This week, I speak with Glen Kacher, Managing Director and CIO of Light Street Capital. We discuss his tenure at Integral Capital Partners, as well as his start at Tiger Management under founder Julian Robertson.

We talka bout why he launched a hedge fund surrounded by venture capital in Silicon Valley, and what it takes to embrace the “speed of tech.”

We also discuss the polarization of data centers and what AI will look like five years from now.

He is currently re-reading “Empires of Light: Edison, Tesla, Westinghouse, and the Race to Electrify the World” by Jill Jonnes; A transcript of our conversation is available here Tuesday.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Adam Frank, Head of Wealth Planning and Advice at JPM, responsible for $1.3 trillion in client assets. Previously, he was head of Wealth Management for JP Morgan Securities. JPM’s combined total assets, including global, institutional, private bank, wealth, and retail, are over $7.7 trillion.

Current Reading/Favorite Books

The post MiB: Glen Kacher, CIO of Light Street Capital appeared first on The Big Picture.

​• Red and Blue America Have Found Something to Agree on: Flock Cameras Must Go: Liberal Asheville and conservative Oconee County both voted to drop the AI license-plate readers — more than 100 local governments have paused or ended contracts this year. A national backlash against AI-enabled license-plate readers is uniting Trump country and progressive strongholds alike. ‘Nobody wants to be surveilled…doesn’t matter what your political leaning is.’ (Wall Street Journal)

​• Was Silicon Valley Always Like This?: Nitish Pahwa revisits Paulina Borsook’s Cyberselfish and the forgotten voices who warned of impending trouble amid the 1990s internet optimism. As A.I. doomerism takes off, I tracked down the author of Cyberselfish to chat through her decades-old critiques of tech bros. (Slate)  see also A brief history of AI executives calling for regulation: The industry is in a panic, but it’s been claiming to want legal guardrails for years — with few meaningful results. (The Verge)

• The day Warren Buffett saved Salomon Brothers ‘Our name was rat poison’  When Buffett arrived at Salomon that morning he faced three sets of overlapping and intertwining problems: Find out the true nature and cause of the crises; convince regulators to let Salomon keep doing business; and figure out who would run the bank, after its CEO, president, and vice-chair had all resigned in the last 48 hours. Richard Dewey on Sunday, August 18, 1991 — Buffett with a firm to rescue. (Financial Times)

• The surprising new way to find friends and true love? Your Costco card: USA Today on the warehouse club as community and dating scene. (USA Today)

• There Are Over 1 Million N.Y.C. Street Signs. Here’s How They Are Made:. From Cornelia Street to the Brooklyn-Queens Expressway, the 46 workers in this Queens building bring to life the words and symbols that guide the city. (New York Times)

• Rules of relevance: we explore how such “learned blindness” can become a major source of market risk in periods of rapid technological and geopolitical change. It may not be changes in the data that trigger market volatility ahead, but a change in the lens through which investors interpret that data. (Carlyle) PDF

• “There is no such thing as a ‘sense of humor’ in the Criminal Code”: Russian stand-up comedians on surviving war and censorship: Russian stand-up comedy has changed dramatically over the past four and a half years of full-scale war. In early 2026, a Russian court sentenced comedian Artemy Ostanin to five years and nine months in prison for a joke about a legless Jesus. Within the stand-up community, the case was seen as a warning: anything said onstage can lead to very real trouble. Venues now ask performers in advance to keep their shows “apolitical,” while comedians themselves remove potentially risky material from acts or hide it behind hints and innuendo. Some comedians left Russia during the mobilization but later returned after finding that they could not afford to remain in exile. The Insider spoke to stand-up comedians who live and perform in Russia. They described what can be joked about today, how fear and self-censorship have changed the scene, and why even audiences are no longer always interested in political humor.. (The Insider)

​• The Quaalude Comeback: A Once ‘Extinct’ Drug From the 70s Makes a Resurgence: Mattha Busby on the return of “ludes” — whose 1984 elimination was the one unequivocal success of the war on drugs. (The Guardian)

​• The Most Crucial Step to Better Sleep Is Also the Most Straightforward: Smart mattresses and sleep trackers aside, experts say that the key to feeling well-rested is to simply stick to your bedtime. Michele Ross on the metric the mattress upgrades and sleep scores overlook — when you actually go to bed and wake up. (GQ)

​• Impossibility Is a Myth: The Fence goes long on the proposition. Sacha Jafri sold an artwork for $62 million dollars in 2021 at an auction. But the money never changed hands. What happened? (The Fence)

Video of the day: The Apple Ad That Broke Microsoft

Be sure to check out our Masters in Business this weekend with Glen Kacher, founder and CIO of Light Street Capital. He launched the firm in Palo Alto after stints working with Julian Roberts at Tiger and Roger McNamee at Integral. His Mercury funds returned 45.7% in 2023, 59.4% in 2024, and 37.3% in 2025 — the best three-year stretch of any of the “Tiger Cubs.” He describes the firm as “the Silicon Valley Home Team, 100% focused on tech opportunities.”

Joining the dots between big AI

Source: Financial Times

Sign up for our reads-only mailing list here.

~~~

To learn how these reads are assembled each day, please see this.

The post 10 Weekend Reads appeared first on The Big Picture.

Note: This guest essay was written by someone who works for a regulated entity and must therefore be highly circumspect with regard to any public commentary, regardless of topic. They have been closely following the evolution of the mass surveillance situation since early 2025. 

Why Jessica Burbank’s Flock investigation deserved consideration for an Investigative Documentary Emmy

There are two ways for an investigative journalist to be first. One is to publish a story before another reporter does. The rarer kind is to recognize that something is an important story before everyone else sees its importance.

Jessica Burbank did the latter.

In August 2025, Burbank produced an hour-long documentary investigating Flock Safety, the rapidly expanding provider of automated license-plate readers and other surveillance technology. Her starting point was hardly the stuff of national headlines: a municipal contract in the affluent village of Scarsdale, New York.

What Burbank found there became a window into something much larger.

That matters because the National Academy of Television Arts & Sciences has an Emmy category almost tailor-made for this kind of work. NATAS describes Outstanding Investigative Documentary as films that expose “wrongdoing, corruption or hidden truths through deep reporting and original access.”

In other words, work that holds powerful institutions accountable and brings new evidence or revelations to light. Measured against that standard, Burbank deserved serious consideration for an Emmy.

On April 8, 2025, Scarsdale’s Village Board approved its Flock contract. The resolution had not appeared on the published agenda. After a presentation and executive session, the Board amended its agenda and approved the contract 6–1. The procedural portion took mere seconds.

Burbank’s documentary reconstructs what preceded that vote and what residents hadn’t been told.

Using records obtained under New York’s Freedom of Information Law, she established that Village officials had been communicating with Flock for months before the public presentation. The incoming police chief was invited to meet with the company the day after his selection and before formally taking office. On March 31, he emailed that “the map is approved,” referring to proposed camera locations—before the public presentation, contract approval, or funding.

That alone is solid accountability journalism.

But Burbank didn’t stop there.

A records request seeking market research and analysis of competing vendors produced only a sole-source justification signed by Flock’s CEO. Burbank searched elsewhere and found versions of similar Flock documents in government records around the country. She then identified communities where Flock contracts had followed strikingly similar low-visibility paths.

In Lucas County, Ohio, commissioners approved a $250,000 Flock agreement among a group of routine items, only to attempt to rescind it a week later after a commissioner reconsidered what they had authorized.

This is the machinery of investigative journalism: find an anomaly, obtain the records, test the official explanation, search for a pattern, and confront the subject with what you find.

Burbank did that last part, too. She interviewed Flock’s national communications director and questioned the company about its contracting practices and the similarities she had uncovered among municipalities. The film does not simply present critics of Flock; it puts Burbank’s findings directly to Flock and gives the company an opportunity to answer them.

Then the investigation makes its most important leap.

Scarsdale isn’t really the story. The network is.

The documentary explains that Flock’s distinguishing feature isn’t simply its cameras. It is the ability, where agencies participate in sharing, to connect searches across jurisdictions. Burbank examines a Texas sheriff’s investigation involving a woman who traveled across state lines for an abortion and gets Flock itself to acknowledge that searching cameras in other participating localities is a capability of its system.

From there emerges the film’s central insight: a national surveillance infrastructure doesn’t necessarily arise from an act of Congress or a presidential directive. It can emerge incrementally—one police department, one salesperson, one municipal contract and sometimes one barely noticed local vote at a time.

As Burbank puts it near the film’s conclusion, one might imagine that creation of a national camera network would require “high-profile debate on the nightly news” and congressional action. Instead, she observes, it can take little more than seconds at a town-board meeting and a police chief’s signature.

That observation looks considerably more important today than it did when Burbank made it.

There was also unusually immediate evidence of impact. Her written investigation was published August 2, 2025. On August 4, Scarsdale’s police chief sent the Village Board a memorandum concerning the Flock contract. On August 6, the Village canceled it. Burbank carefully stops short of claiming that her reporting caused the reversal, suggesting instead that journalism and sustained public participation “might” have mattered.

That restraint is important. Investigative journalism should establish what the evidence supports, not claim credit it cannot prove.

But the strongest argument for Burbank’s work may be one that only became fully visible afterward. She was early. The national controversy she identified in 2025 did not fade. It grew.

Flock and interconnected ALPR networks subsequently became subjects of far broader scrutiny over privacy, immigration enforcement, abortion investigations, police misuse and the extraordinary power created when thousands of local cameras become searchable beyond the communities that purchased them.

In other words, Burbank didn’t simply get to the Flock story early. She identified why it was going to become a national story. That distinction matters.

There are investigations that expose misconduct everyone already understands to be important. They can be extraordinary journalism. But there is another, rarer form of investigative reporting: finding something that appears small, recognizing the system concealed inside it and showing the audience why it will matter before conventional wisdom catches up.

Burbank began with a 37-second vote in a suburban village and found the architecture of a national controversy.

Her documentary ends with a sentence that now sounds remarkably prescient:

“The story of mass surveillance and Flock Safety is one I’m just beginning to tell.”

She was right.

None of this means Burbank was owed an Emmy. NATAS’s documentary categories encompass extraordinary work from some of the best-resourced documentary organizations in the world, and an independent production should be judged by the same standard of excellence.

But that is precisely why Burbank’s accomplishment deserves attention. NATAS says an Outstanding Investigative Documentary should uncover hidden truths through deep reporting and original access, hold powerful actors accountable, and bring new evidence or revelations to light.

Burbank did those things.

And she did one more: she recognized the significance of the story before much of the country did. That isn’t merely good timing. It’s one of the hallmarks of great investigative journalism.

Sources:
Video: You’re Being Watched: The Company Behind America’s Mass Surveillance Takeover

Millions in Public Funds, Zero Public Input: Flock’s Surveillance System Might Already Be Overseeing Your Community
The $7.5 billion surveillance company Flock Safety is operating in 49 states and over 5,000 communities, but the residents of Scarsdale, NY, are fighting back.
Jessica Burbank
Dropsite. Aug 02, 2025

The post She Saw the Flock Story Coming… appeared first on The Big Picture.

​• Why Are Valuations Falling in a Bull Market?: Ben Carlson runs the year’s tape — mortgages from 6% to 7%, the 10-year from 4% to 5%, inflation from 2.4% to 3.4%, oil from under $60 to over $100. (A Wealth of Common Sense)

​​• Muni Bonds Are Yielding 5%. They Rival Stocks Now.: With yields comparable to long-term Treasuries and strong credit quality across the $4 trillion tax-exempt market, a tax-advantaged 5% could stack up well versus equities in the coming years. (Barron’s) see also T-Bills and Chill? Try Munis & Chill Instead. Land an A-round and a real salary? Great! Start putting some of your newfound cash flow aside as a good savings habit in an all-equity 401(k). It is a hedge against your start-up failing to beat the odds and eventually finding an exit. (The Big Picture)

• The Next Great AI Trade Is Everything That Isn’t AI: Market Sentiment on the hard half of investing — finding the trend early is easy compared to knowing when the thesis has become consensus. (Market Sentiment)

​• The iShares Graveyard: David Snowball’s archaeological dig through BlackRock’s full list of liquidated ETFs, prompted by eight more closures. “You think I went down a rabbit hole. I prefer to consider it an archaeological dig.” (Mutual Fund Observer)

• Trump Has Made More Trades Than All of Congress Combined: Bloomberg finds the president has traded more securities than every member of Congress combined since returning to office — while backing a lawmaker stock-trading ban that doesn’t apply to him.  Most Americans support a ban on lawmaker stock trading. Trump is in favor of a prohibition that doesn’t apply to him. (Bloomberg free)

​• The World Economy Is Becoming Wary of the U.S.: Global investors balking at Treasuries, louder talk of the dollar’s dwindling power, foreign governments hauling their gold out of American vaults. America’s position of global economic stability is starting to look shakier as the Trump administration piles on debt and doubles down on sanctions. (New York Times) see also The American Age Is Over: The Atlantic on the post-WWII order — bound to end eventually, shocking in how suddenly the moment arrived. A period of global dominance has ended in plain sight. (The Atlantic)

​• We Bought a $500 Counterfeit Luxury Watch. Nobody Could Spot the Difference: Alistair Charlton inside the Reddit QC-post subculture of superfake Rolexes — so good even Rolex didn’t spot it. The replica watch industry is in its “super clone” era. Following tips from murky internet forums, we bought three budget fakes that were good enough to pass as real—but ultimately disposable. (Wired)

• ‘Flock City PD:’ The Fake Flock-Owned ‘Police Department’ That Searched Real Cameras for Real People: Jason Koebler Jason Koebler · Sep 17, 2026 at 2:07 PM Flock ran searches for “coexist bumper sticker,” “white truck with a trump sticker,” and “Star of David,” apparently to demonstrate what cops shouldn’t search for. (404)

​• Can We Be Certain That Time Really Exists?: Ethan Siegel on what counts as real — the measurable, observable, and quantifiable — and the questions that hand back pathological nonsense, like dividing by zero. We experience time as real. But what if it’s only an illusion: an illusion that’s inherently relative? Does time fundamentally even exist? (Starts With A Bang)

• “Where Am I Going? And What’s Next?”: Nicole Kidman Is Keeping Her Heart Open: The long-awaited sequel to a fan-favourite movie; a newly single life to ponder; the Euro Summer to end them all: has Nicole Kidman ever been more spellbinding? Giles Hattersley meets the legend in London to talk power moves, mega fashion and the art of a fresh start. Photographs by Venetia Scott. Styling by Poppy Kain. (British Vogue)

Video of the day: The Greatest Scam of Our Childhood 8 CDs for a Penny!

Be sure to check out our Masters in Business this weekend with Glen Kacher, founder and CIO of Light Street Capital. He launched the firm in Palo Alto after stints working with Julian Roberts at Tiger and Roger McNamee at Integral. His Mercury funds returned 45.7% in 2023, 59.4% in 2024, and 37.3% in 2025 — the best three-year stretch of any of the “Tiger Cubs.” He describes the firm as “the Silicon Valley Home Team, 100% focused on tech opportunities.”

Home price growth has already begun to cool again

Source: Calculated Risk

Sign up for our reads-only mailing list here.

The post 10 Friday AM Reads appeared first on The Big Picture.

I had a very interesting conversation with Michael Monaghan of Founder’s Fund about HNTI; here is the description:

Barry Ritholtz explains why getting rich through investing is simpler than most people think, why market forecasts are so often wrong, and why your own behavior may be the biggest threat to long-term investment success.

Michael Monaghan sits down with Barry Ritholtz, Chairman and Chief Investment Officer of Ritholtz Wealth Management, host of Masters in Business, and author of How Not to Invest, for a wide-ranging conversation on stock market investing, compounding, index funds, active management, investor psychology, financial media, market predictions, and building wealth over time.

Barry explains why investors should focus on getting rich slowly, why humans are psychologically wired to make poor decisions in volatile markets, and why the most confident market forecasts can often be the least reliable.

They discuss why so few active managers outperform over long periods, what Barry learned from Warren Buffett, Ray Dalio, Howard Marks, and Daniel Kahneman, and why he believes most investors should keep the core of their portfolio simple. Barry also shares his “cowboy account” strategy for investors who still want to pick stocks, including how he thinks about Nvidia and speculative investments without putting long-term wealth at risk.

The conversation also explores what financial advisors actually add beyond investment performance, direct indexing and tax-loss harvesting, and why Barry believes the purpose of money is not simply to accumulate a bigger number.

The post How to Get Rich Slowly appeared first on The Big Picture.

• Here’s Who Trump Should Blame for the Rate Hike He’s Raging About:He promised lower prices and lower interest rates. His policies delivered renewed inflation and a rate hike. (The Bulwark)

• Gas Prices Could Cost Republicans the Midterms: Gas is up 37 percent in a year, home-heating oil 52 percent, diesel a staggering 69 percent — and none of it improves while the Iran war drags on. Many voters understand that the president isn’t directly responsible for the price of oil. Except this time, he is. (The Atlantic) 

​• More Money Than They Ever Imagined — and No Clue How to Spend It: Bay Area AI workers are too busy to embrace the fruits of the boom — maybe a custom bike trip through Italy, if they can spare the time off. Share sales at OpenAI and Anthropic minted hundreds of millionaires. They’re splurging on computer hardware and espresso machines. (Wall Street Journal)

• Hollywood fears an AI future. China is already living it: China’s film and video industry is in the midst of an AI revolution, and at ground zero are the micro dramas that play out on millions of smartphones. The AI trends upending China’s entertainment industry may be a harbinger for what’s to come in Hollywood. ​Actor Chen Yilong signed a contract in August licensing his face to a production studio — his role now is to sit before a camera making expressions on command. A neutral stare. An angry glare. (Los Angeles Times)

• It’s Time to Raise the Rates (No, Not Those Ones). Reaganism broke U.S. tax brackets. It’s time to fix them. I’ve always been struck by the fact that the income floor for the top tax rate in America is $640,600. Why should someone making $700,000 pay the same rate as someone making $70 million? In a new report, the Roosevelt Institute policy fellow Samarth Gupta argues that this is actually a historical anomaly. From 1916 to 1986, the tax code had, on average, more than 27 different federal income brackets each year; today, it has just seven. Fixing that, he argues, wouldn’t just make the tax system fairer; it could also help us pay down the national debt. (The Bully Pulpit with Bharat Ramamurti)

• A Severe Misalignment of AI in Mathematics. We are witnessing a general threat to intellectual work, with misalignment between the outcome of the use of AI and its initial purpose. In many fields and activities, years of training have traditionally served not only to produce a final answer or product, but also to develop understanding and the ability to formulate new questions and ideas. Terence Tao on the threat to intellectual work — years of training were never just about producing the final answer, but about developing the ability to formulate new questions. (Terry Tao)

• Pennsylvania’s Measles Outbreak Is Enormous: The two latest deaths suggest that the true number of infections is much larger than reported. Four deaths in the state since mid-August have made America’s measles crisis undeniable — and harder for anti-vaccine activists to explain away. (The Atlantic)

• Kennedy Center Leaders Warn It’ll Collapse Without Trump’s Name: Hafiz Rashid on the president’s allies claiming the historic theater could close immediately unless the renaming sticks. (New Republic)

​• Shot Into the Sky at 700 MPH: Inside the Secret Fraternity of Ejection Survivors: Ron Bath hit a bird at nearly 700 mph in his RF-4 Phantom — the WSJ on the tie club whose membership requirement is pulling the handle. People who live through the harrowing experience join a little-known fraternity where members get silk ties and $5,000 watches (Wall Street Journal)

•  ‘It’s the Bayeux tapestry of TV!’ After six decades, the seminal series bows out with 70 Up. The ‘hugely important artefact’ that’s followed 14 children since they were seven is set to air its final instalment. The now-septuagenarians and director Asif Kapadia talk about breaking new ground for 63 years – and changing TV for ever. The Up series — checking in on the same Britons every seven years since 1964 — comes to its close. (The Guardian)

Video of the day: The Professor Who Taught People How To Think

Be sure to check out our Masters in Business next week with Glen Kacher, founder and CIO of Light Street Capital. He launched the firm in Palo Alto after stints working with Julian Roberts at Tiger and Roger McNamee at Integral. His Mercury funds returned 45.7% in 2023, 59.4% in 2024, and 37.3% in 2025 — the best three-year stretch of any of the “Tiger Cubs.” He describes the firm as “the Silicon Valley Home Team, 100% focused on tech opportunities.”

Four Stages of YTD Global Equity Returns

Source: Fisher Investments

Sign up for our reads-only mailing list here.

The post 10 Thursday AM Reads appeared first on The Big Picture.

At The Money: At The Money: Investing in Founder-Led Companies Michael Monahan (September 16, 2026)

How can ordinary investors access funds of companies led by founders? Enter the Founders 100 ETF (FFF).

Full transcript below.

~~~

About this week’s guest:

Michael Monahan is a partner and portfolio manager of the Founders 100 ETF (FFF). He’s been a Wall Street analyst, a private market investor, a tech startup CEO, and a public equity portfolio manager.

For more info, see:

Personal Bio

Professional/Personal website

LinkedIn

~~~

Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg. And find the entire musical playlist of all the songs I have used on At the Money on Spotify

Transcript: At the Money: Michael Monaghan

BARRY RITHOLTZ: Should you invest in companies led by founders? Peter Thiel’s VC Founders Fund has over $20 billion and produced excellent returns. How can ordinary investors get access to funds of companies headed by founders? To help us unpack all of this and what it might mean for your portfolio, let’s bring in Michael Monaghan. He is a partner and portfolio manager of the Founders 100 ETF, stock symbol FFF. He’s also been a Wall Street analyst, a private market investor, a tech startup CEO, and a public equity portfolio manager in his career. So, Michael, let’s just start with the basics. What’s the central thesis behind the Founders 100 ETF? Why should founder-led companies outperform even after they’ve become large public companies?

MICHAEL MONAGHAN: Barry, thanks for having me. The data shows that founders outperform by about 3X. We looked at 11,000 stocks over 30 years, and on average, founder-led companies grow 4% greater than the S&P.

BARRY RITHOLTZ: Wow. So let’s stay focused on that 3X. I believe that was Bain research, that founder-led companies tend to outperform other companies. What is it that drives that three times outperformance? Is it that founder-led companies tend to be heavily represented in the technology sector? Is it a function of age or size, or is this just survivorship bias?

MICHAEL MONAGHAN: We’ve got companies led by founders all across the economy, so it’s not just a concentration in technology, although there are a lot of technology companies that are led by founders. We don’t think it’s survivorship bias. We think that founders bring something really unique. They have the vision to see where to go. They have the execution to execute that plan they’ve envisioned. They have the charisma to build a big team around them, and they’ve got the grit to get through the hard times, combined with the fact that they think in decades, where a board-hired CEO is just trying to make the next quarter and the next PowerPoint presentation for the board.

BARRY RITHOLTZ: How much of this is due to the fact that, hey, if you’re going to start a new company from scratch, by definition you’re a risk-taker. How much of the outperformance of founder-led companies is simply just embracing that higher tolerance for risk?

MICHAEL MONAGHAN: I don’t know if that’s the factor that’s showing it. I think if you dig in, a lot of these guys are successful because they de-risk all along the path, right? So if you listen to, say, a Marc Andreessen, he talks about at the zero stage and the one stage and the two stage, it’s all about de-risking the problem as you move along. So I would gently say that I think founders de-risk their business even more than non-founders.

BARRY RITHOLTZ: Really interesting. And you yourself are a founder. Your startup was Beartooth Radio. It didn’t necessarily find an exit, but I’m curious, how did that experience of standing up a company from scratch affect your view of founder-led firms?

MICHAEL MONAGHAN: I think it completely reframed how I think about building a company. I had spent the first 15 years of my life working for great companies. I worked at Goldman Sachs, I worked at Sanford Bernstein. But there’s a big difference between working at a world-class organization where you fit into their system, and building your own system from zero to one. I was fortunate enough to get exposure to some of these really good technology founders, and just saw how differently they thought, how passionate they were, how they brought vision that corporate managers didn’t have.

BARRY RITHOLTZ: So let’s zoom in on that. How do you define a founder? Must the individual have actually started the original enterprise, or do you include anyone who perhaps acquired or reinvented or merged with or effectively refounded an already existing company?

MICHAEL MONAGHAN: So we define founder-led as the original founder — that’s the person who started the company — still running it, most often as the chief executive officer. Occasionally it’ll be the chief technology officer, or in the case of a medical or scientific company, it could be the chief medical or chief scientific officer. So it’s the chief officer running the company day-to-day. We looked at the data. Board member doesn’t have the efficacy we want. Chairman doesn’t have the efficacy. It’s only if the founder’s sitting in the seat every day running the company.

BARRY RITHOLTZ: And some classifications are really straightforward. Obviously Michael Dell founded Dell Computers, Zuckerberg at Facebook. What do you do with the more ambiguous cases? And I think probably the biggest one is Elon Musk, who was an investor, not an original founder of Tesla. There are debates about the merger with PayPal. We could talk about SpaceX. How do you draw the lines there? You’re really less interested in the technical founding issue than the driving animus of the company. Is that a good way to distinguish it?

MICHAEL MONAGHAN: I think that’s fair. We have a rigorous process to decide, and you and I can hit a couple of edge cases. But we look to see who the original founder is. Most of the time it’s clear-cut. Sometimes it’s not, and then we have to dig in. We have to say, who does the company define as the founder? Elon’s a great one to examine, because for some reason there’s controversy as to whether he’s the actual founder. We dug in and did the hard work. The company defines him as the founder, and in fact it was either 2012 or 2014, there was a court case where this was actually settled, and Elon Musk is one of the five original founders of the Tesla Motor Company.

BARRY RITHOLTZ: I would modify that to say Elon wasn’t the original founder, but once he took over, he so totally revamped the company that it looks nothing like the prior enterprise. So is there any reason to split hairs with that? But same sort of thing with PayPal or SpaceX. How do you think about those two?

MICHAEL MONAGHAN: So I think SpaceX, he clearly was the founder. I don’t think anyone else lays claim to it, right? PayPal was the merger of a couple of entities. It was the original X entity that Elon was building merged into Peter Thiel’s company. But there are edge cases. Berkshire Hathaway is a great example. I don’t think anyone would doubt that Mr. Buffett was the founder of Berkshire, but he bought a failing textile company as part of a massive acquisition, and that company that acquired that and many other things — he’s the founder of. And Monster Beverage is kind of the same way. They acquired a juice company, but it was really the energy drink company and the other acquisitions they made that is the founding of the Monster Beverage company.

BARRY RITHOLTZ: Yeah, that makes a whole lot of sense. So amongst your current holdings, you have founders like Alex Karp of Palantir, Larry Fink at BlackRock, Marc Rowan at Apollo. Each of those companies had multiple co-founders. How relevant must the individual who remains be to the company, to its strategic vision — to really be its dominant force?

MICHAEL MONAGHAN: You know, our test is: were they an original co-founder? And we often look to the company to define it. Most of the companies in their origin story or their history will list who the original co-founders are. As long as at least one remains as an executive, that meets our test.

BARRY RITHOLTZ: So now we take the list of however many founder-led companies there are — I think it was 11,000. You’re going to break that down to a list of 100. What are the underlying criteria that determine which of those thousands and thousands of founder-led companies end up in the 100 that are in FFF?

MICHAEL MONAGHAN: Really great question. So we looked at 11,000 stocks over 30 years, and during that 30-year time period, there are about 800 founder-led stocks at any one time. So in the current market, there are about 800 founder-led stocks. From there, we look at the 200 largest by market capitalization. And then my co-founder and I come from a fundamental background, especially her. She’s a classically trained Columbia Business School value investor. We build a valuation model, using some factors, to pick what we then believe are the 100 best out of the 200 largest.

BARRY RITHOLTZ: Interesting. And I’m looking at your largest holdings: Meta, Nvidia, Oracle, Palantir, Dell, Arista, and CrowdStrike. A lot of this is a heavy overlap with technology, AI, high growth, big cap companies. Why go with a founders fund instead of just a simple Nasdaq 100?

MICHAEL MONAGHAN: We have very different exposures than the Nasdaq 100. We’ve got about 80% active share versus the Nasdaq 100. We’ve got much higher exposure to founders — 100% founders versus about 20% of the Nasdaq 100 — and it’s a different portfolio construction. The Nasdaq 100 is limited to only Nasdaq stocks, and there’s obviously incredibly high growth in tech and out-of-tech stocks on the NYSE. And we feel like we’ve got a little better spread across the economy. Right now, the Nasdaq 100 is 30% exposed to semiconductors, the S&P at 20, and we’re only at 10. So we do have exposure to technology, but we really are bent across the entire curve. We’re not substantially overweight versus, say, the S&P. We are slightly overweight, but I don’t think we’re massively overweight versus the S&P.

BARRY RITHOLTZ: Yeah, I was looking through your holdings and I saw a lot of industrials and energy and financials, which you don’t necessarily see in the Nasdaq 100. But I’m glad you mentioned the 80% active share. So many ETFs I look at end up being closet indexers. This is really a very concentrated portfolio, with the top 10 holdings really accounting for a big chunk of your exposure. How much of what drives the performance of this is really just a conviction strategy — a concentrated portfolio with a long tail of sub-1% holdings? Tell us about the concentration, and also tell us, why do you have the rest of these small holdings? They’re almost like placekeepers to keep an eye on.

MICHAEL MONAGHAN: So we run a modified market cap weighting. That is, we take the market cap and we allow that to define how much position size we’re going to take for each position. The reason we modify it is we put a hard cap of 7.5%. So we rebalance quarterly — every quarter we reset the portfolio. We don’t take any single position more than 7.5%, because we want to have some diversification in the portfolio. That’s where we come up with the weightings. And the reason we end up with some of these smaller weights at the bottom, it’s just defined by where they are on a free float market cap.

What I would tell you, Barry, it’s really interesting. There’ll be days I wake up, I look at our portfolio, our top holdings are down, and the portfolio’s actually up, because those other 75 to 80 stocks that make up the balance — 50% — they drive sometimes when the big guys aren’t working. So it’s sort of just — we allow the market capitalization to set our position sizes.

BARRY RITHOLTZ: All right, so now we know the criteria for selection, the criteria for weighting. Let’s talk about the most challenging aspect of managing a portfolio: the sell discipline. What leads you to taking a company out of the portfolio? Is it just something as simple as the founder leaving, or do you also run through operating parameters and other fundamentals? And when suddenly you’re starting to think, “Hey, this company doesn’t have the growth prospects we were hoping for,” is that a basis for ejecting them, or is it a variety of things?

MICHAEL MONAGHAN: The main reason we would sell a stock is if the founder leaves. So in the prospectus, we state that if a founder announces their resignation, we will sell within 90 days of that announcement. So we don’t wait for them to actually leave — we would sell on the announcement. The second way a stock would get sold is if the fundamental overlay flags a condition that says to sell the stock. One of the ways we like to describe the fundamental overlay — it was built by my partner — it’s really looking for what she calls burnt pizza crust. We think all of our founders can make great pizza. We don’t want to tell them whether to make pepperoni or margherita. The factor looks and it says, are one of these crusts getting burnt? And if so, we’ll slide it out and bring in the next best company.

BARRY RITHOLTZ: Really interesting. So to wrap up: if you’re interested in a venture fund like Peter Thiel’s Founders Fund, but you don’t have a quarter billion dollars to gain access to it, consider the Founders 100 ETF, stock symbol FFF. Be aware of the fact that this is a concentrated portfolio with a high active share, and it may not perform similarly to the S&P 500 or the Nasdaq, but it is concentrated, and it focuses on companies being led by the original founders.

I’m Barry Ritholtz. You’re listening to Bloomberg’s At the Money.

~~~

Find our entire music playlist for At the Money on Spotify.

The post At The Money: Investing in Founder-Led Companies appeared first on The Big Picture.

​• Costly Medicine: Claudia Sahm on Fed Week — the FOMC is highly likely to hike a quarter point Wednesday, and the Middle East and AI headlines stealing attention are the same stories driving the inflation risk. (Claudia Sahm)

• The Unlikely Political Bedfellows on A.I. Regulation: David Sacks and Lina Khan? Bernie Sanders and Steve Bannon? The debate on artificial intelligence limits is creating unlikely alliances. (Dealbook) see also Here’s why it’s so hard to keep AI agents from going rogue: The techniques that made chatbots more capable can also bake in a tendency to hack, cheat and evade human oversight. Gerrit De Vynck on the gap between January’s optimism — alignment “increasingly looks solvable” — and what the technology is learning about cheating and hacking. (Washington Post)

​• Americans Don’t Understand Who’s Rich: Terry Taylor is worth about $2 billion, doesn’t put his name on the car dealerships he buys, and attends conferences only if nobody announces who he is. The Atlantic on the invisible rich and the tax code built around not seeing them. (The Atlantic)

• Stocks pop when the Trump administration invests, but the gains often fade fast: Stocks in other companies that have struck a deal with the Trump administration have tended to move in the opposite direction, often following a common trajectory: a significant bump around the formal announcement, high volatility afterward, and then gains often given back almost as quickly as they came. (Yahoo)

• American Businesses Have No Idea How to Set Prices Right Now: Diesel crosses $6 a gallon for the first time, and firms can’t tell whether to raise prices or wait it out. Businesses of all stripes are struggling to predict how long high energy costs will last.  (Wall Street Journal)

• Catastrophe Bond Fund Landscape: These products promise higher returns by assuming the risk of catastrophic events. The trade-offs are capacity constraints, limited liquidity, and higher fees. (Morningstar)

​• Oil Executives Say the Great Fuel Crisis Is Here: Chevron’s Mike Wirth and others warn global supplies are running low with no respite in sight — while Trump officials insist the disruption is temporary. (Wall Street Journal) see also Rising Fuel Prices Set Off Anger and Protests Around the World: From Indonesia to Guatemala to Syria, shortages are producing protests and blackouts. (New York Times)

• The U.S. Was Never Going to Win the “War on Terror” Robin Wright on twenty-five years of military campaigns against extremism, almost a million deaths — and the question of what it accomplished. In the twenty-five years since 9/11, the U.S. has waged several military campaigns against extremism around the world, resulting in the deaths of almost a million people. What has it accomplished? (New Yorker)

​• For the Love of God, Please Put on Headphones: “Loudcasting” — using speakerphone to watch videos and take phone calls — is turning public spaces into open-air podcasts. A writer begs for silence.   (Wall Street Journal).

​• 50 Parting Thoughts From the 2026 U.S. Open: Elena Rybakina and Alexander Zverev took home the hardware, while influencers and high ticket prices dominated the conversation at Flushing Meadows. (Sports Illustrated)

Video of the day: Japan’s Toyota Blows Up The Entire Car Market With This BIG announcement

Be sure to check out our Masters in Business with Seth Bernstein, CEO of AllianceBernstein and Head of Asset Management of Equitable Holdings, the 69% owner AB. The firm manages $905.5B. Previously, he spent 32 years at JPMorgan Chase, where he eventually became the Global Head of Managed Solutions & Strategy at JPAM, responsible for all discretionary assets for Private Banking clients, and Global Head of Fixed Income & Currency. He eventually became CFO of JPM’s Investment Management & Private Banking division.

Millionaires Everywhere

Source: A Wealth of Common Sense

Sign up for our reads-only mailing list here.

The post 10 Wednesday AM Reads appeared first on The Big Picture.

The transcript from this week’s, MiB: Seth Bernstein, Chief Executive Officer of AllianceBernstein, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

~~~

MASTERS IN BUSINESS Seth Bernstein, CEO, AllianceBernstein
Bloomberg Radio  |  Host: Barry Ritholtz

00:00:07  BARRY RITHOLTZ: This week on the podcast, we have an extra special guest. Seth Bernstein is the CEO of AllianceBernstein, as well as Head of Asset Management for Equitable Holdings. The firm manages $905-plus billion in client assets. He’s been CEO since 2017, joining the firm after 32 years at JPMorgan Chase and its predecessors. I thought this conversation was really fascinating, and I think you will too. If you’re interested in how a firm adapts to changing conditions, you’re going to find this to be a really fascinating discussion. With no further ado, my discussion with AllianceBernstein’s CEO, Seth Bernstein.

00:01:00  BARRY RITHOLTZ: Seth Bernstein, welcome to Bloomberg.

00:01:01  SETH BERNSTEIN: Barry, thank you very much. I’m delighted to be here.

00:01:04  BARRY RITHOLTZ: I’m delighted to have you. So before we start talking about AB, let’s delve a little bit into your background. You studied political science and economics at Haverford. What was the original career plan? Was it always investment management?

00:01:19  SETH BERNSTEIN: No, I had no idea what investment management was. I didn’t have anyone in my family who was in the financial services business. The original plan was for me to be an architect.

00:01:28  BARRY RITHOLTZ: Oh, really?

00:01:29  SETH BERNSTEIN: But I came up against two sort of immovable objects. One, I wasn’t terribly talented, and two, I didn’t have enough dough. So I discovered that no one makes money in architecture.

00:01:41  BARRY RITHOLTZ: Is that true?

00:01:41  SETH BERNSTEIN: No, I’m sure someone does, but not many do.

00:01:44  BARRY RITHOLTZ: Fat head, long tail. That seems to be the winner-take-all story everywhere. All right, so you come out of Haverford, ’84, somewhere around there?

00:01:52  SETH BERNSTEIN: ’84.

00:01:52  BARRY RITHOLTZ: And your first gig was at JPMorgan Chase?

00:01:56  SETH BERNSTEIN: Morgan Guaranty Trust Company.

00:01:57  BARRY RITHOLTZ: Morgan Guaranty. How long were you there for?

00:02:00  SETH BERNSTEIN: Well, Morgan ultimately was sold to Chase.

00:02:04  BARRY RITHOLTZ: So I said this wrong, and I actually had a note to myself. Your first gig after college was at JPMorgan Chase, or one of its 1980s predecessors?

00:02:16  SETH BERNSTEIN: That’s correct.

00:02:17  BARRY RITHOLTZ: Okay, I do my homework, and I literally had to put that into a parenthesis and I forgot to say it. So 1984, you start at a predecessor firm to JPMorgan Chase. Tell us about Morgan Guaranty. What were you doing there?

00:02:32  SETH BERNSTEIN: I was lucky enough to get into a year-long training program where this firm, irrationally, was willing to train liberal arts majors like me in accounting, in corporate finance, and, you know, higher-level math topics and other areas in order to build bankers and traders. That was the goal.

00:02:59  BARRY RITHOLTZ: So I understand poli sci as liberal arts, but did the economics major help at all?

00:03:05  SETH BERNSTEIN: I went to a Quaker college.

00:03:07  BARRY RITHOLTZ: So, no. All right. So you’re at Morgan Guaranty. Tell us a little bit about the roll-up process and where that ended. How did you end up —

00:03:17  SETH BERNSTEIN: Still employed?

00:03:18  BARRY RITHOLTZ: — at JPMorgan Chase? The reason I ask this is, around the same time I got married, and our bank accounts are at JPMorgan Chase, but that’s not where it started. It’s like nine banks ago, and we never changed banks. They would just send — oh, all right, Manufacturers Hanover is now Dime, is now this, is now that. And eventually it became Chase.

00:03:40  SETH BERNSTEIN: We were at the end of that merger trail, basically. JPMorgan had been an independent entity until 1958 or ’59, when they merged with the Guaranty Trust Company, and that was Morgan Guaranty. The holding company was J.P. Morgan and Company, a wonderful bank. They valued people. They almost never went outside to recruit anybody. So it was a fantastic place to have a career, because whenever they’d go into a new business — whether it was bond underwriting, because they were prohibited under Glass-Steagall — they would essentially retrain people who were already there. So you got opportunities that weren’t necessarily available elsewhere.

00:04:23  BARRY RITHOLTZ: Promote from within. Not a bad strategy.

00:04:25  SETH BERNSTEIN: Promote from within, yeah. It worked for a long time, until it didn’t.

00:04:28  BARRY RITHOLTZ: And Glass-Steagall went away in late ’99, something like that.

00:04:32  SETH BERNSTEIN: Glass-Steagall effectively went — JPMorgan was really the first. They granted powers. JPMorgan got equity powers in 1991 or ’92, and I was moved to equity capital markets, a new group. I went there and then ended up running high yield. And then I was responsible for debt capital markets, loan syndications. And then at the time of the merger, I was in media and telecom, because that’s what you do with people who get bored of doing bond underwriting. You make them bankers, whether they’re good or not.

00:05:09  BARRY RITHOLTZ: You did more than just bond underwriting. You eventually became the global head of fixed income and currency.

00:05:13  SETH BERNSTEIN: So after the merger with Chase, I was kind of thinking about what I wanted to do. JPMorgan Chase thought it was a good idea to keep me around, so they gave me an incentive to stick around. I figured that would be a great opportunity to look around for a year and figure it out. If you’ll recall, markets began to taper off at the beginning of 2000, with the whole fear and the internet, the whole issue around building dark fiber. So the high yield market was going to hell in a handbasket. And so I decided maybe it would be a good idea to move. And one of my friends said, why don’t you come over to investment management and private banking? You’d be a CFO, figure out what to do. And then he said, you should run fixed income. And I looked at him — I’d been in fixed income for most of my career — and I said, but I’ve never managed anyone’s money. And he said, don’t worry, they don’t either. So come on board. And so that’s what I did.

00:06:14  BARRY RITHOLTZ: That’s unbelievable. So you were global head of fixed income and currency for 10 years, but then CFO of investment management and private banking?

00:06:24  SETH BERNSTEIN: That was before that.

00:06:24  BARRY RITHOLTZ: That was prior. So I’m working backwards. Right. So was fixed income and currency the final spot, or was it global head of managed solutions?

00:06:33  SETH BERNSTEIN: Global head of managed solutions. I ultimately was asked to go over and run the multi-asset businesses of both investment management — JPMorgan Asset Management — and the portfolios for the private bank of JPMorgan, which was hard to do, because one was a distributor, one was a manufacturer, and we ultimately split it up because we had to. And I then ran all the discretionary money for the private bank and Chase Wealth Management.

00:07:01  BARRY RITHOLTZ: All right. So from there, 32 years at essentially many, many different jobs, but ultimately in the same organization. You decide, all right, I’ve been doing this for three-plus decades, let’s look around and see what’s out there. What led you to take the top job at AllianceBernstein? And that was 2017, correct?

00:07:26  SETH BERNSTEIN: Well, they asked.

00:07:29  BARRY RITHOLTZ: How did they find you? Obviously, when you take on a position like that, they’re looking at a variety of different applicants. How did they find you?

00:07:41  SETH BERNSTEIN: They found me through a person who worked at AXA. AXA was the ultimate owner, the majority owner, of AllianceBernstein, and it was the owner of Equitable. AllianceBernstein was part of Equitable prior to AXA’s purchasing Equitable in 1990-ish. If you’ll recall, back then, that was right after Drexel collapsed, high yield collapsed, real estate collapsed. Equitable got caught up in that. And so Equitable was acquired by AXA, the French insurer, and they made a lot of money with it. They had bought it at a pretty knockdown price. And by 2017, AXA had decided to go in a different direction. They wanted to get out of the life insurance business. And so they decided that they needed to sell Equitable, and a way to facilitate that sale was to bring AllianceBernstein and Equitable back together. And so they were looking for a new head of AllianceBernstein to do that. And a person I knew from my time at JPMorgan was at AXA, and she introduced me to a number of the senior people there. And the rest is sort of history.

00:08:55  BARRY RITHOLTZ: So you’ve been CEO since 2017. At the time you join, AllianceBernstein has $500 billion. This is significantly higher, coming up on a trillion here. But when you were joining, you’re fighting some pretty substantial headwinds. There was a big investor shift going on, really since the financial crisis, from active to passive. Fee compression was everywhere. Institutional sales trading — I remember when that was 20, 25 cents a share. It went to pennies, and then fractions of a penny. What did you find when you joined the company? Anything surprising? Was it what you were expecting?

00:09:37  SETH BERNSTEIN: No, I don’t think you have any idea.

00:09:39  BARRY RITHOLTZ: Oh, really?

00:09:40  SETH BERNSTEIN: When you go from one company after nearly 33 years into another company — I knew a lot of people. I had been a private wealth client, believe it or not, of Bernstein for, at that time, 15, 16 years. I competed against them in fixed income. I knew a lot of people who worked there, but I had no idea what was going on. What I found was a company that had had a very tough financial crisis — their own investment performance in value and in growth. If you’ll recall, AllianceBernstein is a merger of a growth manager, Alliance, with a value manager in Bernstein. And the stock had soared, and AUM of the combined entity had reached, intra-quarter, almost $900 billion. By 2012, they were $380 billion.

00:10:31  BARRY RITHOLTZ: Wow.

00:10:32  SETH BERNSTEIN: And what was 70% equities, roughly, in 2006 was 30% equities in 2012.

00:10:36  BARRY RITHOLTZ: So bonds kind of held their own, and equities collapsed.

00:10:39  SETH BERNSTEIN: Bond performance was pretty good, but equity performance collapsed. We faced a lot of redemptions. My predecessor did a very good job restructuring it — a guy they had recruited out of Goldman — and he had brought in some new teams, and the firm began to develop some really interesting investment performance in equities, which allowed us to buck the trend and have net flows in active equities, which was an important growth. He also started the firm’s evolution into private credit, which I’ve taken a lot further. And the firm was listing but doing better from a performance perspective, not gaining much assets, and then really began to take off.

00:11:20  BARRY RITHOLTZ: What do you learn after 32 years at an institution that eventually becomes JPMorgan Chase about how great financial institutions are built? What was your takeaway that you brought to AB?

00:11:35  SETH BERNSTEIN: What I think I brought to AB was a different perspective, more global than they had. They were very U.S.-centric, although they had a great Asian business. I think I brought an appreciation of how investment processes worked, and an understanding that you can have the smartest people in the world with the most impressive process deliver appalling returns. It’s serendipitous why it works when it does work. So be careful mucking around in it. I think I brought an understanding that the way they had rebuilt AllianceBernstein was to strip resources from everything but the investment teams, because they had nothing to sell. They did a very good job at it. And I began to focus on distribution, whether it’s in private wealth and institutional, and most importantly in retail. And we decided to go full focus on the insurance business, because we saw that as a really important source of growth, both for our private credit business but also our fixed income business.

00:12:38  BARRY RITHOLTZ: What do you think big institutions get wrong? It sounds like post-GFC, AllianceBernstein, before your predecessor really took the reins, kind of was stumbling. It’s a little bit of hindsight that we know all the things that were going wrong with large active managers, but generally speaking, what is it about big institutions that they sometimes just don’t see these things coming, and stumble into the dark on these issues that clearly you identified as problematic?

00:13:16  SETH BERNSTEIN: Look, I think when the good Lord created business models, asset management was really blessed, right? You have no need for capital, or de minimis need for capital, working capital in the business. Your whole revenue stream is structured on ad valorem pricing. So even when you destroy value and markets go up, you make more money. Kind of a wonderful thing.

00:13:41  BARRY RITHOLTZ: Right? A 10% tailwind never hurts.

00:13:43  SETH BERNSTEIN: Never hurts. And we’ve certainly benefited, as has the industry as a whole, from that consequence. Thirdly, you get to work with some of the most interesting, if weirdest, people in the world.

00:13:55  BARRY RITHOLTZ: Absolutely true.

00:13:56  SETH BERNSTEIN: And frankly, particularly when you have an RIA and you have to be focused on wealth management, you better become a really good fiduciary. Because if you’re not putting your clients’ interests first, you’re going to lose them, because all you have is their confidence in you. Because your business, Barry, is a word-of-mouth business. People don’t come to you — I suspect not — because they’ve heard you on your show. They come to you because you have clients who say, this guy protected us.

00:14:23  BARRY RITHOLTZ: Yeah. There’s an aspect of being a fiduciary that seems so obvious today, but 15 years ago, the fiduciaries were a small minority. And I’ve been saying this for 30 years, and it’s taken me being wrong for decades before the industry caught up.

00:14:43  SETH BERNSTEIN: I’m not sure the industry is there yet.

00:14:45  BARRY RITHOLTZ: You look at the big brokerage firms — at the very least, they’ve all become hybrid RIAs.

00:14:50  SETH BERNSTEIN: That’s fair.

00:14:51  BARRY RITHOLTZ: And the dominant fee structure is no longer transactional commission. It’s pretty much fee-based. But when I discovered this in the 1990s, I thought, oh, this has to change right away. I don’t see how this — and it took literally 25 years before the industry, and the financial crisis certainly helped.

00:15:12  SETH BERNSTEIN: Well, but the industry hasn’t done itself any favors about it either. I mean, while I don’t particularly care for abusive and overly ruled legislation, the changes that they were trying to make with regard to forcing a higher fiduciary orientation was not a bad idea and concept.

00:15:36  BARRY RITHOLTZ: No, it was a great idea.

00:15:37  SETH BERNSTEIN: But the industry fought it pretty much.

00:15:38  BARRY RITHOLTZ: Well, because it meant they couldn’t spin these accounts around.

00:15:41  SETH BERNSTEIN: That’s right.

00:15:42  BARRY RITHOLTZ: And generate much higher fees. I mean, look, either it’s a fiduciary standard or it’s not.

00:15:50  SETH BERNSTEIN: It is not black and white.

00:15:51  BARRY RITHOLTZ: Right? You could play with suitability. You know, I used to say, what does suitable mean? Don’t sell IPOs to grandma. That’s suitability. But that isn’t the same as being legally obligated to put the client’s interest first. And the crazy thing is — and I don’t want to go on a rant on this here, because this is about you, not me — but shouldn’t your relationship with the person handling your finances be more like your doctor, lawyer, accountant, and less like the guy selling you a used Honda or BMW? That just doesn’t make any sense to me.

00:16:28  SETH BERNSTEIN: You see, to me, that’s the key issue that I think the industry’s gotten wrong, because I would dismiss the accountant and the attorney. There is no one you put more trust in than your healthcare advisor. After that, who’s the next?

00:16:42  BARRY RITHOLTZ: You would think it would be the person handling your money.

00:16:45  SETH BERNSTEIN: It’s your future. It’s your kids’ education, right? It’s your charitable intent. Your —

00:16:49  BARRY RITHOLTZ: Retirement.

00:16:50  SETH BERNSTEIN: It’s your retirement. Yeah. I think it’s really important, and I think we ignore that to our detriment.

00:16:56  BARRY RITHOLTZ: Coming up, we continue our conversation with Seth Bernstein, discussing the turnaround at AllianceBernstein since he’s become CEO. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

00:17:12  BARRY RITHOLTZ: I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Seth Bernstein. He is the CEO of AllianceBernstein, a firm which is managing over $905 billion and is majority owned by Equitable Holdings. About 31% is publicly traded. Is that approximately right?

00:17:34  SETH BERNSTEIN: Approximately right.

00:17:35  BARRY RITHOLTZ: So let’s talk a little bit about what was going on when you took over, and just how this turnaround came to pass. Persistent outflows, an active management model. A lot of the research department — like so many other research departments — were having difficulty justifying a lot of the expenses. What was the immediate short-term plan? What were your first few months on the job?

00:18:02  SETH BERNSTEIN: Yeah, so let’s talk about it. When you run into trouble before the markets turn, it is a silver lining and a blessing. And the firm had begun to take actions and was very much focused on costs. And by the time I arrived, the firm was looking at the merits of moving its headquarters out of New York, because as the industry commoditized, as active sales were declining broadly, the firm’s leases were coming up, and they really had a soul-searching discussion of, can we afford to continue in New York, or do we have to diversify our bets? By the time I had arrived, no decisions had been made. They briefed me on what was going on. And it seemed pretty clear to me that there was a compelling case to reduce our footprint here in New York and go find a place where we could find really talented people who we wouldn’t have otherwise seen, because they either couldn’t afford to live in New York, or, for example, people who were really tech savvy — were we going to be high enough on the food chain that they’d look for us to hire them here in New York, when you had Google at the time searching for everybody?

00:19:09  BARRY RITHOLTZ: Right. North and south, hoovering everyone up and paying great salaries.

00:19:12  SETH BERNSTEIN: Exactly right. We do pretty well finding investors and keeping them. We know how to manage them. They have very fruitful careers. But outside of that, it’s a more challenging career development issue. And so we looked around. We looked at a number of cities. Our firm is overstocked with former consultants, and so we overanalyzed everything, and we came down to five cities, one of which was Nashville. And we announced later in 2017 that we were going to relocate to Tennessee. And we are now eight years into it.

00:19:48  BARRY RITHOLTZ: A thousand people moved down there, right?

00:19:50  SETH BERNSTEIN: Ultimately, we have 1,100-plus jobs there.

00:19:54  BARRY RITHOLTZ: And so let me guess the other cities you were looking at. Okay?

00:19:57  SETH BERNSTEIN: Are you ready? So it was 15 originally, but I’m only expecting the five.

00:20:01  BARRY RITHOLTZ: I’m going to give you three off the top of my head. Charlotte.

00:20:05  SETH BERNSTEIN: That was one of the five.

00:20:06  BARRY RITHOLTZ: Because there’s so many big banks there. There’s a lot of talent. Chicago?

00:20:09  SETH BERNSTEIN: No.

00:20:10  BARRY RITHOLTZ: Really? A lot of finance talent. Half the price of New York. Tampa?

00:20:15  SETH BERNSTEIN: Nope.

00:20:15  BARRY RITHOLTZ: Really? Okay.

00:20:17  SETH BERNSTEIN: You’re not doing so good.

00:20:18  BARRY RITHOLTZ: All right. I’m one for three. Give me some.

00:20:21  SETH BERNSTEIN: Dallas.

00:20:22  BARRY RITHOLTZ: Okay.

00:20:22  SETH BERNSTEIN: Austin, where we already have a great operation.

00:20:24  BARRY RITHOLTZ: Well, Austin was actually number five in my head, but it didn’t come out. DFA is there. There’s a few other people there.

00:20:29  SETH BERNSTEIN: Schwab’s there.

00:20:31  BARRY RITHOLTZ: They’re still a big presence in San Francisco.

00:20:34  SETH BERNSTEIN: Yeah, but they have a big operation there. And Denver.

00:20:37  BARRY RITHOLTZ: Denver. Oh, that’s really interesting. So the obvious question: why Nashville?

00:20:43  SETH BERNSTEIN: We wanted to be a big fish in a small pond, which we couldn’t have been in Charlotte. I mean, Charlotte’s a very compelling place.

00:20:50  BARRY RITHOLTZ: Or Dallas.

00:20:51  SETH BERNSTEIN: Or definitely not Dallas. Although, what a dynamic economy.

00:20:55  BARRY RITHOLTZ: Tremendous economy. A ton of hedge funds, a ton of finance.

00:20:58  SETH BERNSTEIN: A lot of talent there. A lot of people moving everywhere. Good demographics. Austin.

00:21:03  BARRY RITHOLTZ: And by the way, Dallas is a very livable city.

00:21:06  SETH BERNSTEIN: It is. I agree.

00:21:07  BARRY RITHOLTZ: Houston is just a humid swamp, but it’s located near all of the oil areas.

00:21:16  SETH BERNSTEIN: But a great art scene and really good food.

00:21:18  BARRY RITHOLTZ: Yes. Fantastic food in Houston. Absolutely. Texas is filled with all these really fun things. Dallas is Dallas. I haven’t been to Dallas in a few years. I’m going to be there in the fall. It’s just a delightful city.

00:21:32  SETH BERNSTEIN: Denver. Austin, sorry, I mentioned Austin. But Austin’s tough to get to for our people who are in Asia and in Europe.

00:21:41  BARRY RITHOLTZ: There’s that “nerd bird,” they used to call it, back and forth from Silicon Valley to Austin, decades ago in the nineties, because even then the tech companies were moving back office to cheaper Texas. Cheaper land, cheaper everything.

00:21:56  SETH BERNSTEIN: But it’s no longer back office.

00:21:58  BARRY RITHOLTZ: Well, that’s been the big change. Although post-pandemic, a lot of Wall Street moved to Miami, and then a bunch of them kind of boomeranged back. It’s kind of interesting. We are wildly off topic. Let me bring this back to your first six months at AllianceBernstein.

00:22:18  SETH BERNSTEIN: So we decide to move to Nashville. That was worth roughly $85 million a year to us, recurring.

00:22:24  BARRY RITHOLTZ: Really? Oh my goodness. That’s a massive savings.

00:22:28  SETH BERNSTEIN: It was a huge savings. Part of it was real estate, part of it was people, and it’s worked real well for us.

00:22:35  BARRY RITHOLTZ: Wow. Almost a hundred million dollars a year.

00:22:37  SETH BERNSTEIN: And here’s just another part of it: we didn’t force any of our investors to move, because we’re price takers of that talent. I think now — and I may be wrong — I think we have nearly a hundred investors who have elected to move down there.

00:22:50  BARRY RITHOLTZ: When you say investors —

00:22:52  SETH BERNSTEIN: Money managers.

00:22:53  BARRY RITHOLTZ: — who picked up and left New York, or elsewhere, or wherever.

00:22:57  SETH BERNSTEIN: Correct.

00:22:58  BARRY RITHOLTZ: I mean, don’t get me wrong, Nashville is a spectacular, super fun town.

00:23:02  SETH BERNSTEIN: It’s a great town.

00:23:04  BARRY RITHOLTZ: Just not what you think of when you think of finance.

00:23:06  SETH BERNSTEIN: Well, you know, ironically, it was the financial center for the Upper South for many, many years.

00:23:12  BARRY RITHOLTZ: Oh, really? I had no idea. That’s really interesting. All right. So you have this strategic and financial savings by moving there. What were some of the challenges? What was, oh gee, we didn’t anticipate this happening?

00:23:30  SETH BERNSTEIN: You mean in moving? Look, I think the most notable challenge is it’s a domestically focused city from a private sector employment perspective. It’s the healthcare services capital of the U.S. But guess what? Hard to find international tax accountants locally. People with those kinds of exposures, and people who had more traditional Wall Street-like training, whether from an operations or technology side. What was a delightful surprise is we got over the wall lots of resumes from people in Atlanta, Chicago, New York, Boston, and the West Coast, saying, hey, you know, I’m from there, or my spouse is from there, or I really like the lifestyle, I was there for a bachelorette party. So, but it worked. And so it’s been pretty good for us.

00:24:21  BARRY RITHOLTZ: As for the international tax accountants, do they have to physically be located in Nashville? If we learned anything during the pandemic, hey, if you have a computer and an internet connection, you can pretty much be anywhere.

00:24:34  SETH BERNSTEIN: You know, ultimately I’m a big believer in people working together collaboratively within the office. We recognize we’ve got to be flexible, and we’re never going back to five days a week. But we want people as close as we can around. But yes, we have people all over the country. We do, all over the world. We have functions which operate in multiple locations simultaneously. So of course we can do it, but we wanted critical mass there.

00:25:01  BARRY RITHOLTZ: So let’s stay with that idea of corporate culture — having everybody in the office together when you can. When you arrived at AllianceBernstein, what really struck you about the culture that needed to be preserved? What was like, hey, this is really something?

00:25:17  SETH BERNSTEIN: Deep fiduciary culture. Really, really putting clients first, whether it’s in our private wealth business or our investment teams. I think both Alliance and Bernstein did that beautifully, and I think that continues to thrive. I hope that’s one of the most important things for me about the institution. We had, as you pointed out, a very well regarded sell-side research business, which I decided to see if we could reduce our exposure to, for exactly the reasons you said. It is an accident of history why a buy-side firm had a sell-side research business to start with, but almost everyone cross-subsidizes those businesses — so their equity capital markets business or prime brokerage business. We didn’t have any of those cross-subsidies to provide to them. And so we entered into a joint venture with SocGen, Société Générale, which has proven to be pretty successful, and the quality of the research remains very strong, and they have a much stronger partner with deep markets capabilities that they are really, I think, doing a good job commercializing.

00:26:29  BARRY RITHOLTZ: And all those other banking relationships that make sense to have a research department with. Eventually, do they take over the research group, or is it always going to be a joint venture?

00:26:39  SETH BERNSTEIN: No. Ultimately, it’ll transition to them. And that was always the intention. We were quite clear about it. They were very concerned about the culture and not damaging it. It’s a large French institution, and these were a bunch of Americans and Brits. And so we needed to make sure we took stuff very, very mindfully, step by step. We’re still midway through that period. We have five years from the anniversary. We have an arrangement which we talk about from time to time. But that’s the plan.

00:27:12  BARRY RITHOLTZ: And in 2022, AB buys CarVal, which is a specialist in private market credit and debt issuance. The combined private market platform between Bernstein and CarVal is $91 — almost a hundred billion dollars.

00:27:28  SETH BERNSTEIN: That’s right. It was roughly $35 billion before we bought them, and they were another $16 billion, so call it $50 billion. So we’re nearly double what we were when we acquired them.

00:27:40  BARRY RITHOLTZ: So I’m really curious: how does what’s essentially an equity and fixed income shop like AllianceBernstein go about kicking the tires of an alternatives business? There has to be a ton of challenges there. How do you conceptualize those risks?

00:27:57  SETH BERNSTEIN: Look, I grew up lending. I ran the leveraged finance business at JPMorgan. It’s a business I knew. I’m certainly no current expert on the intricacies of it today. But prior to me arriving, AB had built quite a successful private credit business. When Lehman collapsed, we took a team out of Lehman to build a middle market lending business. They’re with us today, based in Austin, and have been remarkably successful. A private real estate debt business. And we had a natural client base. We have, in addition to Equitable — and now Corebridge, when that merger occurs — we have 60 insurance companies as clients who we manage money for.

00:28:42  BARRY RITHOLTZ: So you guys are uniquely situated to sell into the insurance market. Obviously, having a majority owner that’s an insurer provides one aspect. But given that history, what has it been like looking into that market, which I don’t hear a lot of other large shops being aggressive sellers into, the world of insurance?

00:29:05  SETH BERNSTEIN: Sellers or buyers into the world of insurance?

00:29:07  BARRY RITHOLTZ: Either or both. You are selling your product to them and taking their assets in, as well as the parent company merger — we’ll talk about that merger later. But you’re on — I don’t want to say both sides of the trade — but you’re selling into that marketplace and have a deep understanding of the insurance business.

00:29:29  SETH BERNSTEIN: We’ve been managing insurance money forever. I mean, Alliance was started by a life insurer, effectively. And the skills are very different. The client service model is totally different — highly customized, very relationship dependent. The expertise around subject matters, whether it’s regulatory accounting, whether it’s asset-liability matching, really are critical parts of that sale. We do that very well, and we continue to invest in it. And frankly, it’s the largest pool of institutional capital there is in fixed income. And it’s growing. It’s growing at a pretty rapid rate.

00:30:12  BARRY RITHOLTZ: Yeah. You guys and this other kid named Warren Buffett at Berkshire figured out, hey, there’s a tremendous amount of stable assets that —

00:30:21  SETH BERNSTEIN: What a great funding source.

00:30:23  BARRY RITHOLTZ: Right? I mean, how is it that nobody else really seems to —

00:30:26  SETH BERNSTEIN: Oh, other people have thought about that. Marc Rowan thought about it, and I think he’s done pretty well.

00:30:31  BARRY RITHOLTZ: Apollo.

00:30:32  SETH BERNSTEIN: Apollo’s done very well. KKR has figured that out. Guggenheim figured that out. A lot of firms have figured it out.

00:30:38  BARRY RITHOLTZ: Really interesting.

00:30:40  SETH BERNSTEIN: And Prudential being a good example.

00:30:41  BARRY RITHOLTZ: Well, right, but they started on the insurance side, not on the asset management side. But very fair examples. I have to ask about the ETF business. It was effectively nonexistent when you joined. Is that a fair statement?

00:31:00  SETH BERNSTEIN: That’s correct.

00:31:01  BARRY RITHOLTZ: 31 strategies, $21 billion, pretty rapidly.

00:31:03  SETH BERNSTEIN: All active.

00:31:04  BARRY RITHOLTZ: Actively managed, almost all. Yes. Very, very little in terms of just passive indexing.

00:31:08  SETH BERNSTEIN: Very little. And more importantly, almost all of them are new strategies. So they aren’t cannibalizing existing strategies. It’s not a new wrapper for the vast majority of that.

00:31:18  BARRY RITHOLTZ: So what led you to the ETF business, and how did this ramp up?

00:31:22  SETH BERNSTEIN: I hired an incredibly talented guy named Onur Erzan from McKinsey, who is now president of AllianceBernstein. And he absolutely banged the table, pounded the table, that we’ve got to ramp up our active ETF business. And I think he was right, and we backed it. And it’s been a big story for us here. It’s a growing story for us in Asia, where we really punch above our weight, and we’re excited to see what we can do in Europe.

00:31:49  BARRY RITHOLTZ: Where do you think the ETF business can go for AB? How big can this get?

00:31:56  SETH BERNSTEIN: I’m pretty confident, absent some weird regulatory or legal reason — for example, 401(k) plans have a difficult time owning ETFs; the Department of Labor can change that — but we’re not going to launch another mutual fund in the U.S., really. I think it’ll all be ETFs, unless the asset class doesn’t suit it for the liquidity constituency of it. But I think it will be the vehicle of choice, along with separately managed accounts. I think those will be the two wrappers we really focus on. For an individual who’s a client of yours, if you can deliver most of that in SMA form, he or she is paying a lot less tax, because you can tax-manage it much more effectively. You can avoid wash sales. You can have a less overly diversified portfolio, because remember, you have lots of unintended bets when you have a multi-manager portfolio.

00:32:51  BARRY RITHOLTZ: Right, right. Really interesting. Coming up, we continue our conversation with Seth Bernstein, CEO of AllianceBernstein, discussing the current environment for asset management. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

00:33:08  BARRY RITHOLTZ: I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest is Seth Bernstein. He is the CEO of AllianceBernstein and Head of Asset Management at Equitable Holdings. AllianceBernstein manages over $900 billion in client assets. I have to ask you a funny question. Many years ago, I worked with a guy who, by dumb coincidence, had the same last name as one of the names on the door of the firm.

00:33:40  SETH BERNSTEIN: Alliance.

00:33:40  BARRY RITHOLTZ: No, no, no. Totally different company, but similar concept to you. And whenever a prospective client would ask, he had this terribly amusing non-answer. Something along the lines of, look, I’m trying to create my own reputation and brand separate from the family wealth, and I just wish you would treat me as an independent — never saying, no, I’m completely unrelated to the family. I called it the non-denial denial. I’m curious, your last name is Bernstein, of AllianceBernstein. Does anyone ever say to you, hey, are you the —

00:34:22  SETH BERNSTEIN: All the time.

00:34:23  BARRY RITHOLTZ: All the time. All the time. Obviously you haven’t been there since —

00:34:27  SETH BERNSTEIN: The more insulting question is, are you the founder? And I said, no, I’d be over a hundred years old.

00:34:35  BARRY RITHOLTZ: Right. When was it founded?

00:34:38  SETH BERNSTEIN: 1967.

00:34:41  BARRY RITHOLTZ: Okay. So when you were done playing with blocks, you didn’t have to go into the office that morning?

00:34:48  SETH BERNSTEIN: No, not that day.

00:34:49  BARRY RITHOLTZ: Not that day. But this legitimately comes up —

00:34:53  SETH BERNSTEIN: Regularly, particularly in the private wealth business. But where it’s really important to make it clear is in Asia, where —

00:35:00  BARRY RITHOLTZ: Because they just assume.

00:35:01  SETH BERNSTEIN: Everyone assumes, because most of their businesses are family oriented. But just so you know, in the final moments of whether I was going to get this job or not, I did offer to change my first name to Alliance to get it.

00:35:14  BARRY RITHOLTZ: That’s really amazing. And the fascinating thing about that is, if there’s any industry that’s a meritocracy, it feels like Wall Street has evolved. You live and die on — forget annual performance — what your numbers were last quarter, last month, last week. It really is performance driven and not necessarily your last name. I had to ask if that came up. That’s really fascinating. So let’s talk a little bit about the current environment. There is a merger that was approved by shareholders of Equitable and Corebridge. I know the deal hasn’t closed, and so you probably can’t really say a whole lot about it, but this is going to create about a hundred billion dollars of Corebridge assets that are going to ultimately end up — I assume — moving over to AB. Does anything change for you guys with the upcoming merger of Equitable and Corebridge?

00:36:19  SETH BERNSTEIN: Other than the assets, I’m not aware of anything changing. And they very much value the identity that AB has. And, you know, we are thrilled by the merger and the opportunities that will bring, but no changes anticipated.

00:36:39  BARRY RITHOLTZ: So let’s talk a little bit about some of the assets that you guys have been growing. Private credit, at least up until this year, has been a house on fire. What do you think about the future of private credit? What’s going on there?

00:36:56  SETH BERNSTEIN: Banks are constrained in their ability to continue to service their clients through loans. They’ve been that way structurally, certainly since the financial crisis, and even before that it was hard to hold these assets on balance sheet. JPMorgan spent an enormous amount of time and money trying to securitize their loan book. In fact, that’s where credit derivatives started. And I worked in the groups that helped formulate that, although I certainly was in no way the father of the engineering around that. But it was critically important to reduce that exposure on most bank balance sheets. I believe that trend continues. Banks are levered players. They’re funded short. They’re not natural holders of long-lived, particularly fixed-rate, assets. Insurers are a much better home for that. And frankly, so are funds, because funds don’t offer true liquidity options for you. There’s no run on a fund. Now, what we’ve seen recently, and one of the reasons private credit has been in the news, is vehicles structured for wealthier clients did have some very limited liquidity options for them. But ultimately, there is no maturity transformation in credit. You got what you got. And frankly, I think there shouldn’t be any liquidity other than the payment of interest and repayment of the debt itself.

00:38:26  BARRY RITHOLTZ: I’m glad you say that, because I frequently have this conversation with peers elsewhere. Which part of “seven-year lockup” did you find confusing? The illiquidity premium exists because it’s illiquid. If you want liquidity, well, here’s a hundred trillion dollars in the public fixed income markets. Have at it. Am I being too harsh, or is that a fair statement?

00:38:51  SETH BERNSTEIN: Look, I think people want to get the stuff sold, and so they try to do what they can. But frankly, I think giving any expectation — and frankly, I think the documents were pretty clear — that liquidity isn’t there. But I think better that we go through this now, before there’s any significant credit deterioration. I mean, clearly there’s some deterioration out there.

00:39:13  BARRY RITHOLTZ: It’s relatively — for anyone who lived through the GFC — pretty modest. This is —

00:39:18  SETH BERNSTEIN: It’s nothing. So the truth of the matter is, while there will be loans that go bad, I think most of these funds will be pretty fine at the end of the day. And ultimately, there’s a role for it to play. But it’s really — our focus is much more institutionally focused rather than —

00:39:34  BARRY RITHOLTZ: Than what we’ve seen in some of the areas in it. And just so people understand, there’s a — depending on the funds — two, three, four percent default expectation built into these models. It’s not like, oh my God, something defaulted. That’s just what happens in the normal cost.

00:39:53  SETH BERNSTEIN: That’s the nature of lending money. Yeah, and that’s absolutely true. Now, we have private credit in our private wealth businesses as well, and I think properly structured, it has a role for you, particularly if you have a tax-advantaged location to put it.

00:40:08  BARRY RITHOLTZ: So let’s talk a little bit about private credit. I think the big issue from earlier this year — and hold aside the specific companies that kind of ran into trouble — but when you look at what’s going on, there’s a wide dispersion of underwriting quality. There’s some variance in how often and how precisely these marks happen in these non-traded things. And then, again, we come back to the redemptions in non-traded vehicles, which always kind of shock me. What does this industry need to do to get past the sort of difficult first half of the year we saw in 2026?

00:40:50  SETH BERNSTEIN: Post numbers which show that maybe there’s a deterioration, but it’s not meaningful yet. Educate clients on what’s going on by providing them more transparency — a sense of clarifying, you know, how many names are on your watch list? How many have gone non-accrual?

00:41:11  BARRY RITHOLTZ: There’s no obligation to do that currently.

00:41:14  SETH BERNSTEIN: There is, and they do it for accounting and reporting reasons. But ultimately, regular, periodic updating of your client probably makes them more comfortable with what’s going on. You should be over-communicating during periods like this.

00:41:27  BARRY RITHOLTZ: That’s really — during periods like this, or always?

00:41:31  SETH BERNSTEIN: Well, I think always, because ultimately they’re trusting that you’re giving them a balanced view of what’s going on.

00:41:37  BARRY RITHOLTZ: And to be fair, the headlines are not about the whole industry. It’s about a small handful of companies that have run into modest issues. Again, we’re not in —

00:41:52  SETH BERNSTEIN: And there’s always been fraud. I mean, that’s what we’ve seen come out from time to time in —

00:41:55  BARRY RITHOLTZ: A couple of places.

00:41:56  SETH BERNSTEIN: Sure, in a couple of places. But the truth of the matter is, there’s been an enormous amount of money that’s focused on this segment. And so I think you’re absolutely right. Structuring, terms and pricing got out of whack. But frankly, it’s a much better time to be investing today, post that event.

00:42:14  BARRY RITHOLTZ: So let’s talk a little bit about where this space is going. For most of my career, private credit has been pretty much all institutional. Over the past few years, we’ve seen a big take-up from the wealth management side — RIAs, et cetera. And then a lot of conversations about this being available for retirement accounts or 401(k)s. Tell us your thoughts. What do you think happens with private credit, and how do we do this the right way so we don’t run into these problems?

00:42:45  SETH BERNSTEIN: I think actually target date funds, 401(k)s generally, might be a perfectly appropriate place for it. Highly predictable needs. You have professional management making those decisions, usually separate from the people managing the money themselves. The sponsors of those 401(k) plans are pretty sophisticated investors in their own right. Private credit, particularly for individuals who need the income that those portfolios will generate, might have a very welcome spot in it. And in fact, we are, we think, leaders in working with other private asset managers in developing vehicles to utilize side by side with your target date funds in order to build highly diversified private credit, private equity, private real estate exposures for the beneficiaries of those plans. To me, that’s an institutional purchase, because there’s someone intermediating that decision.

00:43:57  BARRY RITHOLTZ: So let’s talk about that group. It’s AllianceBernstein, Brookfield, and Carlyle working together. How did this come together, and where do you think this goes?

00:44:08  SETH BERNSTEIN: Well, I think it came together as we were talking to other firms about what we thought. We’ve been a pioneer in the 401(k) business, in building particularly custom glide paths and target dates for big, sophisticated plan sponsors — state plans, corporate plans. And there was clearly a desire to get a higher return built in over time into these portfolios, given the aging population, the need for diversification and different sources of return. And so we went and polled a number of different firms, and we ended up finding we had really compatible philosophies and capabilities with Carlyle. We engaged with a number of firms in trying to understand who would be a natural complement to us. And from a private or real asset side, we thought Brookfield would be a very strong partner. And from a private equity side, we thought Carlyle brought a lot to the table. So we ultimately formed it. And it’s very early days. I think the industry has been too enthusiastic about how quickly all of this will be adopted. Plan sponsors tend to be a pretty conservative group of people at the end of the day, and it’s going to take years for this really to develop. But 10 years from now, will that be part of most of the large plans? I suspect it will be.

00:45:35  BARRY RITHOLTZ: How do you address some of the criticism? Anytime we see a new 401(k) plan come along, or a response come along, I always am raising my eyebrows about how much the industry — and to some degree you can blame BlackRock and Vanguard for this — has driven fees down generally, but even more so in 401(k)s. In the old days, I would look over a 401(k) and be aghast at, why are you paying 2% for an S&P 500 fund? This doesn’t make any sense. Now I look across some of the 401(k)s that I see, and they’re very inexpensive. Can privates find their way into 401(k)s at a competitive price point?

00:46:20  SETH BERNSTEIN: Yes. I think for two reasons. One, these are institutional investors in their own right, so they’re going to negotiate hard to get lower fees. Insurers don’t pay huge fees for private credit, because the cost of funds matters enormously to them. Secondly, it’s a very small portion of the total portfolio, and frankly, the cost of administering the overall plan. So between their competitive power as buyers, institutional buyers, and the small component of the total target date portfolio that they’re going to constitute, it’s a pretty small part of the fee burden that a client is going to be carrying. And frankly, it should be fairly easy to outperform net of fees.

00:47:08  BARRY RITHOLTZ: And that’s all anyone really cares about.

00:47:10  SETH BERNSTEIN: And that’s really all that people care about.

00:47:11  BARRY RITHOLTZ: Right? Especially — we’ve been in a low rate environment for so long. The expectation is maybe it’s higher for longer, but not 10 years. So we’ll be back to a lower interest rate — not zero, but lower — interest rate environment, and people want some yield. That’s really the driving thinking here.

00:47:29  SETH BERNSTEIN: I think that’s exactly what the thing is. Look, if you look at the supers in Australia, which are really interesting innovations — the superannuation funds in Australia have been intellectual leaders in how to think about retirement. And one of the really interesting things they do is they structure glide paths through retirement rather than to retirement. The last thing most people need at age 65 is to be predominantly in short-term fixed income and cash. You need to be invested.

00:48:02  BARRY RITHOLTZ: On the assumption you have another 20, 25 years to go.

00:48:05  SETH BERNSTEIN: Even 10 years. Yes. Most people don’t have enough money to retire, right? So a lot of people defer their ultimate retirement and get supplemental income elsewhere. So planning into retirement, I think, is a pretty prudent thing to do. Ultimately, if you’re able to tie that to purchasing annuities at a pretty low cost — so not purchasing them necessarily upfront, but maybe planning your target dates to end with a pool of liquidity to turn around and buy annuities at age 75, for example — you could really reduce the cost of that and give people income protection for a longer period in their life. I think there are really interesting things that are going to continue to evolve in the target date space.

00:48:47  BARRY RITHOLTZ: Really, really interesting. Since you mentioned 65, I have to ask: you’re coming up on a decade as CEO. Do you think about succession planning? Have you thought about who follows you when you decide to take your retirement?

00:49:07  SETH BERNSTEIN: You see, I think that’s one of my most basic obligations, and we spend a lot of time on succession planning, not just for me but for all the senior leadership of our firm. And yes, we have plans in place, and I don’t expect to be there —

00:49:27  BARRY RITHOLTZ: Forever.

00:49:28  SETH BERNSTEIN: Forever. Right. So, yes.

00:49:30  BARRY RITHOLTZ: So given that you’re there, in a few months, 10 years: what are you most proud of? What decisions did you make that you wish you could undo? And what of the long-term plan remains unfinished at AllianceBernstein?

00:49:47  SETH BERNSTEIN: Oh, good question. What should I have done that I didn’t do? I should have put my own people in quicker. Just as a learning to me: any new CEO, you need people you really trust can execute a transition and are bought into it. And change is a good thing. It’s not necessarily a bad thing. Secondly, I’m particularly proud of what we’ve done in our private credit space. I’m really proud of what we’ve done in the insurance space. I think those are winners. We have built a market-leading SMA platform for munis. We are growing really rapidly. We’ve automated the investment process. We give people choice, we give people information, and we give people client service that they don’t get at other firms. And it’s been growing like a weed for a while now. I’m very proud of what our fixed income team has done there. I think our private wealth business remains a gem. We have incredibly loyal clients, and I’d love to grow that business more rapidly than we have. We are growing at a good rate, but we grow organically. We haven’t grown inorganically, frankly, because valuations for RIAs are hard to justify. Also, we are very sensitive to the cultural implications of big mergers. They just don’t have a great track record of working, either in the wealth management space or the investment management space.

00:51:26  BARRY RITHOLTZ: So last question, before I get to my favorites, which I have to ask you as both the current CEO and former CFO: the AB stock price has been fairly stable. Your dividends are pretty beefy, something like nine or 10%. Is that something that is by design, or is it just the nature of — you guys throw off a lot of free cash flow?

00:51:52  SETH BERNSTEIN: The industry throws off an enormous amount of free cash flow, and in a mature business, you should probably be distributing it. In our case, it’s by design. We’re about the last publicly traded partnership.

00:52:05  BARRY RITHOLTZ: Which is an unusual structure in itself.

00:52:07  SETH BERNSTEIN: Very unusual. The only place people used to see them was really in MLPs and stuff, you know, in the energy sector in particular, and in real estate.

00:52:16  BARRY RITHOLTZ: And the dreaded K-1s.

00:52:17  SETH BERNSTEIN: And we issue K-1s, so that’s a hassle, which limits institutional interest in the stock. But that’s who we are. That’s what we have.

00:52:29  BARRY RITHOLTZ: I find that such a fascinating, quirky thing. And yet I guess it’s the institutional allergy to K-1s; otherwise, I would imagine there’d be broader ownership of a coupon like that. It’s essentially a high-yielding bond with an equity kicker.

00:52:52  SETH BERNSTEIN: That’s essentially it. It’s a convert.

00:52:54  BARRY RITHOLTZ: That’s what it looks like.

00:52:56  SETH BERNSTEIN: And I mean, the truth of the matter is that if I really believed — if the board really believed — the stock price would really pop, if our majority owner didn’t have a negative tax implication of doing it, I think you’re obliged to look at it. But the honest answer is, if you do it and you don’t get that pop, you’ve got a lot of people who are not so happy with you.

00:53:20  BARRY RITHOLTZ: Right. To say the very least. All right, I only have you for a few more minutes, so let’s jump to our favorite questions that we ask all of our guests. Starting with: who are your mentors who helped shape your career?

00:53:32  SETH BERNSTEIN: Oh, I had a number of mentors. I guess my most influential mentor was my mother. She was a very successful advertising executive, and she was no-nonsense, always. But when I go beyond that, at JPMorgan, the guy who ran equity capital markets and believed in me, a guy named Brian Watson, who ended up running the venture capital and private equity business of JPMorgan before the merger. He was a really instrumental mentor to me. I think the guy who runs Equitable, Mark Pearson, has been an unbelievable mentor and partner in running it, because the relationship between those two firms was rocky for a time. And I think we’ve run it as one larger business while maintaining the individuality of the individual business units. Those are three people that come to mind.

00:54:32  BARRY RITHOLTZ: Really, really interesting. Let’s talk about books. What are some of your favorites? What are you reading currently?

00:54:39  SETH BERNSTEIN: I am reading the new book on the Trump administration that came out, that Maggie Haberman wrote.

00:54:46  BARRY RITHOLTZ: She’s always a fun, fiery writer.

00:54:49  SETH BERNSTEIN: She sure is. And it brings it home, and it brings it live. During COVID, a bunch of friends and I got together and created a book club. And we never read fiction. And so for a while, while the book club was operating, we read a ton of fiction, which was —

00:55:09  BARRY RITHOLTZ: Give us a few names.

00:55:11  SETH BERNSTEIN: We read The Razor’s Edge. We read Kim by Rudyard Kipling. We read — God, I’m having a senior moment, which come more and more frequently, and only travel in one direction —

00:55:33  BARRY RITHOLTZ: As an older man.

00:55:34  SETH BERNSTEIN: It gets —

00:55:34  BARRY RITHOLTZ: Worse. As an older man, I can tell you it only — I’m a day older than you, and let me just share my experience: it only gets worse.

00:55:41  SETH BERNSTEIN: Right. One of the books we read, which I love, was James, which is kind of a retelling of the Huckleberry Finn story.

00:55:52  BARRY RITHOLTZ: Oh, really?

00:55:54  SETH BERNSTEIN: It’s a fantastic — James.

00:55:56  BARRY RITHOLTZ: I’m going to definitely put that on my list.

00:56:00  SETH BERNSTEIN: Tom Sawyer. Yeah.

00:56:01  BARRY RITHOLTZ: Yeah. Since you mentioned what you were doing during the pandemic, what about streaming? Are you watching or listening to anything?

00:56:09  SETH BERNSTEIN: No, my wife hates me because I don’t watch stuff with her.

00:56:12  BARRY RITHOLTZ: Oh, really?

00:56:13  SETH BERNSTEIN: I mean, we did. We watched a lot of things like Shrinking. I love it.

00:56:17  BARRY RITHOLTZ: We love Shrinking.

00:56:18  SETH BERNSTEIN: Yeah. I was a big Game of Thrones fan, stuff like that. But no, I don’t. I read a lot. So I’m not great at that.

00:56:26  BARRY RITHOLTZ: Final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing, wealth management, fixed income trading, anything along those lines?

00:56:40  SETH BERNSTEIN: Sure. My advice to them is never act like you know the answer if you don’t, because people aren’t going to trust you because of your experience. So if you lose that trust early, it’s really hard to regain. Two —

00:56:54  BARRY RITHOLTZ: Wait — don’t fake it till you make it? Because that was —

00:56:57  SETH BERNSTEIN: I think you’re out of your mind.

00:56:59  BARRY RITHOLTZ: I heard that year after year after year, and always hated it.

00:57:03  SETH BERNSTEIN: The second thing I would say to you is the other side of that coin, which is: ask lots of questions. It’s okay. I mean, you can get totally irritating, and I’m going to throw you out of my office eventually, but I don’t expect you to know the answer.

00:57:18  BARRY RITHOLTZ: And our final question: what do you know about the world of investing today that might have been useful 30, 40 years ago, when you were first getting started?

00:57:29  SETH BERNSTEIN: People who think they can time the market, and do, and actually can prove out that they really do it well — you can count on one hand. Diversification: no one diversifies to get rich. You diversify to stay rich.

00:57:44  BARRY RITHOLTZ: And those are two very different skill sets, aren’t they?

00:57:47  SETH BERNSTEIN: Exactly.

00:57:48  BARRY RITHOLTZ: Really fascinating. Seth, thank you so much for being so generous with your time. This has been absolutely delightful. We have been speaking with Seth Bernstein. He is the CEO of AllianceBernstein and the Head of Asset Management at Equitable Holdings. If you enjoy this conversation, well, check out any of the 659 we’ve done over the past 12 years. You can find those at Bloomberg, iTunes, Spotify, YouTube, or wherever you find your favorite podcasts. I would be remiss if I didn’t thank the crack staff that helps put these conversations together each and every week. Sean Russo is my head of research. Anna Luke is my producer. And today is the last episode of Alexis Noriega, my video producer, who helped bring Masters in Business to the video world over the past year. I just want to say an extra special thank you to Alexis for everything she’s done for us. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

~~~

The post Transcript: Seth Bernstein, Chief Executive Officer of AllianceBernstein appeared first on The Big Picture.

• What if Elon Musk Was Always Elon Musk? The most disturbing part of the controversial new four-hour documentary. (Slate)

• Why So Many AI Researchers Think the Machines Could Kill Everyone: A combination of rapid advances, recursive self-improvement, and agentic swarms are genuinely “spooking people” inside big labs. Will Knight on Rishub Jain, who left Google DeepMind after realizing that using AI to build the next generation of AI was removing humans from the equation. (Wired) see also AI Is Powerful Enough to Crack Our Hardest Math Problems — and Kill Us All: An Anthropic safety researcher puts the odds of annihilation above 10% — doomsday now more likely than Steph Curry missing a free throw. (Wall Street Journal)

​• ‘Offensively Cheap’: Solar Power Is Looking Up: Rachel Millard reports from Chakwal, Pakistan, where a cement maker is turning dry earth and peach groves into a forest of panels — solar already generates over a quarter of its power. (Financial Times)

• The Simple Request That Could Lower Your Mortgage Rate: Lenders can now consult two different credit-scoring models and pick the one that results in the lower rate ​. (Wall Street Journal)

• A Stealth Startup Thinks It Just Hacked the Memory Shortage: Kepler Computing claims a new approach to chip design—and a proprietary material—can help end the supply bottlenecks that have sent memory prices surging. (Wired)

• The GDR and Vietnam: From Fake Coffee to Coffee Empire: New stories from the East German specialists behind this Cold War project . Katja Hoyer on how East Germany’s coffee crisis turned Vietnam into one of the world’s great coffee producers. (Katja Hoyer)

​• The Man Who Refused to Sit on the Sidelines: Sally Jenkins on Kevin Dowdell, an elite FDNY rescue-unit lieutenant, who taught his sons to take action. When he disappeared on 9/11, they went to Ground Zero to search for him.  (The Atlantic)

• Trump Is Remodeling the White House. The Group Set Up to Protect It Has Stayed Quiet: The White House Historical Association, a nonprofit set up by Jacqueline Kennedy to preserve the building’s character, has declined to criticize the president’s changes.  Dan Diamond on the White House Historical Association — the nonprofit Jacqueline Kennedy set up to preserve the building’s character — declining to criticize. (Washington Post)

• People long for simpler times, say Practical Magic reboot stars: Mix together a beloved film simmering for decades, a sprinkling of social media hype and a generous glug of star power and you just might conjure up the long-awaited sequel to Practical Magic. Naomi Clarke on the decades-simmering sequel, with Joey King and Williams as Sandra Bullock’s daughters. (BBC)

​• Does the NBA Have an Owner Problem?: The Ringer on Ballmer, Mark Walter, and soaring team valuations — “Every day or every week, it’s like: Wait a second, how can that be possible?” (The Ringer)

Video of the day: China Found Something Better Than Oil

Be sure to check out our Masters in Business with Seth Bernstein, CEO of AllianceBernstein and Head of Asset Management of Equitable Holdings, the 69% owner AB. The firm manages $905.5B. Previously, he spent 32 years at JPMorgan Chase, where he eventually became the Global Head of Managed Solutions & Strategy at JPAM, responsible for all discretionary assets for Private Banking clients, and Global Head of Fixed Income & Currency. He eventually became CFO of JPM’s Investment Management & Private Banking division.

AI-pilled firms are growing headcount

Source: Ramp

Sign up for our reads-only mailing list here.

The post 10 Tuesday AM Reads appeared first on The Big Picture.