? 

Overcoming adversity (Pulling the plane out of the death spiral) . . . in the interviews and your experiences, how do allocators stop negative momentum?  Does career risk act as a natural stabilizer?  How big a threat is career risk for the asset manager and the allocator and how do you minimize that in the decision-making?

Manager selection as “predicting evolution” . . . how do you diagnose skill in a snapshot of time vs a culture of process evolution that will continue to persist?

The job description of CIO . . . (A question I didn’t ask, but should have was “Have you ever had anyone from the search industry on?” . . . how do they navigate this insular world where neutrality and discretion is often pried?)

The Impact of ESG, not on investments necessarily, but the managers themselves?  What percentage of asset managers are people of color?  Women?  

It is six times more difficult for a manager to get a face-to-face meeting with an institutional allocator than a high school senior to gain acceptance at Yale or Harvard.  What is the future for new and emerging managers in this environment?  Who is doing good work on manager inclusiveness?

How does politics impact decision-making at the Board Level, Allocator Level, Portfolio Manager level?

Is there a study on the impact of life events on investment performance / process?  Is there a correlation?  Character- What percentage of CIO’s / managers are divorced/getting divorced?  Death in the family?  Have you hired private investigators to “peer under the hood”?  How prevalent are questionable practices / fraud?  How does that information get whispered?

Do you have a couple of trends in the allocator/asset management space that we should watch out for?

I thought your end section compared well with Jon Winokur’s book “The Portable Curmudgeon” on famous quotes (I loved it- particularly Greg Fleming’s “Optimism is Moral Courage”) . . . What were your favorite quotes from experts on various topics?

How to find Ted: www.capitalallocators.com

TWITTER: @tseides

I see the concept of locating wealth and assets at the state level all the time for a variety of reasons . . . There has been only occasional talk of U.S. citizens exploring other citizenships.

At the federal level, US citizens are taxed on worldwide income no matter where they live. However, with a new regime in Washington (and wealth tax initiatives) , there seems to be more interest in foreign citizenship options.

To help make sense of the myths and the current climate, I spoke with David Lesperance. He is a top International Tax and Immigration Advisor with his Gadanz, Poland based firm, LESPERANCE AND ASSOCIATES.

-Who should be interested in this and why?

-How prevalent is it?  6045 in 2020 (How many estate tax returns were there?)

-Why would you do it?  Taxes, ideology, other reasons?

-If you are a US citizen, what’s the process? 

-How much does it cost? (Including the calculation of exit tax of 40 pc of net worth)

-What are the usual places to “go”?

-What are the rules of engagement once you’re “out”?

-What is the concept of “back-up citizenship?”

-Are you putting yourself on “Bad Lists”?

-The Dangers of a Wealth Tax for wealthy people . . .

-Step Up in basis removal?

-The increasing cost of “Citizenship Insurance”

The 75th “Wealth Actually” Podcast . . . Wow . . . it seems like I just started this project a few months ago. It has been 4 and a half years since the first one . . . it’s alarming how fast time flies. Hopefully, I have improved over time!

This 75th recording is an industry specific interview, but it has wide ramifications. In getting up to speed on a different project, I stumbled across the book “Ethics for Trustees 2.0” by MARGUERITE LORENZ. Based in California, Marguerite is a Master Trustee and the Managing Partner of LORENZ PRIVATE TRUSTEES.

Ethic for Trustees 2.0 is a quick and extremely informative read on the roles and responsibilities of a trustee and the establishment of good practices around decision-making that involves judgment and discretion. It also went into some detail about the California licensing component of individual trustees- something I knew little about. So in typical “me” fashion, I called up Marguerite to find out more about the book and her firm’s unique practice. That led to her gracious appearance on the latest “Wealth, Actually” podcast.

We covered:

-Her unique background and the formation of her private trustee business. (It has its own unique succession story too!)

-Marguerite’s rationale and experience in writing the book

-The Definitions of a Trust, their uses and some of the nomenclature

-The Duties of a Trustee/Fiduciary- (many of which trustees aren’t aware of)!

-What makes a good trustee?  How does one deal with arguing beneficiaries? Tricky assets?

-The Origin of CALIFORNIA LICENSING FOR PROFESSIONAL TRUSTEES (and why it may be important for normally exempted attorneys and CPAs to get licensed.

-When does advice graduate from being to transactional to ongoing and how does it relate to administration of structures and discretionary decision-making?

-Traps for the unwary trustee 

-What functions or areas of trustee responsibility are good to ask for help? When do you bring in outside experts?

-Useful Resources and Groups:

INDEPENDENT TRUSTEE ALLIANCE

ESTATE PLANNING GROUP NETWORK

-How do we stay in touch?

MARGUERITE LORENZ LINKEDIN

LORENZ PRIVATE TRUSTEES (WEBSITE)

MARGUERITE LORENZ TWITTER

EUAN RELLIE is on the podcast today. We went around the world in half an hour and probably could have solved the worlds problems over drinks if we had the time. Alas, we only get a taste of Euan’s informed worldview and his story of building a business and advising clients as they solve the puzzle of doing business in Asia and around the world successfully. We do get a hear a bit about of his love for Arsenal Football at the end.

For those who want to hear more from Euan, he is an excellent twitter follow . . . @EUANRELLIE. He is quoted often on matters of finance, fashion and culture- recently in the New York Times and the South China Morning Post.

In his day job, Euan is an investment banker with the firm he founded, BDA Partners. Since founding BDA in 1996, he has lived in New York and London, and Singapore, and has worked in China, Taiwan, Korea, Japan, India and across the Middle East. 1990-1996, he worked for Schroders, the UK investment bank now part of Citigroup, in New York, London and Singapore. He was Head of SE Asia Execution for Schroders Asia-Pacific Regional Advisory Group.

Our discussion covered a wide range of topics- I wish we had longer!

What are some of the good and difficult data points that you are focussing on?

How did you get into the world? How did your London background prepare you for New York?

Focus on Asia and helping firms on the sell side. Helping firms access the capital and expertise in Asia and around the world

What does the U.S./China dynamic look like long term? What do American businesses get wrong doing business far from home?

What should we take away from this tumultuous last few months? What can we expect in the post-Trump world? What should we feel optimistic about?

How do the prospects for this season look? What does the future look like?

Occasionally, I get to speak with someone in the industry that both affirms my experiences, but also pushes my thinking and worldview. DAVID C WELLS JR, CEO of Family Capital Strategy, fits that bill on the topic of advising families. I met him in Nashville early in 2020 and stayed in touch. When I heard he was writing a book, I knew we were kindred spirits having gone through that process myself. That book, “When Anything is Possible”, just came out and I couldn’t be happier for him. I think it is a terrific companion to those looking to forestall the “Shirtsleeves to Shirtsleeves” phenomenon and help business owners and their families structure and build lives of purpose. In this podcast, we discuss some of his insights and the book-writing process itself.

Chapter 1 Wealth Strategy: Defining the Terms

Chapter 2 Wealth and What It Is

Chapter 3 Level of Wealth

Chapter 4 Psychology: Money’s War on Our Brains

Chapter 5 Coming Into Wealth

Chapter 6 How You Feel About Yourself Affects How You Feel About Wealth

Chapter 7 Defining Your Wealth Identity

Chapter 8 How to Spend It

Chapter 9 How to Invest

Chapter 10 Giving to the Next Generation

Chapter 11 Philanthropy

Chapter 12 Building a Life of Intention

The Challenge and Complexity of Entitlement

Adjusting to Life After The Liquidity Event

Creating a Wealth Surplus to Pass to Future Generations

What You Should Know Before Marrying Rich

Book – whenanythingispossible.com

Website: www.familycapitalstrategy.com

Newsletter – FIFTEEN ON FRIDAY –

Twitter: @DavidCWellsJr

Here is the first video foray for the “Wealth Actually” podcast (a bit by accident! We had to switch formats midstream . . . so I decided to experiment with the video format).

I interviewed Christopher Ott on #Cybersecurity for the Ultra High Net Worth, High Net Worth and Family Office space. We talk about how one should view their own digital risks, how to protect yourself, and what to do when you have been compromised. We kept it to 40 minutes and probably could have discussed issues for more than three hours.

Chris is a partner at Rothwell Figg, the litigation firm based in Washington, D.C.

Successfully

Prior

In these roles, he investigated and charged the largest known computer hacking and securities fraud scheme and the hack of Yahoo by Russian intelligence operatives, the largest data breach in history,

Cybersecurity- the main concerns are around the ability to control access and use of information. Everybody has at least three types of information

This is data that will help predict what you are going to do. This is especially useful for hackers and other criminals as they figure out how to access your data.

This is data that regulates the access to a client’s information.

This can include: Passwords (and the need for two factor control, Phones (with automatic password access that can be migrated), and “Deep Fake” video and voice that can trick the gatekeepers into relinquishing access

This can include social, political, or economic influence.

Criminals

Spies

Hybrid hackers

-Russian Type

-Chinese Type

More data

More control

Much more influence

·         Direct socio-political

·         Indirect socio-political

§  Control

·         Analog passwords

·         Never take shortcuts

·         Device security

§  Two

§  What

§  How

§  Who

§  BEC

§  Sim

§  Deep fake audio and video

Understand What You Have and What Your Risks Are

Have Advisors In Place

Don’t Panic- Assess the Situation

Implement Action Plan

Establish an action plan in case of a breach or other compromise.

Emphasize personal relationships with all business transactions. Make sure that you have personal relationships with your advisors and transactors so that there is layer of common sense behind communications.

Audit what you and your family put out in the world of social media both from a cybersecurity AND from a PERSONAL security standpoint. Consider having a policy- even if informal- to prevent predators having access to physical information.

Use multi-factor authentication procedure to confirm and verify instructions (ESPECIALLY for wire transfers or money transactions).

Encrypt emails that include private information such as bank details, credit card numbers, Social Security numbers, etc. 

Back up all data off-site on a regular basis.

Regularly change passwords and use different passwords for platforms so that one breach doesn’t turn into a cascading data breach on other systems.

Perform regular cyber audits to make sure confidential information is secure and that accessible information to the public is properly scrutinized.

Avoid clicking on links and being suspicious of attachments. Run drills to make sure employees have well-ingrained good habits.

Don’t conduct personal business using work email.

This may seem obvious, but don’t store sensitive company information on personal devices or share it on social media.

Avoid public Wi-Fi connections for work purposes.

Run “fire drills” to test the effectiveness of your response plan in the event of a cyber attack.

Review the state of your Cyber-insurance in case something goes wrong.