Host: Matt Hall
Guest: David Kabiller
Matt Hall: 00:07 Welcome to Take the Long View with Matt Hall. As you know, this is a podcast to help reframe the way you think about your money, emotions, behavior, and time. The goal? Helping you live richly.
Matt Hall: 00:17 We're going to talk with the best thought leaders we know to learn from their meaningful experiences, and we're going to bury the vegetables of world-class thinking and stories and conversation, helping you put the odds of long-term success on your side.
Matt Hall: 00:34 That's my whistle. Every day when I walk into the office, it's my signal that it's on or I'm here or whatever.
David Kabiller: 00:40 Are there dogs around?
Matt Hall: 00:41 No. No one really cares, but it's just a thing I do, and it's how I start this podcast.
Matt Hall: 00:45 I'm so excited to be on the road. I'm in Greenwich, Connecticut. This is my first time in Greenwich, and I'm here to be with David Kabiller, who is a boss - I mean, literally, he's a boss, but he's also a boss in sort of transforming a new chapter in modern finance. He's done so many cool things, but I've heard from some of my listeners that you don't like how I read the bio. So I'm not going to read the whole bio. It'll be in the show notes.
Matt Hall: 01:10 But just imagine that I'm with someone who's done everything you would want to do if you're trying to search out one of the best thought leaders in the investment space. The name of the firm is AQR, Applied Quantitative Research. In the spirit of full disclosure, my firm ... or our firm, Hill Investment Group, uses AQR. We're big fans of their work, and I do think you're at the front edge.
Matt Hall: 01:30 My nickname in the past was Relentless Agitator, and I feel a kinship with you, because I think there's some Relentless Agitator spirit inside of AQR. So, David, welcome to Take the Long View. I'm glad to be with you.
David Kabiller: 01:41 Thank you. I just left my 85-year-old mom, and she's going to be so delighted to hear that intro. So I appreciate the intro.
Matt Hall: 01:47 Okay, good. Well, we have a few things in common, and let's start with tennis. I never played college tennis, but you were a big-time, Division 1 college tennis player. Do you still play tennis, who are your tennis heroes, and has tennis played any role in your business success?
David Kabiller: 02:05 Yeah, well, it's very kind of you to say that. I feel nothing but a failed tennis player, and I think that constant angst of not really achieving my dreams there has tried to manifest itself today in AQR and other things that I do.
David Kabiller: 02:17 I started when I was ten. So it was a late start, and my whole life was tennis. I thought that could be the thing that got me to a life of happiness and joy, and my heroes back then were Björn Bork and Jimmy Connors, John McEnroe.
David Kabiller: 02:33 While I played tennis in college, I did get a series of injuries and lost confidence. While, depending on your benchmark, some could say that's successful, I feel like when my benchmark was ... Today, some greats like Federer or Nadal, which I just feel like a failed tennis player.
David Kabiller: 02:51 So it is a motivator. It still feels raw to me, the injuries and the inability to achieve what I wanted there. I've had a recent interesting and fun experience, though, because there's a coach named Frank Salazar, who is probably one of the best coaches in the world, who just left being the coach of TFO. Dennis Kudla and my partner John [inaudible 00:03:14]'s kids are working with him.
David Kabiller: 03:14 So I now, maybe once a week, go out with Frank, who was the number one junior in the world years ago, who is a savant on teaching tennis. At 56, we're learning new things, and it's very healing. It's like going to a therapist. I'm learning all these new things about strokes, execution, and playing, at 56. It's so freeing and so joyful.
Matt Hall: 03:34 Great. Well, who is your favorite modern tennis player?
David Kabiller: 03:38 I hate being cliché, but I think Federer, the grace, the integrity, the honesty. It's almost like we're living in one of the most incredible tennis times ever, obviously, if you look at Djokovic or Federer, Nadal, and I think it's 55 grand slams they've captured together. Just seeing the three of them and the character that they show and the intensity, it's all three.
David Kabiller: 03:59 Those three are probably my favorite players right now, and they're all co-existing. The great debate of who's the best ever is certainly to be had.
Matt Hall: 04:06 I'm a huge Federer fan, and it does sometimes feel like he's playing a different game. I saw him play at Wimbledon several years ago. That was one of my dreams, to see him play on center court, and I've never seen someone so comfortable and at ease. I strive for that same level of ease in my own life.
David Kabiller: 04:25 Well, it's interesting you say that. You start thinking about playing for the long term, you think about how he's adjusted his life to have longevity. How he moves on the court is less physically taxing than Nadal's physicality, which you see the injuries. You'll see Federer's conscious choice to play less tournaments, to not play the French Open. So he is making choices today that benefits the longevity of his career.
Matt Hall: 04:47 Yeah. I was watching, the other night, Nick Kyrgios sort of self-destruct in this match he was playing at Cincinnati, and I've seen Kyrgios play live. I feel this sense of conflict when I watch him, because I feel like tennis needs characters like Kyrgios to bring interest, and sort of the modern attention span might need some of this crazy excitement drama to stay tuned to tennis.
Matt Hall: 05:15 At the same time, I love the class and elegance and the respect for the game that Federer has. So I don't know how to feel, because I want tennis to be more popular, or as popular as it was back in the McEnroe, Borg, Connors days.
David Kabiller: 05:28 Yeah.
Matt Hall: 05:28 So, anyway, I, too, am a Federer fan, and I'm impressed with how he is playing a long game, for sure.
David Kabiller: 05:35 Your Kyrgios comment ... I saw the match, by the way, and you think about the media and perception. When you see him superficially and you see those antics, you could be really turned off. It's kind of fun, but it's kind of a turnoff, because he tanks at times.
David Kabiller: 05:48 But then when you get to know him - when I say "know him," I've seen some deep interviews about understanding his psychology - you look closer, you see some of his pathologies, but it inspires empathy and understanding. So I agree with you that you need him in the game, because he creates animation and excitement, but I also think it's about perception and misperception.
David Kabiller: 06:05 If you judge him by the one act - whether it's a security going down or an investment process not working - you can come to an erroneous conclusion he's just a bad guy, he lacks character. Well, in that moment, but there's something much more there to him. So when you see deeper interviews, again, it inspires empathy to see his character.
David Kabiller: 06:22 I think I kind of want to talk to him ...
Matt Hall: 06:24 Yeah.
David Kabiller: 06:25 ... and reason with him, because he's got such amazing talent and potential. So I don't think we can give up yet on him.
Matt Hall: 06:30 Yeah. No, good point. Speaking of wanting to talk to him, do you remember there was a referee who overstepped his bounds and went down and said - and not in his most recent match, but in a match prior - like, "Don't do this. Come back"?
David Kabiller: 06:40 Yes. I think other people share that same sentiment.
Matt Hall: 06:45 Okay, great. Well, let's go back to Deerfield, Illinois, early days for David Kabiller. What were your early days like, and when did you figure out that you were sort of destined for this success in the investment world?
David Kabiller: 06:57 I remember being driven, feeling the emotion of, "How do people succeed?" I remember reading a book about success. It was like a case study of ten successful business people, and that was, like, at nine years old. I just wanted to get somewhere else, a happier life, a life of freedom, and it wasn't necessarily about money, but I wanted to understand what success was and determine what it was, because we know there's a very holistic approach. It's not just financial. Maybe it's freedom. It's joy.
David Kabiller: 07:25 So it started at a very impulse. My dad was an orphan and a men's clothing salesman, so I didn't even know about the world of finance. My path was, "Could tennis be my place to greatness?" You're young, you're ten years old, and you think maybe - and a lot of false perceptions when you're young.
David Kabiller: 07:41 I didn't really have anybody in finance, and so I'll fast-forward to it. I was at Northwestern, and I'll never forget this night. We just had played Minnesota in tennis, and we were driving back in a snowstorm. One of the seniors said he had an interview the next morning at Goldman Sachs, and I'd never heard of Goldman Sachs. This was 30-some years ago, growing up in Chicago, men's clothing salesman father. I thought he said "Goldman Slacks." I literally did not know about the firm.
David Kabiller: 08:09 It sounds naïve today, because there's a lot of East Coast sensibilities, but I'm this Midwestern guy. I went back to study my books. Senior year comes. I had got injured in tennis. I played all four years, and I'm faced with, "What job do I want?" I had this passion and fire for something, and I remember talking to a guidance counselor. She looked at me. I'll never forget. She winked.
David Kabiller: 08:29 She goes, "I'm really going to be interested one day to see what you do," because she saw my ambition and desire, but I didn't know how to manifest itself. I remember I took the LSATs and GMATs, and I was going to go to business school and law school, because I thought two degrees are better than one. I was going to defend doctors and hospitals against lawsuits, because I was interested in science.
David Kabiller: 08:46 So I had this really focused point of view. So I entered, and I went right to Northwestern. I applied to one business school, and there was a combined program. I ended up just doing the business school, and I went to a careers fair.
David Kabiller: 08:58 This is something really important to me and, I hope, to everybody and all your listeners. We just don't know what we don't know, and, at business school, it was like the Wizard of Oz. It's black and white, and everything turns to color at some point, like, "How'd that happen?"
David Kabiller: 09:11 I went to all these career fairs, and I saw somebody speak on a panel about careers in investment banking. By the way, I had this naïve view. "Investment banks? What do they do? Do they invest?" I didn't even know what they did. I heard the words, and I had a perception of arrogance and sort of stiffness and ties and horn-rimmed glasses.
David Kabiller: 09:29 But then I heard about all these other careers, like sales and trading and asset management. So the world opened up, and there was a summer job between years in business school and a very close friend of my family. I had all these brochures on the desk of pamphlets about Goldman, Morgan, and others. He pointed to Goldman Sachs, and he was the only person in my family I knew who was in finance.
David Kabiller: 09:50 He said, "Work for this firm." I'll never forget the words. "Work for this firm, and you'll never have to worry about anything else the rest of your life." I think he was just talking about there's some really high-quality people working there.
David Kabiller: 10:00 So I made it my mission to get a job at Goldman Sachs, and I was 22 at the time. I looked like I was 12 at the time as well. I remember going to the interview, and the guy looked at me. They were interviewing, like, 40 people, and they were taking two for the summer job or something. It was pretty small, and I didn't have any experience.
David Kabiller: 10:19 So he asked me, "Is there anything I should know about you?" at the end of the interview, and I said this. It sounds so cheesy, but it was appropriate for the dynamic, because it was a highly empathetic, connected thing. I said ... because it was only 30 minutes. I said, "To know me is to love me."
David Kabiller: 10:32 Again, I apologize for the clichéness of it, and it's almost embarrassing to say now. But I said to him seriously, and he was in his late 40s. I told my friend this after the interview, and he was like, "You're never getting that job. That was ridiculous to say that."
David Kabiller: 10:47 I ended up getting the job. It was really at Goldman that this whole world of finance unfolded to me, and I was really interested in truth, or I was really interested in how do people then make money, just as I was interested in what makes Björn Bork the best tennis player in the world at the time, or years ago. You look at his odds, and maybe he won 60% of the time. He still lost a lot.
David Kabiller: 11:09 In the world of finance, we're consumed by anecdotes - small cap, large cap, growth, value - and there's that quote, "Even a broken clock is right twice a day." I'm sitting there, surrounded by amazingly smart people at Goldman, with an infinite amount of different stories about what works, and I was on this mission to find out excellence and what's the best way to invest.
David Kabiller: 11:32 It was just an intellectually curious idea of, "How do you do this?" I kept hearing different anecdotes, and you're surrounded by tons of anecdotes - whether it's media or the people around the firm. Even bad ideas work over short periods of time.
David Kabiller: 11:44 My journey at Goldman was in three different divisions. I was in the fixed income division, I was in the equities division, and I was in the pension service division. So I was in three divisions over ten years, and that was a manifestation of curiosity.
David Kabiller: 11:57 I'm a big believer, by the way, that money or any financial success is a residual to innovation and excellence. To me, my balance sheet that I was always trying to build was knowledge. I saw a lot of friends leave Goldman, because somebody would offer them 2X, in terms of compensation.
David Kabiller: 12:14 To me, it was all about growing my knowledge, building my skills, and let money or any future success be a residual to that knowledge of human capital. But I'd take a pay cut to go to another division. When I went from fixed income to equities, I took a pay cut, or when I went to pension services, I took a pay cut.
David Kabiller: 12:31 So I was all about knowledge gained, and so I had a deep understanding over time of the fixed bond division, the equities division, and then pensions and how they work. Then I did the CFA.
David Kabiller: 12:42 So my experience for ten years at Goldman was knowledge, and it was, in 1993, where I met a couple special people. There were a lot of special people at Goldman, actually, some really incredible talent. But something quite distinguishing about my partner, Cliff, and John and Bob was, while I saw so many smart people, there was an intellectual integrity and curiosity.
David Kabiller: 13:07 All three of them were getting their PhDs in Chicago. Right? These guys were wired. They were going to be professors. Oftentimes, you're wired a little bit differently. Some people could be Machiavellian about making money. I think my partners were all about, "How do we figure out these markets? How do they work?"
Matt Hall: 13:24 How'd you sniff that out? I mean, I love it. But how did you figure that out? Because that seems to be one of your gifts, is the ability to filter people for what you're after.
David Kabiller: 13:35 Yeah. You know what? I think I'm curious. I think about intuition. Some people say, "What is intuition? Is it some psychic phenomenon?" I think intuition is just paying attention, asking questions, and listening.
David Kabiller: 13:48 When you meet Cliff and you meet John and you meet Bob, you can judge who they are by the choices they make. So they go to Chicago - so arguably one of the best empircal finance, if not the best, in the world. They seek excellence. So you can judge by their actions - but then when you talk to them, what they care about, what they prioritize, the consistency, the intellectual integrity, intellectual honesty. It doesn't mean you always get things right in the short term, but their North Star was always, "How does this work?"
David Kabiller: 14:13 So through my questions, through my interactions, through the choices that they make. A lot of people can say stuff, but you also look at their choices. You look at ... Their values are reflected in certain moments of adversity, and I worked closely with them for five years. So I had great context.
David Kabiller: 14:31 But, again, I do think I have, hopefully, humility. I'm always interested in the mythology of icons. I think we all deify humans. We're all humans.
David Kabiller: 14:39 One thing that is maybe distinguishing that I notice about myself - and I'm just a guy - is curiosity. I'm curious about you. Here we are, talking about me today. I've said this earlier. I am authentically curious about others. I think the only way to know self is in context of others, and I think my intuition is just paying attention, listening, and being aware of others' energies and their truth.
Matt Hall: 15:03 Wow. Great. So let's dive into ... You've got to have some sort of entrepreneurial seed in you, because you're at this great place. You're at Goldman Slacks.
David Kabiller: 15:15 Yeah, right.
Matt Hall: 15:17 You've had a good ten years. But what happened that started you down this path of, "Let me do something else. Let me start something. Let me begin a whole new chapter of my career"?
David Kabiller: 15:27 I got tired of sewing at Goldman Slacks. I think it's running away from something vs. running to something, and I think ... I never need my name in the lights. I really value freedom and creativity. You think about artists get to paint. They start with a clean slate, a canvas. Goldman Sachs is wonderful, but you think about the impact that I could have there. Wonderful place, whatever, it's 30,000 people, is I think about an artist or a painter.
David Kabiller: 15:55 I want to create, whether it's influencing other people in human development. I'm really interested in that, and I think my journey at Goldman was building lots of knowledge, whether it's products and channels of distribution, which I found very interesting. There's that quote, right, where "luck is where opportunity meets preparation."
David Kabiller: 16:13 I think I always felt that I wanted less constraints to create, and the confluence of events that happened ... I had other opportunities to leave through the years, but it was a wonderful place, and I wasn't just going to leave for anything. I had to find something aligned with my principles and my DNA to create.
David Kabiller: 16:31 I think if you meet people where you have shared values and synergistic skills, that's where the dance begins, and I think we had shared values. For me, just to personally do financially well without our clients doing well or figuring something out, let our success be residual to innovation and figuring something out, Cliff, John, and Bob have that to the core.
David Kabiller: 16:56 Again, I say we can have tough times in the short term, but when your wiring is that way, long-term, the odds are in your success, when you really are about the intellectual integrity and honesty of what you're trying to pursue.
David Kabiller: 17:10 So the shared values was a big deal, and then I'm more of a business person. When I say "business person," I'm really interested in humans. So I understand finance, certainly, at a reasonably deep level, but certainly not like my partners. But I'm really interested in it, but I'm so interested in organizational health, organizational design, human development, clients, connection. So we had that synergistic skills.
Matt Hall: 17:36 So how do you get Cliff and others to follow you down this path?
David Kabiller: 17:41 Yeah. Well, it was really interesting, because Cliff was running the Quant Research Group in the early '90s with a group of maybe 12 people or so, plus or minus. One of the guys who had worked for Cliff, we started talking, and the group was outstanding. They had outstanding results, although it was small. It was only a couple years old.
David Kabiller: 18:01 I had a good relationship with a number of people there, and so, pre-AQR, I was going to leave with one individual and a couple other people, Bob Krail, our other co-founder, to start a firm. Ultimately, I decided not to go with that individual.
David Kabiller: 18:17 I remember choosing to stay, and I was sitting across from Cliff in the cafeteria at Goldman. I said, "You know what? I'm going to stay, because I don't think it's the right fit for me to do this with this guy." I said, "However, if you want to go, that'd be a different story."
David Kabiller: 18:35 It was funny. I looked at Cliff at that point. I don't even think he was thinking about it, and then you see the math going off, because he was doing, obviously, quite well at Goldman. He didn't really jump at it, though. He gave me nothing. He just kind of ... I saw a little kind of smile, and he gave me nothing back. That was that.
David Kabiller: 18:50 Then, for the next year, I relentlessly pursued Cliff and John and Bob. Bob was going to go with me. Originally, Bob came back to the firm, didn't resign. So me and Bob both wanted to go and start AQR. I think Bob wanted the freedom, and he wants less bureaucracy.
David Kabiller: 19:08 So I would spend a year trying to convince Cliff to do this, and he was an immovable object for a while. He was doing quite well, and the group was doing quite well. He loved it. It was everything he wanted, and I remember him calling me up, telling me his decision was not to go. I was so bummed.
David Kabiller: 19:23 I remember seeing my mom and dad, and I was depressed for this whole weekend. They were like, "What's wrong?" I remember saying to them, with such this intense passion ... I put my finger up. I go, "Because I was this far away from creating something really special." I remember saying that, and I was just so visceral about ... I was so bummed out when he said no initially.
David Kabiller: 19:42 I think I saw the empathy. My parents were like, "Oh." They didn't know what it was or what it could be, and they were like, "Oh, okay." But I still kept at it, and I think I've heard Cliff say this, that when he decided to stay ... Sometimes you get that rush, "That was the right decision." I think Cliff felt it maybe wasn't the right decision.
David Kabiller: 19:59 So I kept at it, and I remember, six months later, I finally get a call from Cliff at my home in Chicago where, at this time, I was living. He never called me. The guy would just never, ever call me, and he goes, "Hey, it's Cliff." I'm like, "What?" He had nothing to say. There was nothing. He couldn't get the words out, because he knew if he was with me, he'd be opening up a Pandora's Box. I'm pretty agitating, moving forward and making things happen.
David Kabiller: 20:25 I go, "You ready?", and he goes, "Yeah." That's where we ...
Matt Hall: 20:29 Wow.
David Kabiller: 20:29 Yeah. It was that simple of a conversation.
Matt Hall: 20:31 What do you think the ... If there was no burning platform for him before to do this, what happened? What changed?
David Kabiller: 20:36 Well, what he has said is that I think the rush to get that it was the right decision ... I think Cliff's real love is research, is the intellectual discourse. I think you're at an amazing place like Goldman, and there's lots of other responsibilities that are taken over. You're one of the confluence of businesses. There are tons of people, lots of different committees.
David Kabiller: 20:55 I think, if you think about it, for all the obvious reasons of doing your own firm, in terms of the rewards - the intellectual, the psychic, the financial, the freedom to do it yourself - it was all those obvious things. I think when he decided to stay, I think he was realizing, emotionally, it didn't feel like it.
David Kabiller: 21:11 We were all doing fine there. I remember I wrote a sheet down of everybody I knew and the probabilities of raising capital, and it literally came out to an expected probability of a billion dollars, because I was trying to reduce the uncertainty of our success.
David Kabiller: 21:26 Now, we would always talk and meet after hours at Goldman. We were trying to have integrity, so we'd always meet at this Thai restaurant called [inaudible 00:21:33] at, like, seven at night to talk about how we could do this. So I tried to reduce the uncertainty of our success by saying, "Here's what I think we can raise."
David Kabiller: 21:45 So I think Cliff just came to the decision ... It was like, "Help me help you." But I think he never got that rush, and he knew that there was a good chance we could build something special.
Matt Hall: 21:56 So your co-founders were going to really rely on you to decrease the uncertainty, because you were going to create this sort of distribution and sales and fundraising element, and allowing them to focus more on research? Is that fair?
David Kabiller: 22:10 Yeah, so I think there was this synergistic skill. I think they knew that a business guy ... and I had and have immense respect for them. There was a mutual recognition of shared values, and I think there was clarity of synergistic skills that I'm more of a client person and business management kind of person. So that became, clearly, a synergistic package.
Matt Hall: 22:31 There's a program called Strategic Coach, and they force you to identify what your unique ability is, the thing that you should really be doing 80% of the time during your days where you're really focused. What would you say has been your or is your unique ability?
David Kabiller: 22:46 I think when you combine empathy and intuition - but, again, not a psychic intuition - and authentic care of others, I think I come at this with a sense of tremendous gratitude. The fact that being an orphan ... son of an orphan and men's clothing salesman and having these dreams of doing something that would be rewarding to me, to feel a good, healthy dose of luck that we all need, which is really a confluence of events, and having the humility to recognize any quote-unquote success has some combination of luck, risk-taking, and skill, and I come with a sense of real gratitude.
David Kabiller: 23:21 So my skill is bringing a sense of empathy, intuition, and gratitude to each day to see them do well and authentic care of others. Of course, when they do well and other people do well at AQR, I'm thrilled. Obviously, there's alignment of interest.
David Kabiller: 23:38 I was at West Point. I was meeting with a general, Becky Halstead. She was one of the first, I think, women commanders of the 250,000 troops in Iraq and Afghanistan, and she said a couple things that I thought of great leadership that I can only aspire to that did resonate with me. I don't think she created this concept, but, "Good leaders recognize that their people are not in the service of them, but they're in service of their people. I feel a responsibility to do that."
David Kabiller: 24:03 She also said, "Take pride in the success of the people that work" ... I'm not even going to say "for." I feel like "with." But the people that work for you, she would say, like you would take pride in your children's success.
David Kabiller: 24:15 But I viscerally feel that. I mean, to still work ... and sometimes there's challenges in the work environment, but in my quiet moments, I know that when people at AQR are doing well emotionally, intellectually, and financially and there's alignment, I feel that holistic growth and development of the people that work here at AQR with and for us, that that really satisfies a big part of my soul.
David Kabiller: 24:42 I think that's a unique ability. It's just something that I feel that I think helps.
Matt Hall: 24:48 Speaking of AQR people, I saw this ... I think it's on a slide, but it says something like, "250,000 people come to a career website for AQR. Then some smaller portion of those people start some process where they apply here. Some smaller portion get interviews, and 1% get hired."
Matt Hall: 25:07 You have around 1000 employees and then eight to ten offices around the world - so hugely successful, really amazing journey over these last 21 years. As you think about the things that you look for in that 1%, just like in those early days, how you sort of were able to sniff out something special in your co-founders, how do institutionalize what you're looking for in that very, very select group of people who actually make it here?
David Kabiller: 25:37 So I think intellectual curiosity, the wiring to understand things, that's a really important one. Intelligent risk-taking. People who are relentless to discover or innovate, who don't accept the status quo.
David Kabiller: 25:50 So I think there's this kind of agitation, this unsettled personality, that starts with understanding the right questions to ask. So curiosity, somebody who will be self-starting and take risks, and somebody who will challenge conventions and not just accept anecdotes, who can be very data-driven.
David Kabiller: 26:09 As for different parts of the business, you might have to accentuate something differently. So, for on the research side - right? - you might accentuate the IQ and mathematical reasoning and logic, but you also want somebody who really understands, who has EQ, too, who understands the nuances of finance and the grayness of things and isn't so binary.
David Kabiller: 26:27 So there's a holistic sort of scoring of a person who comes into finance. On the business development side, we do like to hire people who are cerebral. We do want to hire people who are curious, who have similar attributes to research people, too.
David Kabiller: 26:40 We think effective sales is about education and sharing our philosophy with people. I find selling ice to an Eskimo repugnant. What we want to do is educate people to understand what we do so that they invest in it for the long term. So we look for these highly empathetic, cerebral people who want to be educators.
David Kabiller: 27:01 So at different parts of the business, we do accentuate different things, but intellectual honesty and doing the right thing is core to everybody.
Matt Hall: 27:08 Yeah, and preparing to talk with you, I saw an article - I think it was in Institutional Investor - talking about how you hired a very important salesperson early on, and there was a distinct anti-golf in the piece.
David Kabiller: 27:22 Yeah.
Matt Hall: 27:23 You want to speak to that at all?
David Kabiller: 27:24 Our firm has a strong culture and a commitment across the different groups to do the right thing and to educate. I think it's important because, oftentimes in money management firms, the sales people sometimes could be the stepchildren. They actually can sell what's hot, or they go out and they entertain. They build good relationships, and people do business because of the relationship.
David Kabiller: 27:47 Well, I think it's important to have great, engaged relationships - so very trusting ones and rich ones that are based on trust, honesty, and respect.
David Kabiller: 27:54 My first hire in business development was Gregor Andrade, who was a professor in finance at Harvard. He went to MIT undergrad and got his PhD at Chicago, too, and I was trying to make a statement with that, too, because, first of all, he was a wonderful person who was an educator.
David Kabiller: 28:06 But I think, as a statement to my partners in research, that was an important moment, where we were building a business development team that were going to be partners with our research people.
Matt Hall: 28:17 That would respect and honor research.
David Kabiller: 28:19 Totally, totally, and then so the partnership between our business side and our research side and the deep mutual respect is huge, because there was also the shared values there, too, and synergistic skills.
David Kabiller: 28:29 So Cliff and John and I always had that, and Bob, but as we built the firm, we needed to perpetuate that relationship between research and business development. Part of that is, again, mutual respect and shared values and synergistic skills.
Matt Hall: 28:42 You and others here at AQR have been massively successful. Has your success changed you in any way that you can identify? Part of my question is I'm connected to ... As the business has grown and gotten more complex and global and 1000 employees vs. a small batch of renegade friends from another firm, it's changed. It's an enterprise now, and it's a global enterprise.
Matt Hall: 29:07 Do you find that the complexity of the business has changed you in any way? Especially, I'm interested in how you are able to manage your time and if you have this idea of time freedom.
David Kabiller: 29:21 I appreciate the comment about the success. I understand that you could look at certain metrics like asset management, growth, etc., and you could say it. But I'll tell you, as statisticians that's ... we are here, we understand the challenges in active management.
David Kabiller: 29:35 I think about our humble beginning's challenging performance or I think about the 2007 challenging performance, and, always, it's come back. Over the long term, it's been great. But even recently, it's been challenging for us.
David Kabiller: 29:46 I don't think there's a feeling of, "We've arrived." I think the hunger and drive and determination ... and when we don't deliver well for clients, none of us feel good about it. So I feel grateful that we have a great firm with a great culture and that we've done well long-term. We're really proud of what we do and hopeful for the long term.
David Kabiller: 30:05 But as statisticians, you know it's a tough business. It's always sometimes tough in the short term. Even in the best process, you have tough times. So there's no resting on laurels, and there's no feeling of arrival, and this whole constant ability to or desire to get better ...
David Kabiller: 30:20 What's the impact of machine learning? What's the impact of big data? These are not new concepts to us. They're new in the media. How is this affecting markets? How do we evolve ourselves? Some of it's noise. Some of it's just BS. But they're all evolutions, and how do we adapt to get better?
David Kabiller: 30:33 So this relentless pursuit of getting better is there. So changed us. That DNA is just how we're wired. It is true, though, that we have more people. Part of it, I really love. I take notes about myself, and I'm really interested in organizational design and human development on the HR side. I love working with my colleagues in HR, because it's all about, "How do we maintain our culture? How do we develop our people?"
David Kabiller: 30:57 So how it's changed me is that I'm really, as opposed to be external-interfacing, I'm really much more internal-interfacing now. My clients, who used to be external, are now internal. I actually do love that. I do love being in service to the people here, and I am really interested in our QUⱯNTA Academy.
David Kabiller: 31:16 How does AQR continue to attract the best and brightest with our shared values? How do we continue to grow them and evolve them with these shared values of constantly challenging convention, trying to seek to get better, servicing our clients?
David Kabiller: 31:31 So my mission has changed, but to one that I love.
Matt Hall: 31:34 So let's talk ... You mentioned it just a second ago, the QUⱯNTA Academy. Let's also talk about the insight program and how that impacts the firm.
David Kabiller: 31:45 I'm so interested in how we all become the best version of who we are, and whether it's me growing up thinking I want to be a tennis player in Chicago, never having heard of Goldman Sachs, and figuring out where I've gotten to, I'm really interested in how can we help inspire our people's development here?
David Kabiller: 31:59 You can say you care about your people. You can say ... I mentioned their development. "Stop talking. Tell me what you're doing about it."
David Kabiller: 32:06 So a number of years ago, we decided to formalize and create something called the QUⱯNTA Academy - quanta, obviously, the small particles of life, and we spell it, geekily so, with an upside-down A, which is a mathematical symbol meaning "inclusive of all."
David Kabiller: 32:19 So this is really our learning and development program, which is inclusive to all, to build up the small building blocks of what makes somebody be a great professional or have a satisfying life.
David Kabiller: 32:31 There's three components to it. The first is technical skills and knowledge, and, look, for AQR to be successful, we've got to build the right technical skills and knowledge for our people, whether it's computer coding, whether it's finance, whether it's industry competitive analysis. We need to have the right technical skills and knowledge.
Matt Hall: 32:47 I think you have as many PhDs or more than most of the top business schools in the country.
David Kabiller: 32:54 Mm-hmm (affirmative).
Matt Hall: 32:54 That's fair. I mean, you've made that a priority.
David Kabiller: 32:57 I remember a dean of one of the business schools called me up and was teasing me, like, "I can't believe you'd do this." She was kind of almost implying it was superficial for a PR stunt, and I said, "Look. For AQR, it's very different. We're not interested in part-time academics. We're interested in full-time academics. So the people we have here, whenever possible, we're looking to get them full-time. We're not looking to rent them for any kind of PR benefit. We want the best applied minds in finance working here on solving these problems."
David Kabiller: 33:26 So she was teasing me that it was like a PR thing, because we were renting it for our reputation. No, we want everybody here full-time. There's some professors who are still part of academia, but you're right. We have some really experienced, outstanding former professors and some current.
David Kabiller: 33:43 But I also don't want to dismiss that two-thirds of the people here have advanced degrees, and we have some unbelievable applied thinkers. But the interesting thing is you think about your professor. You're choosing to go to academia. How applied are you? There are some who are absolutely outstanding and spectacular, but there's also some people who got Master's and some outstanding people who come out of undergrad who are just so brilliant, because they're really interested in the applied side, that they wouldn't go get a PhD because they wouldn't want to be a professor.
David Kabiller: 34:09 So the key thing is a really eclectic group of non-correlated thinkers, also, to try to deal with this. But, yes, we do have quite a lot of academics.
Matt Hall: 34:19 Okay. So what's the next element? That was the technical piece.
David Kabiller: 34:22 So the next element is leadership and management, and I've always been shocked. Goldman is a wonderful place, but, having spent ten years there, I always did see that sometimes, if you have the biggest P&L behind you, you become a leader or manager. That can create some problems and challenges.
David Kabiller: 34:37 So we all have these words about, "What is leadership and management?" Every person has a point of view or a visceral response, but they're not muscles that we so oftentimes exercise to reflect on, "What is it? What are the components? How do you do it?"
David Kabiller: 34:50 So we actually took our entire partnership. I think it was a couple years ago. We went to West Point. They have something called the Thayer Institute, and we'll have these experiences. We met with about six generals, and we had a whole weekend together, reflecting on and building skills and creating frameworks for leadership and management, while also bringing in professors and leading experts and authors on the topic of leadership and management.
David Kabiller: 35:11 We also have a whole staff of executive coaches who come into AQR to consult. So there's constantly ... You think about Federer, going to Abu Dhabi and working on his game in the summer. You build these muscles and knowledge, and we don't take it for granted.
David Kabiller: 35:26 Good leadership and management doesn't just happen. It needs to be reflected on. It needs to be framed. It needs to be worked on. So we have a very significant program and effort. So just as we'll bring in academics or outsiders to think about technical knowledge, we'll do the same thing on leadership and management.
David Kabiller: 35:42 The third thing, which is one of my favorites ... I guess they're all a favorite, because they're all necessary. The third component would be personal wellbeing. I think we as founders have a covenant. I'm a really big believer you've got to give to get. We owe people who come to AQR a great experience - hopefully their own self-development.
David Kabiller: 36:01 Sometimes we're going to disappoint, because there's the cyclical business. But the North Star for us is delivering a great environment, where people get to discover themselves, just as when I remember when I was back in business school and formerly wanted to be a professional tennis player, going to business school, thinking about defending hospitals and doctors. Then I was exposed to all these different things. We want to expose our people to different things.
David Kabiller: 36:21 So there's various dimensions into the personal wellbeing, whether it's meditation and your emotional wellbeing or whether it's counsels on physical wellbeing and health. But also I created ... One of the things that I think is really cool is this book club we created. It's not a typical book club.
David Kabiller: 36:35 I remember I was inspired by the show Two and a Half Men, where Alan Harper and Charlie were in this bookstore and Alan starts crying. He's taking all these books. He's thinking life is passing him by, and he hasn't read all of these books.
David Kabiller: 36:49 If you think about all of our lives, we're really busy. If you think about Catcher in the Rye when you're younger or The Great Gatsby, whatever you read, sometimes it's in one ear, out the other, because you're just expediting it, trying to pass.
David Kabiller: 37:00 Just as we are quants, we're trying to learn as much as possible about the past to inform our better decisions about the future. Of course, we want to build systems that will work in the future. How about reading some of the greatest literature ever written, how to live life well-lived, to take moments and reflect on reading great works by Dostoevsky or whoever or various topics?
David Kabiller: 37:20 What we'll do is we'll bring in a professor. For example, a number of months ago, we had Michael Puett, who's the head of Asian Studies at Harvard, come in and give us a lecture and teach us a class on a book called To Live. To Live was a book that was banned in China for 20 years, and it was about the arc of a life of an individual going through the Chinese Revolution.
David Kabiller: 37:39 AQR has 70-plus Chinese foreign nationals working here, and, while we're all human, we have different perspectives of what happiness is, what a fulfilled life is. We just don't understand each other, perhaps, as well as possible. So to have the head of the Harvard Asian Studies come in and to teach us a book called To Live was really insightful.
David Kabiller: 37:59 We're sitting around in this classroom that we built downstairs - it's like an academic classroom - with this great professor, learning a lot about Eastern philosophy about life with our colleagues, many of them from China. Was a great cross-cultural understanding.
David Kabiller: 38:13 Then we had Martin Seligman was another professor who came in, who's done some of the most rigorous statistical research, a professor at Wharton, on happiness and a fulfilled life. So to have Martin come in and talk to us about the ingredients of a happy, fulfilled life in a very statistical way is both relevant, but it's meaningful and impactful.
David Kabiller: 38:33 So it got a lot of our people ... because inertia can be a very powerful force for all of our lives. We just get up, go to work. We do our thing. We think we're happy. But are we really open to the world at large? So the book club is a moment to pause to reflect and another example of how we're trying to invest in creating lives well-lived.
Matt Hall: 38:53 Great. Okay, a couple quick questions. You know the name of this podcast is Take the Long View. It's all over my wall in my office. It's on our pens. We end our emails with it. It's everywhere, and it means a lot of different things to us. Can you give an example or talk at all about how you think the firm - or you personally - have taken a longer view in some way that has benefited you or might be counterintuitive to the listeners?
David Kabiller: 39:18 You're certainly right about the importance of it, and I keep thinking, "What is the long term? Is that 20 years or 5 years?" There's the reality what it should be, because you don't really learn much about anything over these short periods of time, and that's even years.
David Kabiller: 39:34 So we recognize, as statisticians, that you are super right, that you need to take a long-term. One thing we've recognized is that the only way to have good long-term results is being disciplined to sound economic, intuitive principles over the long term and rebound.
David Kabiller: 39:49 When we look at Warren Buffett ... Right? Arguably, many consider him to be one of the best in the world. But he's had six years, if I remember correctly, or more of material underperformance. But people have been really well-served by sticking with him, and it's much easier to stick with something that's conventional. But to lose unconventionally is a lot harder.
David Kabiller: 40:12 So when AQR tries to deliver alternatives, differentiated stuff, sometimes it could use a little leverage. Sometimes it could use derivatives. When it has its tough times, it's more difficult for our clients to stick with things. But we'll challenge convention, because we know that even though beta and the market has had an unbelievable last 11 years in a row, that it's very easy to believe that all you need in the world is the S&P 500, because it compounds with this.
David Kabiller: 40:41 It's been an anomalous run at really low volatility, so people are very much seduced into, "That's all I need." We know we're not going to accept that reality, and people will say, "Well, look, you're wrong. Now for ten years, look at that. I mean, I should've just had a single asset."
David Kabiller: 40:57 When we take the long view historically, that's just not reality. When you look at valuations today, going forward, given valuations, that's even probably a lower probability bet.
David Kabiller: 41:07 So I guess one insight is that we could easily adopt the more conventional approach and traditional approach and exceed to, "Yeah, you should just index everything. Yeah, you should just buy the S&P" and not fight that battle, or we can take the stuff that we believe in, which has a little bit more complexities, and deliver them to people and explain to them the intuition and then, when they have their tough times, really be transparent with them, let them understand it.
David Kabiller: 41:35 If anything, it's such a neat thing in our business, too, because where else in the world, when something goes on sale, do people run out of the store? It's only in the world of finance, and so we're big believers in diversification. We're big rebalancers, and when we have our tough times, people we believe will be best well-served are the people who are actually rebalancing into us.
David Kabiller: 41:54 Contrarian investing is a really tough thing to do, but it's probably one of the things that works best over the long term, as long as what you're reinvesting in has sound economic intuition and principles behind it.
David Kabiller: 42:06 So, again, I think we're big believers that there's an easy way and a commoditized way to just accede to convention, but we're not going to. Because of our principles of intellectual belief in what we do and the benefits to people's portfolios over 5, 10, and 20 years, we're going to keep fighting the battle we fight.
Matt Hall: 42:25 Okay, last question. You're at a cocktail party and someone says, "I know you're in the money management investment world. What exactly does that thing you do do?"
David Kabiller: 42:38 My mom is always apologizing. She doesn't want to ever tell anybody her son works for a hedge fund manager. I'm like, "That's not so bad." It is a word that actually is so heterogeneous and means so many different things.
David Kabiller: 42:50 So if I'm at a cocktail party, I actually keep it, frankly, quite simple. I'm in the business of managing money for large, sophisticated investors, be it financial advisors or institutions, and I don't even go further.
David Kabiller: 43:03 We can spend a little more time on that question - not to disappoint, but I feel my being is so much more than defined by managing money. I feel like I can't even get into that battle. I feel like I'd have to say, "Well, I really wanted to be a doctor" or "I really care about people" - so cocktail party sound bytes, to define myself by "I am a money manager" and if I want to condense who I am and the essence of me in that, I'll never win that. It's never satisfying to me.
David Kabiller: 43:31 So I accept the simplicity of it, and if it's an authentic moment, I'd rather talk about that person. I'd rather talk about something soulful or connecting. When I look at who I am and what I care about, it is this organization. It is human development. So I'd rather have a discussion to define who I am, really, about that aspect of my experience - so, really, at AQR.
Matt Hall: 43:53 Well, it's probably easier for me to say some of this stuff, so I will. I would say you're the key person in helping build a really important firm that is driving modern finance forward in a way that is helping real people. I'm the ambassador that talks to the real humans on the other end, but what you have created here does ultimately impact real people, and I'm super grateful for the brave choices that you made that led to this point.
Matt Hall: 44:21 I'm a person who feels a strong connection to what you're doing at AQR because I feel like that spirit of innovation, it was here in the beginning, and it feels like it's here now. We need that. Our world ultimately, I think, is changing, in the same way Moneyball and data and statistics are changing sports in many ways.
Matt Hall: 44:40 But, in our world, you've made some really brave choices that have led to, I think, really great outcomes, at least for investors we work with, and they don't get a chance to thank you directly. So, on behalf of them, I'll just say thanks for the role you've played, and thanks for creating '40 Act mutual funds that the rest of the world, just not big institutions, can access.
Matt Hall: 45:00 That's been a hugely important piece of AQR's evolution and then making it available to firms like mine, who, I think, really get what you're doing and understand how to apply the tools you're making. This is not trivial stuff. It's big stuff, and I'm grateful.
David Kabiller: 45:16 Well, first of all, that's very kind of you saying - actually, helpful. I think, in the short term, we feel disappointed in not delivering it well, and there's always short terms. But to your point, which is quite relevant, the long term, the conviction we have to the people we have, the substance that's on our side, and what we're doing, we're confident in the long term, but always a little bit angst about the short term with anything.
David Kabiller: 45:38 So it's very kind words that you say, and our motivation and intensity to do the right thing for our clients is profound.
Matt Hall: 45:44 Thank you. Thanks for spending time with me. Thanks for having me in Greenwich, Connecticut.
David Kabiller: 45:47 Thank you.
Matt Hall: 45:48 Check out the show notes. You'll see more information on David's background and any special items we may have referenced during our conversation, and thank you for continuing to listen. Subscribe and write reviews. See you next time.
Matt Hall: 46:11 What does financial independence mean for your family? Please note, the information shared in this podcast is not intended as advice. The intent is to share meaningful experiences. I am likely not your advisor nor wealth manager nor financial planner, and my opinions are my own and not necessarily shared by Hill Investment Group. Investing involves risk. Consult a professional before implementing an investment strategy. Thank you.