FM: You successfully have made the transition from a large, traditional asset management house (PIMCO) to a successful global macro hedge fund firm (Armored Wolf), with in excess of $1 billion in assets under management. You launched Armored Wolf in 2009, arguably one of the most difficult periods in which to start a fund. You’ve seen some tough markets in which to raise capital and trade. Tell us about your strategy and how it has evolved and changed since inception.
JB: Our launch was driven by two interrelated super-secular forces. The first was the end of disinflation, and the second was the end of benchmark-driven management fees.
The end of disinflation we felt would mean the end of the free money created by falling yields and rising p/es. By 2008 we were in the 28th year of a bull market for financial assets. We saw equities essentially peak in 2000. Though they’ve ground higher since, the combination of volatility, inflation and taxes suggests that any gains since 2000 are essentially illusory. Given the end of disinflation, we felt traditional forms of investing, equities and bonds, had seen their best days. As such we focused on building Armored Wolf’s “intrinsic firm capital” by focusing on talent acquistion, infrastructure and solutions that would do well in sideways or rising inflation environments.
The other aspect involved benchmark-driven management fees. Though there have been fits and starts, with 2008 being a rather large fit, increasingly quantitative approaches to markets have characterized the past 50 years. Recently, this has made the cost of getting benchmark exposure, particularly at the institutional level, essentially zero. Not only would fees for such services, including [those] embedded within broader products, gravitate toward zero, but markets themselves would become more efficient. We no longer could assume simply that “stocks for the long run” would work. There would be no frictions, or disequilibrium conditions, that would allow this heuristic to apply going forward.
FM: What was it like to make the transition? What were the hardest lessons you learned?
JB: It was a profound luxury [that] I fortunately could afford. In particular, it was a reckless tribute to the entrepreneurial desires I had always harbored, and [that] led me to drop out of my PhD program decades earlier. While I rely heavily on both my senior partners who help me run Armored Wolf, and my other colleagues who both ply their trade and support me, I enjoy both the weight upon my shoulders and the breadth of challenges I face.
FM: What advice would you give new managers starting out?
JB: The landscape is competitive. The most expensive cost one will face is surely denial--denial regarding one’s strengths and capabilities, or denial regarding one’s weaknesses. Ultimately, passion and desire are the only rocket propellants that will get one into orbit.