Rahman & McNamara

So, became very aware of the process that, Hedgeye instills and, the research that they put out there into the world. when we were kind of, or when I was kind of deciding what I wanted to do next, I, along with another individual, approached Hedgeye about launching an asset management business with kind of, the thought being, Hedgeye was founded in 2008 by Keith McCullough, coming off of, managing a hedge fund and, building an asset management business in his own right to, really kind of democratize, I don't know if you think democratize is a word in 2008.

I think that's a, that's a recent addition to the vocabulary, but, he basically was trying to provide, institutional grade research, to the

So it was a pretty blue-blooded place when I joined there in 1993. But for that 15 years I was there, I got a great education because I spent my first year or two with the chief investment officer there. So he was in charge of all global investments and not just equities, but bonds, FX, commodities, and emerging markets. So sitting next to him and listening to how he was talking to other portfolio managers across different regions, it was a great way to learn about the global markets, macro investing, how all these pieces fit together, how bonds and equities and currencies work.

So that was fascinating for me. But I always knew I wanted to be like a stock investor. So as I was writing research for the global investment strategy team, it caught the eye of the then head of the U.S. team in Boston. And I was based in London. So he took a real interest in my work. And he got to chat with me. And I said, look, ultimately I'd love to be an equity analyst and learn how to pick stocks and invest in stocks and manage your portfolios. He said, well, why don't you come to Boston? You can start as a small cap analyst and kind of learn the ropes, learn how the market works.

And, a great piece of advice somebody gave me when I was – I spent a year or so in Hong Kong working for Bearings. And I was kind of toying between do I stay in Asia because it was booming? The Asian markets were on fire. It was like the place to be. But I wanted to be like a really good stock picker. And a great – this old PM told me, look, if you really want to be a really good stock picker, you've got to go to the U.S. because that's where you have access to all that information. You're competing with the best investors in the world. And so you want to go there and really kind of cut your teeth there. So that's kind of how I kind of navigated my way to Boston.

And, through that time there, I kind of worked my way up the ranks. I eventually became head of the U.S. team in Boston in 2004 and was there until 2008 when I got, a fortuitous call from a headhunter with regards to a job opportunity to work at the Fidelity family office, which was the Johnson family office. I had no idea about the specifics of it. I wasn't even sure what a family office was, to be honest with you. And while I'd known about Ned Johnson, he was kind of this mythical figure that built the mutual fund business. I didn't really know a lot about him.

But as I went through the process, I got to kind of learn about the scope of what was going to be involved. And it was a big deal. it was – now with hindsight, I'm kind of like – I still kind of shake my head that I got the job. But it was literally go in, take over the raise from one of the best investors in the history of the world, and, run his public equity investments while he's busy running Fidelity. So I'm like, wow. On the one hand, that's a great opportunity. On the other hand, I'm like, this is going to be – this is scary as hell. this is like a huge deal. My final interview was with him.

So I walk into a lunch meeting with him. He walks in. And I'm like, oh, my God, this is Ned Johnson. And we start talking. I literally can't talk for the first couple of minutes. But we eventually kind of – I kind of loosened up and started to talk. And it was a fantastic conversation because all he wanted to talk about was different companies, different stocks, how they work. what makes one better than the other. And he was clearly probing to see kind of like how I think, how I think about different investment ideas, different investment themes. And, luckily I got the job. And I was there for 15 and a half years.

And I ended up running, 80% of his AUM, public equity AUM. So the family had other investments and private equity venture cap and other companies. But, it was an unbelievable learning opportunity because I really developed as an investor because I was kind of in this retail institutional mindset of bearings that a lot of institutional managers are. And then I went to this family office where their investment horizon is very, very long term. And it was literally – it was really an eye-opening experience because I had to really change the way I thought about investing in terms of swapping durations.

You have a certain duration when you're a retail PM or an institutional PM. But when you go to a family office, it's a whole different universe. And that mindset shift was, took me a little bit of time. It took me a couple of quarters to figure it out. And I had a real baptism of fire with that because I joined in April of 2008. And then the world blew up in September 2008. And we were kind of like, debating from September 2008 to February, March 2009. Like, is our civilization as we know it going to continue?

It was like it was pretty bad. But having that experience and then sort of understanding this duration issue was – was really changed the way I invested. And it helped me a lot to do what I need to do for him and the family over the next 15 plus years.

I think the cartoons are kind of a fun differentiator and certainly, got my attention back, when I was, consuming the research in previous roles. But, yeah, it certainly has really, transformed into, what initially kind of was just a, macroeconomic research firm into, kind of a full-blown media platform. And, to that end, when Keith founded the business back in, Keith McCullough, that is, when he founded the business back in, 2008, it was really just kind of like a macro blog where, he was taking his experiences as a hedge fund portfolio manager.

And, basically, they're measuring and mapping data across, 50 plus economies, and, providing, basically guidance through a framework that, they and we refer to as the quads, which basically just measures and maps, the rate of change of growth and inflation. And, thus provides guidance around asset allocation, overweights, underweights, or kind of do nothings, as per those macroeconomic expectations. So, that's kind of a framework of the macro, kind of drilling into kind of how things work on the macro side, from a day to day basis, obviously, that quad framework, I like to refer to it as is kind of like the map.

So, yeah, well, I saw, I'm reading, uh, I read a lot of Keith's tweets and he's pounding the table on quad two right now. So I'm familiar with the framework, um, and how it works. And, um, no, it's, it's definitely, I've, I've watched, it's actually funny. I, I, um, when I was talking to Dan, when we were setting this whole thing up, I was, I was an intern in public accounting and I read Keith's book, Diary of the Fund Manager. And I was like, I think I'm going to go the asset management route. And then I followed Hedgeye the whole way. And you're right. It went from this blog to now, you it's, and I mean this in a, with a ton of respect, it's almost like the barstool of, um, with how much media you guys are doing where, um, you're, you're constantly in front of people and passing it along.

So, yeah, it's funny you say that, from the, the media perspective or, and kind of the, the barstool, I do think, just thinking back, um, like I said, I kind of have been at this since around 2018, but.

If you look at all the holdings, if you look at all the holdings, it kind of looks like the benchmark. There really isn't much active management there. And if you look at some of the prospectuses, you'll see that a lot of it's kind of quant driven in terms of its management. And then the other spectrum, you have these very high-flying, thematic, best ideas, concentrated funds. Some which, we know very well, like ARC and granny shots, blah, blah, blah. And they're being incredibly successful. They've raised a lot of money. They're on TV and on media all the time.

But if you look at what they own and how they hold it, there's some interesting names. And I understand what they're trying to do. But in terms of portfolio construction, there is not much going on there. There's no construction of any sort. So we just thought that there was a really decent gap in the market where, as John was saying earlier, how do we deliver, institutional level of expertise and asset management to a retail slash RIA family office marketplace? Where they, to get, I'm going from managing billions of dollars exclusively for one of the most wealthiest families in the world to delivering the same strategy pretty much that anybody can buy.

There's no limit. It's going to be tough in a down market. But, if you can deliver a portfolio that the weather is also some markets and you can still invest in these big themes that everybody's talking about without giving up, but without having to take on tremendous risk like some of these thematic portfolios are.

And I think that's kind of what we're trying to do is like to be like a staple growth, actually match growth product for a very large audience of people looking for that.

We could find good ideas in any sector at any given time. That didn't mean that those sectors were always in favor. There were times when they were not in favor, but we would always be able to find great ideas. And so having a diversified pool of holdings, even in a concentrated product of 40 or 50 stocks, you can get pretty good diversification because, there's like the correlation between technology and energy and financials, they're pretty, anti-correlated with each other. So you get natural diversification benefits of sector diversification and then stock diversification.

So, if you have a momentum market and suddenly it goes out of favor for a month, you're not blown up like some of these thematic funds are going to be. that's the key thing is to basically be able to be an all-weather portfolio in all sorts of market. And that diversification gives us the opportunity also to find good ideas where people on this field is looking. Yeah.

So as they generate free cash flow that they're compounding every year, they're not just always just giving it back to shareholders, they're reinvesting it back into the business to deepen those moats, to strengthen those competitive advantages. So that I'm also investing in innovative areas that keeps extending their reach and their moat. it's, I'll be honest with you, it's kind of an obvious category. if you look at everybody's growth portfolio in large cap, they own these names. It's like, it's like table stakes for being a growth manager. The difference I think is that a lot of managers that I've seen in terms of how they manage their portfolio, they're very, they're overly sensitive to valuation.

And I can understand that, but valuation as a starting point to decide on a stock is a really bad way to look at companies. So I know when I ran my team at the family office, I always had this saying, it was like, okay, the valuation is the last thing we're going to look at. We're going to look at the company, the merits of the management team, the structure of the industry, the return structure of the whole space, and analyze that for what it is. Decide what we think about the future growth prospects of the company. And then based off of that, kind of backward integrate, what would we pay for this business rather than doing the opposite?

And I thought that was really helpful because a lot of times what looks like an expensive stock right now isn't that expensive because the future growth rate assumptions that we had were much higher than the market. So our internal valuation made this company look a lot cheaper than it was. I'm sorry.

And if Tesla works, that's great. It's going to be the driving force of the performance of that fund. But if it doesn't work, then everything else is irrelevant because that one stock is dictating. So I never want to be beholden to one stock, no matter how much I liked or how good I thought I understood the business. So I kind of had these own built-in risk parameters, both on the stock level, so plus or minus 3%, but also the sector level, plus or minus 3%. So I'm not like finding myself overly exposed in certain areas where I shouldn't be or I'm not aware of.

Because something clearly has changed. And I don't want to ride this thing down because I'm missing something. So there's like a multiple-step sort of process of fundamentals driving the sort of second look of what's going on. And if the stock starts to break down, then it becomes another force in my company. So, okay, maybe the position size has to change. Sometimes it's the market. The market goes down. Everything breaks down. So you kind of have to think about it more relatively then. So that doesn't mean you sell stuff that are breaking down. The market's also coming down. And also if the fundamentals are still intact. But those are sort of the key things that I would use.

Okay. They kind of move to my sort of watch list of, okay, if this thing doesn't change meaningfully for the better, they're on the way out.

And, they're definitely thinking about this in the core large cap space. I think there is, we've been in this world where, just hugging the index, has become so pervasive. I think that, there are, excuse me, there are a lot of, kind of smart, folks out there who are saying, well, hang on a second. maybe the, the past however many years you want to, you want to, quote it, things are about to change. And, active management, really may become, much more of a necessity, rather than just a nice to have. So, that's, I think how people are thinking about it.

Certainly, we've had interactions with, mom and pop retail investors, large-scale RIAs, some of the largest investors on earth. And obviously that's just, from the nature of the Hedgeye client base. Well, and also too, just out of curiosity, the fund is pretty newly launched. how are you thinking, how are you guys thinking about kind of marketing and distribution? And, the Hedgeye brand is already out there, but not as an ETF issuer. So, what's your experience been like so far and where do you kind of see yourself going from here? Yeah, look, I think, the hardest part on these things is the, when you come right out of the gates.

Because, and even Sam and I, have been working on this, for the better part of the last year or so. And, the question that he kind of was asking all along the way is like, well, what do you think AUM is going to look like right out the door? And if I could tell you that, I'd probably be doing some other stuff as well. So, that's always the hardest part. But look, I think, as you've alluded to, Hedgeye has such a, a following and an active, group of people around it. I think, the Hedgeye main, the Twitter handle or X handle has like 280,000 followers.

I think Keith has something like 250,000 followers. I might be mixing those numbers up. But, they have a broad and significant, follower base. And also, there's an active group of people who are, tuning in to the call and the first thing in the morning, the macro show, every day. it's, it's people who are engaged and, are looking for, smarter ways to allocate capital. So, I think, and maybe I'm speaking a little bit too much for Sam here. I think that gave him to some degree, a level of confidence that we would be able to have success in raising assets. And, I think we're sitting just north of, 20 something million bucks right now in the fund with, not even a month and a half, under our belt.

So, I think to some degree, the base of, the hedge-eye nation, if you will, is kind of, really showing up. And, I think as far as, the growth of assets and marketing from our perspective, like, I think the thought is, we can get to, kind of where we need to be with regard to having dialogues with platforms and, kind of larger scale investors through kind of, that hedge-eye nation, if you will. And then from there, assets and performance are going to speak for themselves. And we're very confident in that. So, yeah. No, that's great. Is just kind of, I guess, quickly on the business side of things, is more ETF launches or ETF issuance from hedge-eye kind of a part of the business plan?

Is it wait and see? what are your thoughts on where you guys might continue to add value in the ETF space? Absolutely. Yeah. So, we're definitely, I was on the phone with our lawyers yesterday with, the trust board who we work with yesterday. And, we have some stuff in the pipeline for sure. And I think, we're eager to get, more differentiated, strategies kind of in this similar vein of, institutional quality, management in an accessible to everyone wrapper. And, we have some additional, opportunities in the pipeline and, kind of thought processes around, how we'll deliver that going forward.

So, certainly more to come. No, that's great. Great. So, both of you, I really, really appreciate you spending some time with me. Very interesting stuff. It was a pleasure to meet both of you. But before I let you go, where can people learn more about Hedgeye? Where can we find information on the actual lead the two ETFs you guys have launched? Yeah, absolutely. So, HedgeyeAM.com, that's going to have, all the information you need. And then, we're obviously very active on Twitter X as well at HedgeyeAM. And then, from the research side perspective, Hedgeye.com, Keith McCullough on Twitter, Hedgeye on Twitter. Those are going to be the places where you can get all the information that you need.

Well, again, both of you, thank you so much for being here. Thanks, Brad. Really appreciate it. Thank you.