This is Masters in Business with Barry Ridholts on Bloomberg Radio. This week on the podcast, I have an extra special guest. His name is Regiev Jane, and he has quite the fascinating background. UM. He is currently chairman and Chief Investment Officer at his own firm, g q G Partners, which manages about twenty four billion dollars. Previously, UH, he was co CEO and and c i O at Vante Bell Asset Management. UH. If you are at all interested in a wealth of things from global and international and E M investing two portfolio management and the process that goes in uh to putting together a portfolio, You're gonna find this conversation to be absolutely fascinating. Rajiv Is is both humble and soft spoken, but is filled with all sorts of inside and wisdom. UM. I know I got a ton out of the conversation. I just found lots and lots of things that he said to be intriguing and fascinating, and I think you will also so, with no further ado, my conversation with Regive Jane. This is Masters in Business with Barry Ridholts on Bloomberg Radio. I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Regieve Jane. He is the chairman and chief investment officer of g q G Partners affirm with over twenty four billion dollars in assets under management. Regiev was the morning Star International Manager of the Year. He runs a number of different funds, the Goldman Sacks, g q G Partners International Opportunities Funds, the Partners Emerging Market Equity Fund, and the Partners US Select Equity Funds. Last year, his Global fund was positive while the benchmark was down nine percent. Over the past twenty years, we've seen our performance in all of the areas Regeeve works in between three hundred and four hundred basis points. Rajiv Jane, Welcome to Bloomberg. Thanks verty, thanks for having me. I've been looking forward to this conversation because you're one of these people who have been shooting the lights out. Uh and I think most of the investing public is not very familiar with you or your background, which is quite fascinating. Tell us about your personal history and how you got to running a large asset management firm. Yeah, thanks, Betty, So I think first of all, I was born in India, grew up in India. Uh, and I got hooked onto stocks when I was in high school. Uh. I guess my dad wanted to keep me busy doing summer so he gave me some those days you get old, you know, stock certificates and dividend checks. He is that, why don't tell you those and dividen haven't come in? And I used to go remember going to broker and he was an ex army guy, and he said, look, I need to talk to a dad. Why they live He allows a high school kid to come to this broker's house. He looks, you see the average around hub, other people sitting here. So that's how I ended up getting hooked. Came to us when I was you know two, and and yeah, I ever, I've been doing the same thing ever since. I guess I can't do anything else. So let's talk a little bit about your background at Vontabelle Asset Management. You were there for a good couple of years. Tell us what that shop was like and how that led to the decision to launch your own firm. Yes, so it was it was a part of a large Swiss bank and it was kind of a small boutique where first seven eight years that we couldn't even afforded trader. So I I used to put in my own trades. Uh. So I joined as a CopM for global and emerging markets uh in international Actually, And what's the most interesting experience I would say, UM would be the I began the CEE IO and two thousand two and quickly seventy person of the client's virtus. Really yeah, why was that? Well because the past performance wasn't great and there was a change in PM. So that's my view of saying it that I wasn't want to blame. So, so you were did you begin as an analyst? Also? How did how did you work your way up to portfolio managers? Yeah? Yeah, so um, I started at at the U B S or Swiss Band Corporation, then as an analyst, and I did become a CopM and after a couple of years. So what this is a question that I've had people asked me. You're the person perfect person to ask this. What is the difference when you're looking at stocks as an analyst and trying to take an individual equity apart versus making the buy or cell decision as a portfolio manager. Very different approaches, aren't they. Yeah. Look, I think I think the abster right, there's a big difference between the two, and I would categorize in two parts of that. The first is, as an analyst, you expect to know as much as you can, but as a portfolio manager, you really don't have that luxury are waiting for getting let's say, of the information which is norble. You can't get to that level of a certainty. But as an analyst you are expected to know more. That's a big difference, and I think that sometimes when analysts become pms, they sort of missed that. They keep ending looking for more and more information, which you know can can can be you know, paralyzing. The second part is when you're looking at a portfolio, the risk management of the part of the portfolio construction part become paramount. You may love the name, and you actually tend to love all the names you want the portfolio, but when you're constructing portfolio the the you may end up taking too much risk in a particularly area. And I mean, if you go back to two thousand crises, a lot of folks blew up because they had too much in an area, because consider risk because we love this area and got cheaper and we love it, do more and it kept getting cheaper. So oh, you've got to be careful about you know. And and most time it's the things that we love that kill us. So let's talk a little bit about that and portfolio construction. I think a lot of individual investors, to them, portfolio construction is really just the stocks they've collected over the years. You obviously approach it very differently. How do you think about portfolio construction in terms of what you're holdings are, in terms of how they're diversified by either sector or geography, and and lastly about the risk you just mentioned. So um, the first part is that you've got to make sure that the business would be around for long term, right. I mean, if you're not sure how the business gonna look like five years out, you probably not shouldn't. Shouldn't be invested. Doesn't mean you want for five years. But you've got to be careful because markets anticipate deturing fundamental a lot faster than than we we like to think. If if if the drug is expiring in three years, guess what, markets started discounting a lot sooner, and you see a bunch of names which are selling it very low multiples because oh it's still a few years out, and it's it's a low multiple, so and so for the market is already discounting deterioration, right, So that's part of the first risk management. Is that a little bit of a value trap situation for people exactly, And I think, I think if you look at what has happened last year, is the reason why a lot of folks have underperformed. And I feel investing is nothing but a journey of learning from a mistakes. If you're not willing to evolve an adapt you won't survive long term. It's very easy to say, look, I found this mouse trap, and how wonderful it has worked in nineteen thirties. So my question of how many anelets around in nineteen eighties level or nineteen thirties maybe the market become a little more efficient. So the the low multiple trap is is essentially markets being much more forward looking than we would be gave it credit for. So you sound a little bit like Ray Dalio who talks about mistakes and the learning process and improving. How long should an investor expect that journey to take before they have some degree of components or even um actual skill in managing assets. That that's a hard question to answer because it's a function of a are you truly trying to look at in on a verny broad spectrum, the broader the spectrum chance that you will learn a little bit faster. In other words, if you if you're focusing on one specific sector only, you're too natrowly focused. When you operate in the silo, you really don't know the you know the there's no cross pollination. I feel I'm a better US manager because I do emerging markets and vice versa. I'm Barry rid Halts. You're listening to Masters in Business on Bloomberg Radio. My special guest today is Ragief Jane. He is the chairman and chief investment officer of the twenty four billion dollar firm g q G Partners. So let's talk a little bit about the launch of of the firm. You co invest alongside with your clients. I think you've you've said previously something like your own assets are in your funds. To discuss the idea behind eating your own cooking. My personal belief is that managing somebody else's money as a privilege it's an order to manage somebody else's money and our decision to impact how our clients do and whether they have a dignified retirement or not. Right. So when we talk about if you have to ask things, I personally feel if you have to ask a single question anybody, the question would be what percent of your network are you willing to put in your own funds? Restless talk because that that that gives you a very good view of a how they think about investing, because you become much more absolute oriented, right, whether you think about taxes or you know, after tax returns, uh, the fees and so on, so forth. So it's sort of encompasses almost everything. And I have vast majority of my wealth. I don't have money in any other long only manager longshore private degree. If we don't allow only personal trading a GQG, for example, every employees and investor. And I'm quite proud of the fact that we have quite a bit of skin in the game. That's quite interesting. The the expression I recall from years ago was I can't hear what you're saying because what you're doing is speaking so loudly. That seems to apply dead center to this doesn't it. Thank you, guys, it does. So, so let's talk a little bit about um, about how you go about selecting stocks and making the decision to to get rid of them. You've described your quote clinical approach to shedding positions when they no longer fit your thesis. Explain that there's been plenty of evidence and I can tell you with my own experience that buying is easy. Selling is whether where the trouble starts. And there has been recently been academic you know, work on that that portfolio managed to do a pretty good job buying. It's just selling. When when when things tend to go wrong, and and and and and people describe me as a kind of a ruthless seller, I'm happy to go back again and revisit. And sometimes I would sell just to clear up my mind and revisited. Um. When when we talk about selling, it's the best selling happens when things are subtle, not when they are in papers. And when things that are subtle, it means does the thesis actually hold or has beginning to shift a little bit? And I think, I think, I think that's where you almost have to be willing to be wrong and admitted you're wrong. In fact, one of the tests I feel for for my analysis is have you found new ways of losing money? Explain that new ways of losing money, like investing is said, is a journey of learning from mistakes. How do we expand our investing horizon horizon means you're our brand, our breadth, not time horizon, and that means that you have to experiment sometimes in areas that you're not invested before. If you've wily invest in financials, you keep investing financial guests forward. Last decade hasn't been too good for you in the nineties, if you didn't know how to invest in financials in tech, you wouldn't have done well in the next decade. If you only did that, you probably wouldn't have done well either. So you need to be able to experiment, and many talk about experimentation. Losses have to be small, But that's how you would learn, because the only way you really learn is by putting some some money on, you know, on on on on on on those stocks. Paper trading doesn't get it done. Paper trading doesn't get it done. It overstays the reality because, as somebody has said, the money is made by the how thick is your stomach aligning rather than now how much i Q you have? That's really interesting. What about the selection process you You seem to have come up with the process that's a little different from everybody else, as the results have shown, What are you doing, um, when you're thinking about building a portfolio and making individual stock selections. First of all, um, balance sheet matters, right, so so so that this you need to eliminate weaker companies worst. In other words, that's an easy one negative screen get exactly. So it is not about trying to find the best company, is avoiding the worst. In fact, investing, like a lot of things in life, it's sometimes easier to to identify what shouldn't be done rather than or it should be done, because that just increases the odds of success. So you avoid mistakes, and even if everything else is okay, you're way ahead of people whose portfolios are filled with mistakes. Exactly. In fact, I've kind of joked around the reason why I've survived over the longer run is because you just avoid blowing up, and enough people blow up and you'll be top quartile just because you don't blow up. So I think I think from a process of perspective. First of all, you take out the weaker balance sheets, and the second part is think about the capital allocation decisions managements have made. In other words, how much what returns have degenerate on intremental instremental capital that they put in the business? Return capital is probably the single biggest you know measure that that that I feel one has to look at. Valuations comes distant second or third really, So so let's start with that first piece, screening out the negative the weaker companies. What are you looking for? Are you looking for lots of dat Are you're looking for no real growth in revenue and income or you're looking at the management team themselves or all the above and more management team is is second. First would be numbers. In other words, you know, leverage is an easy one, but also in terms of, you know, the sicklicality of earning stream relative to their own sector, the returns that the generating related their own space, because you can't compare a bank and and and a European utility, right, And I think I think when people talk us talk about quality, they look at much more on an absolute based across the board. But banks the best time to buy banks is actually when the numbers don't look good, right, that's not necessitude for staples. In fact, if you look at even technology last forty year, if you back test the numbers, the most expensive dis style has outperformed the cheapest DECIDL in tech and in pharma. So, in other words, momentum is much more powerful than value in those sectors. Okay, so I want to be over you know you're overstating the momentum issue. It's not momentum issue. It's much more about well, first of all, it is the balance she it good. And the second thing is the growth coming through. So growth is important. But but but but you need the combination of those, and then you look at the management and then you look at the valuations a lot of because think about this face if if if, if, if you're moving to Florida, would you call a realtor say get you know, give me the cheapest neighborhood? No, of course not. Why do you do that in stocks? Well, because there's this belief that UM on average, if you're um pe ratio or price to book or whatever your preferred metric is, UM, the cheaper stocks over long periods of time should outperform the most expensive stocks. That at least is the common belief that's out there. Well, see that, I've a lot of problem with averages. Averages like your foot might be enough on, your head might be in freezer, and on average you're dead. That's that's a fair um, that's a fair description. So so so I think I think you gotta be careful about averages because in especially this day and age, there isn't enough appreciation that how many how many bison alis of operating thirty years ago verses today? If that amount exactly? And what about fifties and sixty And you see managers showing how well priced to book at work in ninet thirties, Well, it's wonderful. You're fooling yourselves. You're not fooling anybody else. That doesn't work anymore. It didn't work in the seventies, in the seventies, So Marcus, do get efficient. I mean, let's not kill ourselves. The question how are you evolve to incorporate that? I mean, you can buy dozens of ETFs to you know WHI should run on quality. So if you're backward looking quality, it has stopped working. I'm Barry ritolts. My extra special guest this week is Regiev Jane. He is chairman and chief investment officer of the twenty four billion dollar firm g q G Partners. He runs a number of different funds UM, all of which have outperformed. Over the past UH twenty years, he has handily beaten his benchmark. Last year, his global funds UH was about nine hundred basis points above the benchmark, which was down about nine percent for the year. Uh. Let's talk a little bit about international investing. One of your biggest holdings is India makes up about twenty seven percent of the fund bullpark. Uh. Why are you still enthusiastic about India? What do you think is happening there and what companies have caught your attention in that country? Yes, so India is big only in the emerging market fund and internactionally you only have five percent, And similarly in global I think I think, I think the couple of things one is well, first of all, there's a risk of me being biased, so I think I think gotta be careful. So you have home country bias. Even after you leave the country, they like you, you feel you know it better, right, So that's one saying you gotta be careful. You you should surprise folks over France chance, so they would have more in France. So home country bias excess. But I think in this case, um, there's a differences, particularly now. India wasn't always that big. The reason is because if you look at what's happening around the world, there's earnings pressure. So domestic oriented businesses are actually delivering better earnings growth. And India is a very large domestic market. China is two, and so in Brazil in the within the emerging market context, the same in US actually right, I mean multinational rejects for a lot of China are not exactly doing that well. For domestic orientage stocks are just doing better. So India is a big domestic market and you can get fairly high, high quality, predictable businesses which are still selling it reasonable valuations UM. And hence we have higher exposure in the E M punt. So so let's talk about Russia. You were quote massively underweight Russia for eighteen or so years. Now you say you're overweight Russia. What has changed, um, either in your view or in Russia itself to have that big shift. But first of all, from a philosophical perspective, investing is all about change, is not about static. In other words, Singapore might be wonderful place, but if it's deteriorting that's not you know, that's a problem in Russia. I'm not saying it's going to be next with de Land or anything like that, but it's improved quite a bit compared to it it was five, ten, fifteen years ago. Corporate governance has improved, um. And they talked about managing companies which are actually very well positioned and as selling for very attractive prices, so that there's a big difference for let's say ten twenty years ago, and that's I was very better rush. I'm talking about twenty years now, uh till a few years ago. Uh and today it looks actually reasonably attractive. Some of the folks who have have pointed out that Russia is always cheap, But the concern is rule of law, and how do you know that the state isn't just gonna arrest your CEO or or capture assets. How confident can you be investing in Russia that the normal rules apply. I thought you were describing China. See you gets arrested in stock collapses, right, I guess it happens in other countries. It happens happened here also, we've had people arrested and the stocks haven't done that well, but it seems to be a little more endemic to certain countries. Now, you're absolutely right, I think. I think first of all, that's where you got to see whether the business interests are aligned with the with the government policy and what the you know, what the outlook would be longer term. So um So, one interesting fact, if you do the last twenty years, Russia has been one of the best performing markets versus China and mostly other markets, by the way, and which is not how people think about it. Uh. And the reason is that you can get some really high battered true businesses which are very well aligned with what the government policy is. And and and ironically because of the capital flight issues, actually a lot of companies pay a lot of dividends, so you basically getting dividend return on business that are still growing at reasonable you know, at regional prices. So I think I think it's a combination of the two. Um So, if you can buy a business where the bond heels are, foreigners are willing to buy bonds of the same company at four and four and a half percent. Why the stocky link twelve percent? That's a question, right, I mean, the corporate governors should apply as much as the bond site. But but but if you can get truly good business like spur Bank for example, uh it has sixty pc deposit franchise in in a deposit market share in Russia and the banking system is consolidating rapidly, I mean, it's it's meaningful consolidation. Over the last five years. The central banker and Ubulina has done a very good job. But it's yielding almost eight percent growing plus rows selling at six time mornings. So it is I think. I think, I think you can do a lot worse in other places. So do you bring a different sort of fundamental analysis to different countries? Do you have to think about stock selection and let's say China or Russia differently than you would think about Singapore or Vietnam? How do you look at each country with their own unique political situation You mentioned aligning the interests of the company with the government. Is it the same approach country to country or do you have to adapt depending on the local politics. Yes, so I think, I think there's clearly a little bit of adaptation needed. I mean, if you're investing only in the US, if, for example, if you're running a user refund um, there a lot of things you wouldn't necessarily have to think about, right, I mean, some country companies have currency theres but most don't have that. On the other side, if you're investing in emerging markets, you know, country risk matters. So what I call a macro switch off, you don't look for a good macro You can't say China is ring. I'm gonna try to find companies there. That doesn't work. However, if this political risk in a company, if the if the company is getting contracts from the government, off they are they are as For example, last summer there was increased risk in Chinese tech companies. Now that seemed to have gone down a little bit. I'm not saying you sell out because of that, but you've got to be aware of the macro switches. And by the way, that if I take a five year review, I think the political risk is increasing in some of the largest U S companies too. It is not here or now, but it's not zero risk that you could see you know, you could see some some antitrust investigation and in some of the larger companies, the Amazons of the world. So it is not a factor today, but it will be naive to assume it's not a factor if you're taking five plus year of view. I'm very rich Helts. You're listening to Masters in Business on Bloomberg Radio. My guest today is Rajiv Jane. He is chief investment Officer and chairman at g q G Partners, at twenty four billion dollar firm. Let's talk a little bit about your strategies. You're long only, so what are your goals? Is it to beat the benchmark or you or are you targeting higher risk adjusted returns? What what is the goals of of your specific strategies for each of your funds. So the official activists outperformed the benchmark by a few hundred based point with less risk, so losing lesson down markets is important. So it's much more conservative compounding and the fact that every employee and an investor, that's where the alignment of interest matters, right, So we're not talking about acid girl. There's all about can we compound our money along with our client's money, and that means that it's much more absolute oriented rather than relative focused. And just as an example, in eighteen um the international benchmark was down about nine your fund was positive slightly positive for the year. So there's an example of managing into a downturn. I have to think clients are pretty happy about that sort of situation. Yeah, And I think I think that's that's the reason why we've seen we continue to see, you know, reasonable influence from some of the most sophisticated institutions. Is that it's all about I think. Look, I think I think you've got to be careful about relative returns. You can't focus on too much. And it doesn't matter whether it's a pension fund or an individual. Right, if there kets down and you're only down, you're still down. That that's true. But if you're long older, you can't manage that. And and there's no free lunch. So if you're trying to manage it too much, you leave the upside and seeing on the hedge fund site, right, ivan, yes, they didn't lose that much and maybe two thou eight, but you gave more plus some or the next decade because the markets, you know, tend to go up over the long run. Right, So let's talk about capacity. You you recently announced one of your funds was going to be capped at ten billion dollars? Is that is that right? Was it a fund or was it a separate managed to counts? So it's a uh did the multiple vehicles, So it's a product issue. I've run thirty billion in emerging markets before. Performance was fine, but I did lose a lot of flexibility. So we've you know, we've said bild soft claws. In other words, existing clients can add at ten billions, but you won't take into new clients once you hit that ten billion dollars. You will keep maybe that some of the mutual funds open, uh for technical reasons. But but we'll we'll we'll start hitting the brakes as we get to ten. So so when emerging only but global internationally, we have a lot of capacity because they're very large liquid. So what is it about emerging market that limits the capacity? Is it there's just not that many big companies or what what specifically puts a cap on on that? You know, I was just mentioning that that around thirty billion and e M and probably was the largest pool under single manager. Uh. How and the performance was okay, uh, but you clearly lose nimbleness. Emerging markets actually much larger space than than than the perception. Seems to be a lot of very large that could names. And I think I think, I mean, for example, the Chinese tex space itself is probably a trillion and a half dollars didn't exist a decade ago pretty much so, and it's China. Is China still technically? E M? Have we when does that get moved? Didn't M s C I just do a whole thing with China and e M do we still think of China as an emerging market or or have they graduated yet? Now? Look, I think, I think, I think if you look at any sort of um common sensical wave from in terms of rule of law, in terms of you know right to you know, you know you're properly right, and so in the full, China is clearly in emerging market emerging market. It's not a now some Shanghai developed more developed in New York. It feels that way if you go there, but it doesn't mean the whole country as such. M quite quite interesting. So so let's talk a little bit about how you um think about entering positions. I know, some managers do a pre mortem where they right out with their full explanation of why they're making the investment, so afterwards they can look back and say, this is exactly, um, what they were thinking, whether it works well or goes bad. What what do you do when you're in the midst of adding a new name to a portfolio. First of all, you need true diversity, and we talk about diversity, but if you look at our team, there are folks who have done long short equity long short credited investigative journalists, uh, you know, um, forensic accountants you want to be You want to have a true devil's advocacy, right um. And And that means that multiple pairs of ice will look at the name. And I work as a full time analyst and a part time PM. There's no name that will go that has gone in over the last twenty five years without me actually working on a name, you know, having some sense. Obviously some of the analysts will do a lot deeper work on those names. And then we want to have a separate pairs of eyes, whether from an accounting perspective or from an investigative journalists, which is more to sort of get a sense of where, um, you know, are there any sort of grassroot issue that we are missing, for example, if there's any governance issues. So we don't talk to existing employees, but are there any governance issue that we should be aware of? Any regulator is that we should be aware of, uh sort of you know, kind of e s g um hygiene, if if if you if you will. So what that does is is that again, the idea is to reduce the chance of a blow up. The idea is not to find the best name. The idea is to eliminate the weakest name. So you mentioned investigative journalists. You hired Carolyn Q from the Wall Street Journal. What was the thinking behind saying, I know, I need an investigative reporter on my team. It's interesting if you think about what we do, it is it is kind of investigated journalism anywhere. I mean, it's it's actually what a good analyst should be. Is very similar to making sure you're getting the facts right, being more objective. So you want to have devil's advocacy within the team and investigator journalist kind of work as a separate team. They're basically there to find faults with our existing names. So what I call them internal critics. Ah, And as you can see, a lot of anils get pretty uncomfortable with that internally I'm talking about. But I think the idea is my view is I would rather have internal debate and discussion rather than the markets criticizing you. When the markets criticize you, that's expensive to say, to say the very least. Um, so something else you said previously, Um, it seems most investors and evaluate managers just by looking at their past performance. You suggest that that's the wrong approach. How should an investor evaluate a potential manager they're interested in hiring? But you can't undermine the past performance? It matters because I mean, that's that's a good starting point. But that's all it is. It's a starting point. And I feel that, um, the other way to look at it, which is actually more important, provided there's a good past tract recker, because as somebody said, past performance not a good indicator past performance? Right now? Why is that? As I say, I'm I'm contracting myself. So I like the ying and yang debate in every very discussion. So the reason is decision makers can change, so you know, firm self past performance. But you know, but who took the decisions ten years ago, maybe totally different guys. So you've got to be careful about because you know people said teams and so ons of forth, but it's not an indy cator of decision maker and who was a decision maker. So you've got to be careful and look at long term track records. Is the same individual or individuals who are taking the decision and if it's a one individual like a PM, you know if somebody might have changed, but the firm might be selling the track record of the firm, right, So you've got to be careful that. But more importantly, I think the way to look at or to assess a portfolio manager our track record is how did they do in different environments? So for example, if you look at growth Magic today, most of them look like geniuses right right now, most of these won't have a good track record going back to if you go back two thousand two three era, how many actually them did well? So this whole growth and value debate is is kind of I personally feel it's it's it's it's nonsensical in a way because why would you consciously overpay for anything. So so you've mentioned previously, Um, what you've described as quality growth, what is that and how does that relate to the value growth debate? So, first of all, nobody construally looks for bad quality. I don't know if you have somebody come across here and said, look, we buy low quality, high prices, right, growth manager, value manager. That's all wonderful. In fact, one of the things I've observed is people, The more disciplined people sound, the more rigid they are and more chance of than blowing up steps. Stability is a close cousin of stagnation, and discipline is a close cousin cousin of rigidity. So how they adapted to changing environments. Look at Buffett, I mean he's adapted dramatically, even a low low you know, classic low multiple, you know, cigar but kind of investor. And then do you know, moved to to a different area in terms of quality you know, you know high you know big more high bad gentry businesses, and and I was buying tech. And on top of that, he's done a whole bunch of private deals on the side, which are all nothing but cyclicals. By them, I mean, can you tell me one name one one large part maybe except sees candies in Berkship, which is not cyclical? I mean, his guy could not cyclical? Is some of the you know, boot companies, insurance, reinsurance, home building, what brick companies, railroad? What is not cyclical? Right? So this whole debate is much more around I feel at the end is you expected compounding and sometimes a cyclical with the high berded entry could be very attractive, and sometimes a very steady, eaty business could be very attractive. So like in today's environment, if you look at most of the value oriented names, you're making a cyclical call. Mm hmm. In other words, if the economy really starts ripping, they would do very well. So it is not that they are being given away to you because people they are being misunderstood. There's a fear of downturn. Hence some of these names, whether it's car companies in Europe or hair or some of the financial why are the banks been underperforming in the U as well? The fear is that you know npls will go up. So it's a binary bet on on future economic performance, not necessarily a specific company exactly. And I think I think, I think I think that is it may be a perfect call to make by the way, so I'm not here to criticize that, but it is not something g they are totally misunderstood and you know they kind of um underappreciated assets as obviously market might be overestimating the downturn, if there is one. Uh, but I think I think, I think it's much more around what are the earnings trajectory and what are you paying for? So if you look at some of the tech names, for example, some of the SaaS names right, the cloud names which are some of them don't even have multiple because they are not earning any money. How much of they are investing in the business, and how much of that is and you really like business? Now what I call the Amazon in fact, that because you made money in Amazon despite it not making any sort of net pro of it, um, it's being extra poled. A lot of areas and a lot of areas companies would blow up because they're not Amazon. Right, Amazon did not have cash losses after I believe two thousand two or something, you know, because it's a negative working capital model, which is a very different model than than whole lots of other companies are looking at today. But it does mean that if businesses that are willing to take longer term view, are willing to invest chance that they probably would do better than folks were very focused on short to margin and you saccer with craft right. I mean, if you look at the whole three G model, why had that that has not done well well? Partially because they're too focused on profitability. They cut down everything through the bone. And guess what, You're not investing in the business. And there are not many people interested in chief spread anymore. Quite quite fascinating, and can you stick around a bit? I have a ton more questions for you. We have been speaking with Rage Jane, chairman and chief investment Officer of g q G Partners. If you enjoy this conversation, we'll be sure and come back for the podcast afters, where we keep the tape rolling and continue discussing all things international markets. You can find that at Apple, iTunes, Google Podcasts, Spotify, Overcast, wherever finer podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Be sure and check out my daily column. You can find that at Bloomberg dot com slash Opinion. Follow me on Twitter at rid Holts. I'm Barry Riholts. You're listening to Masters in Business on Bloomberg Radio. Welcome to the podcast for Geeve. Thank you so much for doing this. I've been looking forward to having this conversation. You know, there is a group of people who are significant and influential in the world of investing that forget the public half of the investing world. UM, may not be familiar with their background in history. UM, you're one of those people. You're You've been running a substantial amount of money for a long time and I followed your career for a while. I think a lot of people may not know who you are, and I hope this conversation helps more people learn about you and your background. Thank you so so, we missed a bunch of questions during the broadcast portion. Let let me um, let me go through some of the areas we didn't get to. We talked about quality growth, We did not talk about the shift from active to passive. So first, what does this mean going forward? Is this a temporary shift or is this more permanent? And I can't help but wonder does the move too as more and more people become passive investors, does that create opportunities for the remaining active investors. Yeah, like, I think that's that's obviously the most important debate, And frankly, I don't think there's a debate anymore. I think it's the reality and it's not a temporary issue. It's a permanent uh structural shift towards passive UH. And the reasons are beside the fact that active you know, hasn't add added value on an average UH, probably don't add value. But I think that you're being kind, But I think, I think, I think a couple of reasons where And the second part of a question was whether it helps active remaining active? It does because you know, if if you're paying attention over the longer run, and hopefully you should will add you should be able to add value. But I think, I think, I think the big reason why is is Number one, is active manager charged too much money? M hm. They are being boxed into into in you know, they boxed into their specific sandbox, and the market changes changes colors. So if you're a let's say mid cap value manager, that's wonderful to be compared. But is the is an incline really looking for a US MidCap value manager or you just talk about long term compounding, right, So the segmentation has made life more difficult. So if you're not able to break through that, it'll it's a problem. In fact, there was a time and people have accused me of being a value manager their time, and people accuse me of a growth manager, and I'm doing exactly the same thing. So I think you need to have the ability to not be labeled for rest of your life because yes, of course you won't buy higher quality sensible prices, but sometimes the market gives you very high quality business a very attractive evaluations. So why wouldn't you buy those? Right? Uh? And I think I think that if you are open minded and if you keep your costs low. And that's an important part because if you look at especially on the institutional side, institutions growth basis do actually our perform. The problem is on net basis they're nder perform the way Yeah exactly. So I mean the question why people still of charging hundred hundred ten based funds for US large mandates no sense. What's even more shocking is you can find SMP five index funds at a hundred and fifty basis points. That makes no sense whatsoever. That's hybrid Robert, right, So that that shouldn't be allowed actually because of misleading practice because typically institutions will not get would not get you know, would not pay for that. But it's a retail it's kind of misleading. I personally find misleading. So, I mean it's been around for a while, So I know you cut fees five basis points on a couple of your funds. What is your thinking and is this something that you're doing because you're comfortable with it? Are you responding to fee pressure in the industry? Do you plan on making more cuts in the future. How do you think about what's the appropriate level of fees relative to the size of the funds and the performance of the funds? So something you said at the tail in about the performance of the fund At the end of the day, clients care about net performance, not gross performance, right, and net performance means your fees matter. So what hedge funds problem is not lack of talent, is the fee structure. Right. There isn't that m juice in the game to have to or twenty and be able to add any value unfortunately, right, I mean, how many hedge funds around in late nineties let alone, you know, thirty four years ago, right one, from a hundred hedge funds to eleven exactly, So so I think, I think so that's why one of the things we have done consciously is that we want to make sure that our fees are below median and very comparedive. Why because I want to be you know, we want to be known as a firm to have added value, which is net performance. So you want to be you know, very cost competitive simply because you want to have better performance. Right. So it's actually an odd interest. And then you can have a long term sustainable client base because the higher recharge the expectations go up on on a shorter term basis of our performance, which is not not possible. So I think, I think to build a sustainable investment managment shop, you have to be very cost competitive, and the lower the cost, better your net performance going to be. It's not about margins. So my personal view is that you can't build a business with a specific margin target. That makes absolutely no sense. That should be an that should be a fall out of what you're doing, not a target itself. Quite quite interesting. So you're you're known as an international manager, but you also run a US domestic fund. How do you balance the two? They're such different um environments, such different stocks. How do how do you go back and forth between thinking about equities in the US and thinking about international equities. I have I've done it for twenty years and now both developed an emerging markets and I feel I'm a better emerging market manager because I do developed advisive versa. So, for example, last year that the implication of trade we thought were clearly being underappreciated in a lot of Chinese companies, meaning the tariffs, the Tarifan trade ward. I mean it's not just putting tariff, but it also impacts Apple and a bunch of other companies here. So if you look at Nike, Starbucks, and Apple, I mean this, this, this, You've got to incorporate the potential risk coming from what's happening in China. So in fact, some of the names that we did cut back last summer, which added ultimately added value, was primarily because of read on ground in China. So I think there's a lot of cross pollination. In fact, I personally feel that if you're learning a large gap mandate in US on U S secretaries, I don't see how you would survive the long run without having good insights what's happening as of the world. So you you really need to have that level of sort of some understanding. You don't have to run emerging market portfolio, but you need to have some understanding what happened in some of these countries because that's where the growth might become a lot of large multinationals. Are you in these countries on a regular basis? Do you do a lot of traveling or does do you have your team um put boots on the ground or is that just not necessary these days? Yeah? You boots on the ground is not necessary. In fact, what I found is a little bit counterproductive. Really. Why is because people tend to become bias. It's like trees versus forests. It's so close to the three that you forget the forest maybe on fire, right and and by the way, it happens more often. Uh so, so you've gotta be careful of that. But yeah, if you do travel. But I think again that's part of the evolution. Corporate access to corporate management is a lot less valuable than you used to be. Changed a lot it's changed, and I think that's a lot of wild large shops struggling. You can talk to the CEO and say, look, the next coup is gonna great, and you load up on the stock. Lets just happened in nineties all the time. It doesn't work that way anymore, and which is why. And you just have to sort of adapt to say that that you know, corporate access is actually is important to understand how they think. But just because you happen to know a uccer Bruck doesn't mean you're gonna get the stock right. Right, So so you mentioned you do. Both US and international U S equities have outperformed international now for at least a decade, and by a substantial amount. Historically that's been a much shorter cycle. US leads and international leads. And it goes back and forth. Oh what what do you attribute this huge out performance over the past decade two? And and when do you suspect um global stocks and international stocks might take the leadership role again? Yeah? I mean if you take a very long tram view, these things tend to tend to go in cycles, right, I mean, Um, if you look at US corporate margins and by the why US are performed because ben't fastened rest of the world. I'm and simple as that, right, But all right, which raises the fundamental question, why have earnings growth been faster here than internationally? Was it the US response to the crisis? Is it just the nature of the economy? What is it that why US companies have been doing so well compared to their overseas piers. I think I think it's a combination of what some of what you said, because I look at the European banking system that did not sort of you know, clean up as fast as what happened here. I think one of the things there will just put everybody in the room and say everybody's gonna take capital and while you recappalize everybody, but right, I mean you forced capital down everybody's throats, which is the best thing that could have happened in hindsight. In Europe. Can be done, won't be done? Um, that's a problem. What what about austerity we've seen in the UK and the EU? Was that How much of a factor was that that they basically ignored everything keens toward us and try to tighten their belts in the middle of a downturn. Well, that's that's the whole problem in Europe. In general is you know, there's there's difference between what's happening or what was happening in Germany and what was happening in Spain and Italy and Portugal. Right, so they would big differences in terms of radar growth, unemployment, terms of fourth. And and that's why I've seen property price in Germany go up dramatically now because it's basically free money, UM. So I think that's a fundamental flaw in Europe. Um. Having said that, there are some really good companies um which can allow you to come only a wealth over the longer run. So if you take set of view, you get these cycles in between. It feels like, oh US always going to do well or internationals gonna do well. For example, if you're sitting here in two thousands, even you didn't make a dime, you didn't really make any money in US equities or the prior decade. That's why meaningful model of money was going in emerging markets and non US. Now fast forward another eight nine years, that's the opposite. So I think these these things go in cycles. One aspect I would say I would highlight but is not being appreciated, is the US corporate profitability has gone up dramatically since two thousand. I would argue a lot because of Chinese entry into w t O and this whole decoupling notion of decoupling with China means that Apple has to shift its manufacturing based to other areas out of China, outside of Chinnel just as an example, right ample Apple is just one example that has to be margin negative for margins or the longer run. So the corporate profitability US corporate margins are we seeing some sort of secular peak, not because of some cyclists such but because now you have to go somewhere else to set a manufacturing based So again, a lot of companies will not be IMPACTEDS software is it will not be impacted, but other companies will be impacted. So but that's you know, that's that's kind of what makes investing interesting. So you did an interview a couple of years ago with City wire over in in London, and your answer to one of the questions was, and I don't remember the question, but it doesn't even matter long term performance, long term performance, long term performance, explain I think. I think at the end of the day, it's longer term performance incorporates multiple cycles. And which is why I feel to do. To really judge an investor or portfolio managing, you've got to look at how they how they survived the inflection points, because if you think about it, what kills quants inflection points, it's almost a guarantee that the market cycles would turn into something else. I can't sit in forecast. So you need to able to navigate the inflection points. People did in late nineties got killed the cycle turned in March or two thousand, for example, right then there was a commodity super Bowl market people called commodity supercycle. Well, we don't discuss them anymore as such, right, And I'm sure there's super same in the text site, right. I mean there's a different breed of tech names that are doing well. You don't talk about Intel as much. You still talk about Microsoft when you talk about Intel as much. So I think that's why you need to be able to capture a few inflection points to be able to see whether the managers adapted or they keep bidding the drum off. We do a B C D RNs repeat and don't worry about it that that actually makes me very nervous because you know that that typically It's like saying you're going to drive from New York to Washington a sixty miles an hour irrespective road conditions. Makes makes a lot of sense. So, so you mentioned quants don't do especially well at turning points. Arguably the past couple of years have not been too kind to the quants, especially the ones with an emphasis on factor investing. Um, are we in a turning point now or is this something different that's causing them to underperform? I think I think what's happening is part of that is a lot of the fact that everybody talks about factor investing, question how much that is an arbitrage away. I mean, there was a recent piece in you know, academia that once a study is published about a particular type, factor or style, how well it works historically the efficacy that goes down, right, So I think we sometimes if we get we are competing with ourselves. So once it is recognized eas to do well, the efficacy will be lore makes makes a lot of sense. You mentioned earlier the academic piece, UH that looked at fund managers who add value in buying on average, but generally do a terrible job selling. And and I recul seeing that in January Uh, and I had written about it, and the takeaway seemed to be that the two things the fund managers were very poor at selling were either stocks that had gone up a lot, UH, that were strong growth with momentum. They sold because look how much money we've made, or stocks that have gone down a lot and had become very cheap. Uh. How much of that is a fundamental misunderstanding of why stocks go up and down? And how much of that is just pure behavioral finance and the application of emotions to to the decision making process. But if you think about it, isn't the second one, i e. Behavior driving how much stock has gone and up and down? Sure, my view is that cost you bought the stock is irrelevant. In fact, somebody asked me the other day, what what's your price of stock x Y? You know excess? Look, I don't know, and it's not relevant because the moment you think about I bought it this price, you anchoring to that. And therefore it's because the market doesn't care where you bought it, right, so you don't. And I think that anchoring is the biggest issue, and frankly, be anchored to our own knowledge base because if you think about our knowledge is history, that makes perfect sense. The so so you're you're gonna say, behavior makes a great deal of difference obviously to now, why doesn't it have the same impact on buying? I guess there is no there, there's no endownment effect, there's no anchor. You don't own it previously, So it's a fresh sheet of paper when you're making a purchase. Is that thinking? Yeah? Exactly? And I think I think that's why I've done a number of times that I would just sell the stock to clear my own mind, because that this game is played inside, it's not outside. You're not fooling anybody, fooling yourself. So how do you how do you reboot your own mind? And sometimes you might well sort of take it off the table, And a lot of times you don't want to. You don't know why the name again, do you not anchor on your previous buy or sell when you're approaching a name. I'll give you my favorite example before the I when the iPod not iPhone iPod first came out, Apple was about fifteen bucks with thirteen cash dirt cheap. It ran up to about forty five dollars in a relatively cheap amount of short amount of time and then pulled back. And I remember selling that stock in the low forties, thinking there I tripled my money, and here it is. It's falling, and I said, if it ever gets back over forty five, I'm a buyer again. And of course it goes back over forty five, and I'm like, I paid fifteen dollars, how do I pay forty five? What is the thing to go even higher? And of course we know what happened that that was a classic anchoring trading error. How do you avoid doing that? When you do a clean sheet of paper and say, okay, I've sold this stock and I'm just forgetting about where I bought it or sold it. It's difficult. I think. I think I've been working on it forever and I still have you know, some of us, You know I still commit the same or similar mistakes. So I think you can only work on reducing that, which is where you want to have the diversity in terms of how people think about the names. You want to have a bull and bear case within the team, right, which is why we've actually hired folks who have good shorting experience. Um, We're not gonna launch long short How many long only folks are willing to entertain folks have shorting experience in the team. That's interesting. So the way you deal with behavioral issues is you make sure that a lot of people at the table have broadly different views and histories and perspective. I have had client meetings where a name, Um, I I said, look, this is a bull and this isn't bear, and I'm out of the room. We can talk to both of them. We don't own the stock right now we wanted before. So but look, I think I think, I think you just would work on reducing that. It's very hard to get over that, to say the very least. I know, I only have you for a finite amount of time. Him. So let's jump to our favorite questions that we ask all of our guests. Uh, tell us, what was the first car you owned? Your make and model? Uh it was Honda Civic ninety two. Right. It's hard to kill those and it will stick shift because I'm trying to save a little bit of money. Right, same same for me. Those cars are all but impossible to kill. They run forever. Uh. What's the most important thing that people don't know about regif Jane. Yeah, it's it's kind of hard to say because a lot of pretty much everything is public. But but maybe the fact that I've not been on a golf course will last ten years now. Uh So were you a big golfer? No? I was never a big golfer, So that's what I'm saying. But I live in Florida and I should drive through its golf course. So who are your early mentors who helped influence the way you think about stocks and investing? Um, I can't say I've worked with any individual ways sort who has mentored me. But obviously he learned a lot from reading Buffett, I think. Or there's a whole sloop you know Phil Fisher? Um, Phil Fisher? What the name is familiar where? Yeah? He wrote that, you know, the famous book in the fifties, and he has influenced you know a lot of folks, including including Buffett. Uh common Stocks? Sure? Yeah, Um that's not Ken Fisher's father, is it? I think it is. I think it is too. That's quite interesting. Speaking of books, what are some of your favorite books fiction, non fiction? What what do you like to read? So? Um, I I think the lessons for corporate America probably is one of the better from an investment perspective, I feel, and anything Buffett has written obviously is is what you know, definitely worth reading and rereading, meaning his annual letters or annual letters. Uh. And you know some of the transcripts from his and you know a g MS that kind of thing. I went to grad school with a guy named Lauren Cunningham who came up with a brilliant idea twenty five plus years ago of taking Buffett's annual letters and printing them in a book. And well, that's what I'm talking about lesson for Corporate America. So that's Karring Cunningham's book that that I went to school with him. And who would have known back years ago that was the thing. And it's become I think in a nuity any any of the books you want to mention, Yeah, like I think, I think, I think, I feel that it has to be a little more holistic. Um. So I do quite like the Art of Happiness. Why. I think it's about Howard Cutler or something. There's an interview of Dalai Lama really Yeah, and you know recently add that this book by and Duke on Betting that was book Thinking Bets. The other. Actually, I'm reading this book by Rory Sutherland, which I quite like. The Alchemy just came out. Um, the Alchemy, The Alchemy. Yeah, he's he's from the advertising side, so it's kind of colorful book. It's it's a fun read. So I I read rather eclectic. That's that's quite quite interesting. UM, tell us about a time you failed and what you learned from the experience. I think, I think from an investment perspective, UM, what if I go back in two thousand eight. You know, I actually pretty much ended up exiting all our financial exposure by two thousand seventh. Their bats, but I still a lot of exposure which could have an impacted negatively because of slowing economy and the fact that I was so nervous on the financial side. The question why didn't I connect the dots? And that actually led me to revamping the whole investment team over the years, how I thought about investment team. Uh and in fact, g k as you know, I didn't bring anybody from my prior team. This was really uh keeps using a clean sheet of paper. You started from scratch and launched with UM. Nobody from your prior firm. What was the thinking that the thinking is again, you know, what have I learned, I mean, over the years in terms of what works and doesn't work? How can create more diversity, And so tried to hide with a lot more diversity in terms of folks with long, short experience, credit, low credited experience, full capital structure analysis, so different type of investigative journalists. And I think I think that's part of learning evolving. In fact, there was again somebody who has covered a consultant, has covered this space for a while said to me something which is interesting. What they found was that the team that had no employee analyst turnover, the chance of then going under was the highest. Really, that's interesting, and that actually makes sense. This interesting does a very good job selling how everything is stable, everybody has been here since they were childhood and don't really batter kind of stuff. But that's misleading. That leads to group think. So how do you sort of read And by the way, I've done that kind of you know, restructuring before too, because I feel I'm better hiding now than I was twenty years ago, fifteen years ago, right, I mean, you got to learn from the mistakes. So sure that that's part and parcel of which is why I have a I thought I'll have a clean sheet of paper, and what would I redo? And and and one reason I think we've done better now is partship because of Okay, these are the mistakes. It's like tennis. If your back end is weak, the good news is you can im You know, in tennis you can add somebody else to play a back end. In this game, you can. So what how can I address my own weaknesses? Let me hire those rather than sort of saying, gee, this is the same group of people and we're all happy living ever after. So so you mentioned golf and now tennis. Tell us what you do for fun when you're not in the office. Unfortunately you need I needed. I tried everything, including golf and tennis. So I don't think so I would say that I'm good at tennis at all. Um, I like to read. I mean, you know, eclectically doesn't do investment at all. So I think my best day would be having a good book and a couple of coffee and sitting alone and reading on a Sunday morning. That probably be describe what I like. That That sounds like fun. So what is it these days that you're most optimistic about, and what are you most pessimistic about. I think that, um, there's still quite a bit of pessimism generally speaking on markets. I'm talking about equity markets. Uh. The focus on on what FED is going to do is and it's not an important don't get me wrong. But there's real corporate earnings picture, which is important, not is not unimportant, but it's separate from just where rates are to if rates go lowered, how much does that really help Apple or Amazon? Yeah, it won't. It won't make that big a difference, right, I mean Amazon has not done well because of rates collapsing or something. Right, It's it's a fundament They're fundamentally transformed. How we you know, how we transact um and that kind of transformation happening a lot of different areas. So I feel that we need to focus on that true to find the next group of winners um uh. And and some of the old companies have sort of restructure themselves in in a dramatic fashion too. That's a lot more important. So I'm actually pretty optimistic in terms of where the world is. I'm not saying the market is going to go up next year. Or something. But but because sometimes too much focus on FED policy and you know, and and other things that are wrong in the world. UM. And by the way, that's why The Factfulness by Rosaling is another fantastic book. UM. I think I think the world is a lot better place today than than than we give it credit for. Anywhere in the world. I mean, I've invested in frontier markets twenty years ago. I mean almost invested invest in Zimbabwe in ninety after visiting their thank god I didn't. Um. We've invested in Botswana and Bibia, Mouritius and all over the place. Generally, you go, things are better today than they were ten twenty three years ago, I mean, broadly speaking. So that's the optimistic side. What what are you pessimistic about? I think I think I think this um, the trade water issues, I feel a much more deeper rooted. Uh. This is a paradigm shift that is basically unfore Lygen tried it in front of our eyes. Um. And I think I think there will be a transition Peter needed, you know, because of because of what is happening. And I think I think if it's slow, I think we should really handle it. I hope it's not too fast transitions just a batter life. So I'm not saying it's gotta bad. They happen. Makes sense. So if a millennie all or recent college grad came up to you and said they were interested in a career, uh in investing, what sort of advice would you give them? First of all, I would say that you have the open minded and humble about about things. If you're not humble, because what arrogance leads to is you become dogmatic about to us, and that's the worst thing to doing investing is become arrogant. In fact, what I've seen is my worst losses came and I knew I thought I knew the most because you become dogmatic. So being open minded humble is important. The second part is you always have to think about giving back. So we for example, a GG launched our foundation, but then basically and have a launching with employee matching. We've you know, it's important to get back and this industry pays well, we need to think about how we sort of you know, from a societal perspective, how what are we actually about giving back to society? So so how does that work? You're you're matching if an employee makes it comes up to you with a UM, appropriate philanthropy or charity g q G will match whatever the eployee. Yeah, so there's yeah, so if you're trying to be thoughtful about it. So there's a separate committee. I'm not on the committee within the firm from different areas of the firm, who would approve that, uh, and then we would match. Ah. But but that foundation is also now started actively giving out for from a you know, education, health care, you know, especially kids, and and and a few other causes. And finally, what is it that you know about the world of investing today that you wish you knew thirty years or so ago when you were first ramping up That I that I know a lot less than what I think. I think you said. You begin to appreciate your own um uh yeah yeah. You let me rephrase that. As you grow older, you tend to appreciate what you don't know a lot more and that is part of the strength, and that actually makes you not only better invested, but a better human being. So I think I think it's important to and I feel light, I feel a no, a lot less today then I thought I knew thirty years ago. Um, and that's important part of not just investing, but life makes perfect sense. Reggiev, thank you so much for being so generous with your time. We have been speaking to Rajiv Jane. He is the chairman and chief Investment Officer of g q G Partners. If you enjoy this conversation, well look up an intro down in Intro on Apple iTunes and you can see any of the other two d and fifty such conversations we've had over the previous five years. Be sure and give us a review and uh, if you wanna make any suggestions comments, feedback right to us at m IB podcast at Bloomberg dot net. I would be remiss if I did not think the crack staff that helps put these podcasts together each week. Michael Batnick is my head of research. Attica val Bron is our project manager. Michael Boyle is my producer. I'm Barry results. You've been listening to Masters in Business on Bloomberg Radio. H