James Clarke – Building Enduring Partnerships at Blue Owl (EP.445)

James Clarke is the Global Head of Institutional Capital at Blue Owl, a leading public alternative asset manager with $270 billion in assets under management. James joined Doug Ostrover and Mark Lipschultz shortly after the firm's launch and has been instrumental in its explosive growth over the last eight years. Doug was a past guest on the show, and that conversation is replayed in the feed. Our conversation covers James' path to asset management, lessons he learned over a decade at PIMCO, equally powerful lessons from his subsequent, if less successful, stops, and the application of those lessons at Blue Owl. We discuss product knowledge, relationship development, balancing capital raising needs with long-term partnerships, the evolution of the institutional and wealth channels, the importance of transparency, and the benefits and challenges of scale. Learn More Follow Ted on Twitter at @tseides https://twitter.com/tseides?lang=en or LinkedIn https://www.linkedin.com/in/tedseides/ Subscribe to the mailing list https://capitalallocators.com/ Access Transcript with Premium Membership https://capitalallocators.com/signup Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com https://thepodcastconsultant.com/)

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:05Ted Seides?

  Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com.

• 0:32Speaker 01

  All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast.

• 0:51Ted Seides?

  My guest on today's sponsored insight is James Clark, the Global Head of Institutional Capital at Blue Owl, a leading public alternative asset manager with $270 billion in assets under management. James joined Doug Ostrover and Mark Lipp Schultz shortly after the firm's launch and has been instrumental in its explosive growth over the last eight years. Doug was a past guest on the show and that conversation is replayed in the feed. Our conversation covers James's path to asset management, lessons he learned over a decade at PIMCO, equally powerful lessons from his subsequent, if less successful, stops, and the application of those lessons at Blue Owl.

• 1:33Ted Seides?

  We discuss product knowledge, relationship development, balancing capital-raising needs with long-term partnerships, the evolution of the institutional and wealth channels, the importance of transparency, and the benefits and challenges of scale.

• 1:49Speaker 02

  Before we get to the interview, we're excited to share a new opportunity to join the Capital Allocators team. We're hiring a head of content to lead everything we create and share with you, our listeners and followers. That includes our flagship podcasts, our newsletters and written content, our website and social channels, and our new video content. We're looking for someone who's excited to roll up their sleeves, get into the weeds, and own our content processes from start to finish. Most importantly, we're looking for a fan of the show, someone who's jazzed about long-form interviews with leaders in the institutional investment industry, someone who brings energy, pride, and a sense of purpose to our mission of compounding knowledge and relationships among asset owners and investment managers. This person should

• 2:34Speaker 02

  be detail-oriented, organized, experienced in project management, and ideally have a background in media or podcast production. The job posting is in the show notes and on our site at capitalallocators.com/about. Thanks so much for spreading the word about our head of content job opening.

• 2:54Ted Seides?

  Please enjoy my conversation with James Clark.

• 2:59Speaker 02

  James, great to see you.

• 3:00Speaker 03

  Thanks Ted. Really great to be here.

• 3:02Speaker 02

  I want you to take me all the way back. Go to upbringing and your path to even getting in the business in the first place.

• 3:07Speaker 03

  I was actually born in South Africa in 1975. It was during a pretty upheaval time. You had apartheid, you had all these things. My parents made the right decision that at the time we should leave, and we went to Australia with about 81,000 other South Africans in 1980. I got to Australia. It was such a phenomenal upbringing, but I think one of the things that I think about when I look back on it was how much of an influence American culture was on Australia. There was a survey done that the most popular athlete in the early 90s was Michael Jordan. So I got weaned on this culture and this country fascinated me, and I wanted to be part of it. To me, America was where the

• 3:51Speaker 03

  action was. So I grew up in Sydney, Australia, a pretty middle-class family. I had no inclination at all of getting into finance. I was kind of an unmoored person at university. I did a major in social anthropology, studying Margaret Mead and tribes in Papua New Guinea. Then by hook or by crook, I got into financial journalism. But I had some really interesting episodes in university. And one that carried into this business, client facing, meeting people. I did stand up comedy at Sydney University. And I got to tell you, that was probably what I graduated in. The first time I did it was one of the most painful experiences of my life.

• 4:36Speaker 03

  I'd written down all these jokes. I got up there and I'd memorized them, but I had no authenticity or flow. So I would get to the punchline and I would deliver it. And everyone would be looking at me saying, okay. I had friends there and I just remember their heads down. I ended up making it to a stage where I ended up on radio in a competition. And all those other guys went on to have very successful media careers, being on TV, having their own shows. So the only one that didn't win was me and I ended up here.

• 5:13Ted Seides?

  Win.

• 5:13Speaker 03

  And I look back on it, I got to the point with that where I'd go up with no material and I'd just riff. What it prepared me for was being in front of people, being very uncomfortable in front of people, not over preparing to the point where you had every word worked out. I just realized when I go to these meetings, what people are actually buying into is authenticity. And you can't be authentic in a conversational environment if all you're doing is reading from a script. But it was a great experience. I look back on it very fondly.

• 5:49Ted Seides?

  In the very normal tried and true path of stand up comedy to finance, how did you make that bridge?

• 5:55Speaker 03

  The mid nineties was a period of apathy. You had Nirvana, people wearing loose clothes. They kind of was like, oh, life will all work out, man. You know, it was a different time. I got into financial journalism. I could always write because I had a media background on radio. I ended up reading the financial stock market reports at the end of each day. My dad was in finance and I would say, the ASX was down three points. And my dad would call me up and go, yeah, the terminology for that is flat.

• 6:28Speaker 03

  I had literally no understanding. I couldn't have told you the difference between a stock and a bond back then. But I was fascinated by it. I was just intrigued with getting to know people. One of the influences on my life was a guy I met who actually works for me now. Guy by the name of John Wilson. He was running PIMCO in Sydney and we met. And he said, I think you have the right personality that people want to be around and that can communicate well. So he gave me this job and I just remember reading Frank Fobozzi and all these books. And educated myself, I made so many faux pas, so many mistakes, so many times where people would give me the benefit of the doubt because I was 27.

• 7:11Speaker 03

  PIMCO was one of the greatest experiences of my life. It was such a great foundation for anybody to start. It was just this institutional apparatus and it was a very tough environment. It wasn't overly competitive where you had to trip people up. But it was an environment where you won by running faster. And I just had that internal drive to do that. And by 30, I was overseeing the public pension business development.

• 7:36Ted Seides?

  The role that you took on, how did you navigate new relationships?

• 7:41Speaker 03

  I grew up living in rejection. It was a normal state for me. I wasn't a standout athlete. I love sports to death. I had friends, but I wasn't the most popular person. So I knew what it was like to sort of have to put yourself out there. So I just called up people. Probably one of the most interesting stories that I can give you was I went to a conference, this CIO called Howard Bicker. He was sort of an industry legend. I'd made a list of the people that I wanted to see. And Howard was there and he's just a boisterous, animated guy and just so affable and likeable. I walked up and I said, hey, my name's James Clark. And he looked at my lanyard and said, I don't really like that firm and I don't really like the look of you. And he walked off.

• 8:26Speaker 03

  Having done the rejection of stand up comedy, this is like, okay, challenge. So I sent Howard a fax. I said, you may not like the firm, but get to know me. So he goes, fine. It was January in St Paul, Minnesota. I remember showing up to that meeting. I have a meeting with Howard Bicker and the assistant said, wait downstairs. It was freezing. Howard comes down with a Marlboro red cigarette, lights it up and goes, you got until the end of this. I would do this every year, go and see him in January, and he started to get more and more comfortable with the firm. And he had an issue that went back to 1984 or something. About two or three years later, I got the gumption to say, Howard, why don't I have one of those with you?

• 9:10Speaker 03

  Why not? So I lit this thing up. I'd been an occasional smoker, usually around about four to eight milligrams. This thing was 16. I took a couple of puffs of this thing. I think I ended up in a snowbank. One day in 08, in August, he called up and he said, look, we've had an issue with one of the managers and we're gonna give PIMCO. I can't remember the amount, but it was in seven figures, billions. That to me taught me so much, but it was just keep persevering. It's all about portfolio fit. This isn't a business where they want to be sold to. They want to gravitate towards a firm and when there's a fit there, they'll work with you.

• 9:48Ted Seides?

  As you're building up those relationships over time, how did you balance the role of needing to raise capital? Cause that's going to take a couple of years and you don't really start with those relationships.

• 10:00Speaker 03

  Yeah. I mean, there's always that internal friction between people that don't do it on a daily basis and people that do. And it's natural and it's a state and it'll exist forever. But if you ground everything in what's the best interest of the client? And you start to show results that that process works, people will buy into it. It never happens the way that people want, but the moment you put a firm's interests ahead of the clients, you're done. You have to be. They can sense it. The barriers to this industry in institutional asset management are so low. Anybody can start a fund. They can call up whomever it is pension fund and try and get meetings. Some of these CIOs will be out for dinner and they'll hold up their phone and it'll just go tick, tick, tick for meetings.

• 10:44Speaker 03

  Once you understand them and you understand the direction of where they're going, you'll put yourself in a position to win and you just have to show that over time. They can't stand being sold to. These are smart people. They have objectives. You work with a $300 billion firm and they give you a billion dollars. That's incredible. But you're like a 30 basis point consideration or something? How often do you spend time thinking about 30 basis point position? But it's what does that position do for the overall portfolio? And if you understand that, you're going to win. People internally don't see all that.

• 11:21Ted Seides?

  At a place like PIMCO of such scale, if the core of that ultimate sale is the relationship, how do you scale relationships in an organization?

• 11:32Speaker 03

  It comes back to understanding the entire organization, making them aware of all the different things that you do, not pushing them. But when you're talking to a sovereign wealth fund or a pension, there are so many different buying centers. The communication level was so high and the reason for that was when you have public mandates, you can get fired the next day. It's not like being locked up in a vehicle that's around 10 years. So that means the dialogue is so intense across the organization. It's regular, it's robust. The conversation to ask ratio is about 15 to one. 15 conversations to one ask. I think a lot of people pivot that the other way.

• 12:14Speaker 03

  They're not listening. They go in there. They've got an agenda. The agenda is to get this. Damn the torpedoes. Off we go. How do you scale that? It's partnership and it takes time. And at Blue Owl, that's one of the things we're doing now. We have all these different facets to our business. The job isn't to go out there and just say, oh, here's our next thing. The job is there to understand where the fit is and direct the right resources to where you've qualified those groups that you think are of interest.

• 12:42Ted Seides?

  What are the most important things you learned at PIMCO that you carried forward and what works in this process?

• 12:48Speaker 03

  Keep your learning curve vertical. You just cannot stop at a level and say, I know everything. You stick with the winners and there were a lot of winners there. One of the great inspirations for me was the CEO there at the time, Bill Thompson. He was an old Solomon Brothers guy. He'd been around lies poker in the Merryweather days. I think it was 93. Bill Gross made the right decision. I want to focus here and I need someone to do all this. But Bill was all about process. There were no loose conversations. His values were impeccable. His institutional nous, the way to run an organisation. And if you could tap into that and listen and learn rather than be didactic and dictate back, I think you were keyed for success.

• 13:31Speaker 03

  They put a very high premium on product knowledge. And if you'd go back to what I was talking about before, I had to get up the learning curve really quickly on that. They wanted to make sure there was a differentiation that the investment people were doing investing. And all the other people were capable of telling the story. And I think one of the things in the alternative space that I observed early on was it was more like cap intro. Here's the person. What do you guys think? At PIMCO, what you got to learn was you had to be in front of people, bringing content and bringing value. I have a tremendous amount of gratitude to that organisation. A lot of things I see them do are things that the alternative industry is going towards.

• 14:13Speaker 03

  Because the alternative industry is scaling quickly. The consolidation of relationships is happening. It's very much following the blueprint of what things were like back in the day.

• 14:25Ted Seides?

  When you're having that kind of run, the learning curve's steep, it's going well. How do you decide to move on?

• 14:31Speaker 03

  I made a mistake. I felt like the alternative industry was going to take off. I also had this perception that every firm was like PIMCO. And the organisations I went to were not bad firms. They were really good firms. But one of the things I say to young people who are coming up now, when you're looking to work at a firm, they can be a great firm, but it's not looking for a job. You're looking for an alignment of values. If those alignment of values marry, then you and them are going to be in sync. There's going to be a deep understanding of what success looks like. It's going to be shared, how success is. I worked for some great firms with some high pedigree people, but they had a different view of going about it. I think their expectations were this is the way things should work.

• 15:14Speaker 03

  And I had a different view and that's fine. Things don't work out for everybody in that regard. But I was very fortunate to sync up with Doug. And I think he had a very institutional understanding of how this worked. And he understood how relationships are built.

• 15:29Ted Seides?

  On your path to Blue Owl, what did you learn about different investment organizations from the places that didn't resonate for you with your values?

• 15:38Speaker 03

  You learn by losing. I wrote this white paper called Mets, Jets and Rejects. When organizations go through challenging times is actually when the relationships need to be flexed into. I think that a lot of people run away from the pain. People don't like tough conversations. But I learned in those organizations that portfolio fit was the most important thing. You can have a great strategy. The amount of times I've had a portfolio manager say to me, "This is such a great investment opportunity." Okay, it probably is. But when you think about an organization like a sovereign wealth fund is very different to a public pension. One of which probably more likely follows

• 16:20Speaker 03

  a total portfolio approach. Another one follows a strategic asset allocation. When people are doing their strategic asset allocation, you're about the third derivative from choice. Their first thing is, what's our funding ratio? What's our actual rate of return? What should the portfolio look like? How should we populate it? And then, who should we populate it with? These are great organizations, but they may not just fit. I don't have all the answers. But what I've learned over time is tapping into that, listening. People don't listen in this industry in my mind. They're in send mode, not in receive mode. And if you're in send mode, you hear what you want to hear. I learned over time that it was so important

• 17:02Speaker 03

  to understand the investment zeitgeist of what these organizations are.

• 17:07Ted Seides?

  There are a lot of people that find themselves in roles where their values or what you learned at PIMCO isn't necessarily valued at your organization. Having experienced that a couple of times, how did you go about your day to day in a situation where, look, that's your job. You think you know how to make it work, but you still have to try to put your best foot forward.

• 17:31Speaker 03

  Well, they are paying you. And I'm a professional, so I represented those products to the people that I thought were the most likely to do them. I was very committed to making sure that there was maximum visibility for their strategies with the right people.

• 17:48Speaker 03

  One of those organisations that outstanding credit manager, there was a massive sea change of capital going from public markets to credit. And they've done phenomenally well. But my job at the time was just to increase the visibility of the organisation.

• 18:04Ted Seides?

  So what was it about coming together with Doug in the early days of what was Alrock, Al Blue Al, that resonated for you and what the strategy was?

• 18:13Speaker 03

  I joined Alrock in 2017. I was employee number 30 something. I met Doug. I was working at a great organisation. I really enjoyed it. I didn't really have any desire to leave, but Doug was looking to grow his business. And he called around and he did the right thing, which is you don't speak to people that worked with you. You speak to people that are your clients. And he spoke to a number of chief investment officers and I guess he picked the right ones, but they were like, there's this guy out there, you should talk to him. I went and met Doug in a coffee shop. I think I'd resigned from that firm within two days. I immediately tapped into his values. He said, Alrock started with a blank sheet of paper. We went about it the right way.

• 18:57Speaker 03

  At the time, direct lending was considered more of a strategic allocation. It was an allocation that people did episodically. There was dislocation in spreads. They tapped into a fund and then they got out when there was a normalisation. You never saw these big mandates. It was 50, 100 million dollars here and there. But what Doug identified was that the strategy was becoming more institutionalised and more strategic. There was free money out there. You look at a portfolio with a diversified exposure, you're getting two, three percent from fixed income. You've got an actual error rate of eight percent or a CPI plus objective. If you're a sovereign wealth fund, you're putting a tremendous amount of strain on risk assets.

• 19:41Speaker 03

  We went around to the clients and what they said was that capital preservation, income generation were the most key things. I tapped into the idea that Doug had gone to them. He'd sought where the market demand was. It wasn't like he started a crypto fund and just threw it at the wall and said, let's see what happens. I knew that he'd done all the work to get to that point. He'd also put a tremendous amount of resources into back office. That was when I got there, the majority of the employees. To me, that signified that he was building an institutional framework that was built to last. From there, to get to scale and to do it quickly.

• 20:23Speaker 03

  And the reason we had to do it quickly, Ted, was we'd identified the upper middle market as where this income generation capital preservation was most prevalent. Those are big loans. You have to be relevant. To be relevant, you need money. So we went to many of the folks that we knew that trusted us, had done business with us in the past. Doug, and I'm now talking my own book here, but someone in the industry who's not only a great investor, but someone who is universally liked, which is a rare combination. He was able to cultivate those relationships that were other ones that I knew. And we got a lot of really strong supporters of institutional capital.

• 21:04Speaker 03

  We have this wealth distribution business as well, which again is another trend that he identified flawlessly and has executed really well with my partner Sean Connor. I saw that there was something that was going to transcend a fad and be something that was built to last. We had a lot of things go our way too. I don't think in this industry you can ever subordinate luck. Success for me is always where preparation meets opportunity. But markets were in favor. The desire to do this was high. The support from the asset consultant community was there. And we had the right strategy to sap into. We were also hungry and scrappy.

• 21:47Speaker 03

  And I think that there was a cadre of folks in the direct lending space who were like, we're the dominant market player. And we disrupted it.

• 21:55Ted Seides?

  When you went out to tell that story in the early years, what are the most important ways that you found?

• 22:04Ted Seides?

  Just delivering a message that works.

• 22:07Speaker 03

  What we quickly tapped into was the definition of partnership. Partnership in the past is we do great, you do okay. We give you a fee discount, we give you some co-investment. What we wanted to do was bring them along for the journey. We could do that because we were small. So we gave them opportunity to participate in our funds, essentially riding alongside the growth of these strategies. So providing an added amount of alpha. We were able to do that through the form of giving strategic capital to them, being seed investors in these strategies. And we attracted a cadre of blue ribbon investors, universities, family offices, big pensions. So we added another component to partnership.

• 22:51Speaker 03

  It's very tough to do that, to give away those economics when you're half a trillion dollars. But when you're small and scrappy, you'll do it. That playbook, he invented. The difference is the continuation of that. There's a big pension fund out on the West Coast who we have deep respect for. They call it the collaborative model. A lot of firms have tried to replicate that, but you can only do that if you grow. And we were able to grow. The message was, we want you to ride along this story. We want you to lock arm in arm with us and we want to navigate this together. It was a meeting of our philosophy of how to be partners, married with their intent of where to direct capital. And we've continued that.

• 23:34Ted Seides?

  There are a fair number of firms in the early going that look for some sort of strategic capital, seed capital. What do you mean by continuing that on?

• 23:44Speaker 03

  When we raise new strategies, looking at ways in which we can give them access to seed economics in new funds, in new verticals that we're launching, in extensions of our business. Getting to scale requires that. A lot of managers can offer that, will offer that and then stop that because now they've grown. Giving away those economics is probably not something that they particularly want to do, but you play the long game. And in my mind, Ted, what's happening in the industry right now is this consolidation, the competitive spirits are intense. I've been to Australia twice this year, I've been to Asia, I run into our competitors all the time.

• 24:25Speaker 03

  If one thing COVID taught you was that interpersonal dynamic is super important. I don't think everybody followed up with that. We continually look at ways in which organizations can become part of Blue Owl. And that will be something that hopefully we continue to do for a long time.

• 24:46Ted Seides?

  How do you balance that between the initial investors and now many, many, many more investors who won't be part of that group?

• 24:57Speaker 03

  You have to flex so heavily right now into the investor experience. Yes, you have your seed partners, but if you can treat every single client regardless of size, some clients are small and they want a lot of attention, some are big and they don't. If you can elevate that client service experience, you have to make sure that everybody feels like they're the most important thing. With scale, I don't think every manager has that luxury because you have to be big to do that. You have to be able to hire people. You have to make sure that every single client is being covered regardless of size. And the institutional, well, I think we got 900 of them. The other thing that we've done, which I think is completely different, is that I've

• 25:42Speaker 03

  hired people that have sat in the allocator's seat. I had this woman, Alicia Gregory, she was a former deputy CIO at the Future Fund. She's sat in that seat. She understands what's important. I've hired folks that worked at asset consultants. We have people that have been on trustee boards, come in and work for us, educate us, say to us, this is the most important thing, you're doing this wrong, this is the way to engage people. In the local markets where they have that halo effect of their brand and people really trust and respect them. I'm always looking and thinking of ways to give everybody that experience, whether they're a seed investor or not.

• 26:20Ted Seides?

  What have you seen in terms of the behavior of investors that were part of one of your seed groups compared to the behavior of investors that weren't?

• 26:31Speaker 03

  They are stickier, but performance is in everything. It's one of the things. Transparency, client service, all of those things add up to a great experience. Performance is fleeting. What we do is very stable. The way we've set it up, the scale of what we do across all our verticals, orientates itself to business that are likely to withstand any cyclical disruption. But that said, sometimes when you get in an area like direct lending, recently, the performance dispersion has been very tight. What you have to do is differentiate in other areas. The performance of those seed investors has obviously been amazing because not only have we given them strong returns in the product,

• 27:16Speaker 03

  we've also given this incremental upside and that incremental upside can be meaningful. Particularly in direct lending on senior secured risk and you can get into those mid teens or high teens. That's incredibly valuable. But if you just sort of phone it in from there, good luck. There are times where I hope that we're not annoyance. I've yet to hear it. One of the things that I love as well is that the team that we have, it's no one owns something. There's like four or five of us on them for many reasons. I just feel I can call anybody and I don't feel like you're all competing for my attention. I think a lot of organizations have been built around the fact that the biggest competitor shouldn't be here. So if you're unified and you're collectively sharing that vision

• 27:59Speaker 03

  and some of these can be five clients wrapped into one, you've got to go that way. A lot of people do sell on performance. And then when things are dour or the market's against them, they're kind of in no man's land because that was the thing that they advertised.

• 28:17Ted Seides?

  The beginning and now in your career, you've worked with very large organizations of Blue Owls become that. And in the middle, maybe not so much. Have you thought about scale beyond what you mentioned? The ability to have the resources, to have breadth and depth of client relationships?

• 28:35Speaker 03

  Can I talk about scale on an investment standpoint? I very much bought into David Swensen's book, Pioneering Portfolio Management. And one of the premises there was find differentiated uncorrelated returns. The premise around that was that you had to be in the alternative space. And a lot of that, he talked about the hedge fund universe. What I identified in that is to really generate significant alpha.

• 29:00Speaker 03

  You had to go into these small asymmetric deals. And he talks about the dispersion between being a public managers returns first and third quartile is very tight, where the dispersion in alternatives managers is large. So the selection, this one's asset allocation. This one here is manager selection. You have to get that right because I think he talks about VC where the median return for VC actually lagged public market returns. So I used to think that scale was a bad thing. I used to think that you had to be small in the alternative space to generate alpha. But I've found that there's alpha in scale. There's relevancy in scale.

• 29:45Speaker 03

  When you're large, you command a tremendous amount of attention from people. You can't do that if you're small. If it's income generation and capital preservation, then the scale and the quality of these businesses, whether it's a GP in a world where people are doing more with less and bigger managers are getting the majority of the attention, you can only do that if you're big. And on the direct lending side, when people are building portfolios, there's absolutely a home for lower middle market, mid-market, upper middle market. It's portfolio fit what they're trying to achieve. But to be relevant to private equity sponsors, and we cover 750 of them, to regularly see

• 30:27Speaker 03

  that deal flow, to be very judicious about the loans you do, you have to be big. And I think there's alpha in scale.

• 30:33Ted Seides?

  The other place where scale is clearly shown is in the wealth channel. And from early on, you've talked about the institutional side. Luow has had significant inroads in wealth. Love to hear about the similarities and differences you've seen in building out the business on the wealth side.

• 30:54Speaker 03

  I remember starting at Alrock and I turned around and I saw there'd been a tremendous infrastructure and wealth built. It was like waiting patiently for when this trend was going to take shape. The apparatus and the planning and the way that has been done has been absolutely flawless. It is a very different industry. The other thing we've done really well at Blue Owl is we don't compete against each other. I think a lot of organizations, it's like, well, they did this and you did this. I mean, the fact of the matter is they're almost like a balanced portfolio. Institutions will typically get into the void when there's a kind of dislocation. The wealth

• 31:35Speaker 03

  channel, what I've seen that's really impressed me with our business is the coverage model is very similar to the institutions. The way in which it's been built has been that they will cover them just like we cover them in institutions. But the narrative has to change as well in terms of how are institutions using this. We deal on the institutional side with about four or 5,000 idiosyncratic situations globally, strategic allocation versus total portfolio approach. You have organizations where the boards are very influential. You have organizations where the government's very influential. You have organizations where the asset consultant's

• 32:16Speaker 03

  very influential. You only know that if you study it and you get to know it. There is a lot of information out there. It blows my mind when I've worked with people and they're like, oh, we got a meeting with this $300 billion pension. Did you read the annual report? The board minutes? You can start to see where the balance of power is in there. Who's shaping this? The involvement of the asset consultant? No, it's, you know, I'm bringing Charlie along and see what happens. And if you think about that, if that client is with you for 30 years, you are essentially selling something of significant value. Your preparation and planning and knowledge of that

• 32:58Speaker 03

  and listening before you go in, I think the only purpose of the first meeting is to get the second meeting. The only purpose of the second meeting is to get the third meeting and then you're qualifying it and then you're involving more facets of the business, getting them familiarity and understanding them. But to go in there and approach it if it's just like, throw it at the wall and see what happens, man. I just think is not the right way. What I see the wealth people do that's really impressive is that they are constantly in communication with these people. Their coverage model is geographic across everything. There's nuances similar to us. How we operate in Australia is very different to Europe, is very different to the Middle East, is very different to North America and Canada.

• 33:43Speaker 03

  What we've done well is we've shared ideas where there are similarities and we've partnered really well on taking both businesses to the next level. And we do it across the firm. People try to catch up with you and the question is, how do you outmaneuver? How do you go to where the opportunity is?

• 34:01Ted Seides?

  What are examples of seeing something changing and trying to outmaneuver competitors?

• 34:07Speaker 03

  It's a really good question and I'm constantly thinking about it every day. From a client service perspective, it's the velocity of conversations. It's how the engagement takes place. The constant maniacal focus on what are people trying to do and how are they trying to do it? The other thing is sometimes step back if there's nothing there to do. Hey, you know what? We're not a fit, but let's keep talking. We are constantly looking at areas where the supply of capital is greater than the demand. And there are only a few people that are capable of doing it. The best examples of that early on were our triple net lease business.

• 34:48Speaker 03

  In fact, as more people have tried to enter that space, the percentage of the deals that we've gone up is higher. Going to these areas where the competition is less, data centers, going where people are less frequent, less visible, and essentially where there's an inefficiency, we've done really well. But mergers are tricky. One of the things that we have been very focused on is culture. Culture is imperative to us. We've tried to create a softer, gentler culture. You bring in new groups and particularly in my space, they're coming at it from the mindset of this is how we did it. But now they're part of a $260 billion organization. It's a very different situation.

• 35:31Speaker 03

  When you work at a bigger organization, you actually have to flex more into what does the client want? And it may not be your thing. But if you have competing verticals.

• 35:42Speaker 03

  Not a good start. You're just fighting against each other.

• 35:46Ted Seides?

  On the cultural side, both internally and with a global client base, how do you think about different international cultures, both inside the firm and outside?

• 35:58Speaker 03

  It's so important. To me in this business, there are acquaintances and there are relationships. And they're two completely different things. You go to the big conference out in California or the one in Berlin in a few weeks, everybody's running into each other. Oh, I know, I know this person. I know that person. I know that person. We know them. But are you regularly in their ecosystem? I can tell you in Australia, there is a building where there are about three or four super funds in it. I used to go down there in the early 2000s, never have a meeting and sit in the lobby. And people would come in and you would just have these casual conversations with no agenda. Australia is very concentrated in Queensland, Sydney and Melbourne.

• 36:43Speaker 03

  And how they interact and how they talk to each other and the nuances to Australian culture are completely different from the Nordics. So one of the things that we've done recently is have people that have a really good understanding of those markets. They've been doing it for a long time. They speak the language. Where I was going out to the Middle East a lot and I absolutely loved it. But it was apparent to me that doing it from New York, even if it was six times a year, was not enough. I needed a local. I needed someone that have familiarity there, was in their time zone. Also, it was a demonstration of our commitment to the region. Australia is the same thing. I had a master plan for it, went out there.

• 37:28Speaker 03

  I'll be honest with you, Ted, two and a half years ago, we're a $150 billion firm, we're Blue Owl, and I have good friends and they'll be like, I have no idea who that is. One of them called me Blue Duck or something like that. We were a nascent competitor. A lot of firms have been there since 08. Australian superannuation industry is going to be the second largest in the world. You have to have an on the ground presence. You also have to understand things and we work very closely with our legal department and tax department. There's heaps of considerations that go into this. Australia is a really interesting one because people go there a couple of times. They have meetings, they give up. I mean, it's a long way to go. I've probably done it a hundred times back and forth. I get it. I speak to a lot of Americans. They said to me, I really want to go to Australia.

• 38:11Speaker 03

  I just don't want to do the flight. Unfortunately, we haven't truncated that distance yet. Australians want to get to know people. They're interested in partnership. It's all about trust. It's very similar to other areas, but you have to be willing to make the commitment to go there. And you have to have those resources there. When I think about us growing, sure, I'd love to go to continue to go to the Middle East, but I need someone there 24/7. We build a good business there. But the moment we stagnate and think we got it is when we don't have it, so we keep building.

• 38:45Ted Seides?

  In what's really been tremendous success over the last eight years since you've been around, there are always bumps in the road. There are always mistakes. As you brought people onto the team, what are some of the common things you've seen that you've had to course correct with people that are implementing the strategy on the distribution side?

• 39:06Speaker 03

  Having a big firm mindset is the biggest one and getting people to quickly tap into that. The past is irrelevant. We all come here with our experiences, including me, constantly putting all those ideas in the crucible. We've changed a lot. But the most important thing is the client always. Where do they get that comfort? There are so many ways to distribute. I could put 400 people in a cannon and shoot them out and say, right, you cover whomever it is and let's see what happens. They can all compete against each other. Or you can build the model that we have, which is everybody's coordinating and working together. And if you speak to the clients, there's a funny story. There's a guy in Missouri who I absolutely love.

• 39:50Speaker 03

  And he was telling me about a firm once where he was sort of being covered by three people and he organized a conference call. He said, okay, here's what's going to happen. I'm going to drop off the call and at the end of it, one of you is going to decide who comes in.

• 40:05Speaker 03

  We want to make sure that we're doing it the way that our market and our clients want to be approached and getting people to buy into that and realizing that's best for Blue Owl is something that I continually focus with. It's not easy. We're not perfect. We have to keep thinking of how to get better. How many businesses have been built to last? Truly built to last? We've talked about my old firm and there's a number of other ones out there, but are they fads or are they organizations that will transcend our employment? Where I want to be is sitting on a beach 20 years from now going, that thing is chugging along. It's even better than when I was there and I was there at the start. I don't want

• 40:49Speaker 03

  it to be something that just sort of troughs and it troughs if you don't remain focused on the clients and it troughs if you don't build that internal DNA of everybody pulling together. The other thing that I made a mistake on was I probably didn't add resources as quickly as I should have. An organization should never become bloated, but I probably over-indexed that. I had to play catch up for a little bit. Not perfect, but I think we got there now. Should have been in those non-US markets quicker. We were covering them and we were having success. A big mistake and a big learning curve is that assigning

• 41:30Speaker 03

  a strategy to limited success data points is not a winning one. Again, you deal with 4,000 idiosyncratic events globally. If you say, well, this is the way it works because these 10 people did it, well, you're missing out on the other 3,900.

• 41:48Ted Seides?

  How does being a public company fit into the ability to have permanence and all the pluses and minuses that come with that?

• 41:57Speaker 03

  There is always an apprehension in the institutional market of when businesses merge, acquire. It's totally a natural state to get to because remember they're buying into something with certainty that things aren't going to meddle with the process, that what they invested in is going to continue to be the same. I get it and it's something that we have to give comfort that that comes to transparency, trust and communication. The thing that we've done on the investment side is those businesses continue to operate the way they are. That's number one, table stakes. Number two is there's the constant pressure of being public, having a share price that trades

• 42:38Speaker 03

  daily. And a lot of the time, the conversation is around capital formation, totally natural. We're in an envious position that 90% of our capital is permanent. There's this base there. The way I've thought about it is that this is a business where you have to continue to stay ahead. And if you've had that lens of the stock price on you all the time, you are constantly thinking of how to get better. And I think that in turn helps the clients. Where the mistake happens is if you put your own interests ahead of the clients. It's about the process. The moment they're unhappy is going to affect the share price. So you can't really think about

• 43:21Speaker 03

  that. What you need to be thinking about every day, and we've got just under 100 of the largest institutional investors in the world now as clients, is that they can grow alongside us, we can grow alongside them. But if we start focusing on the wrong things, that's going to be a problem. Now, things may not happen quick as we want them to. That's just the general cadence of the business. But they are the most important thing, and this will take care of itself. It's the same with fundraising. If you stay in the process, this will take care of itself. People focus very much on the money coming in. There is a massive dispersion in what a successful first meeting looks like for the client and what it looks like for you. I think a lot of managers,

• 44:05Speaker 03

  they go on the first date at the bar, they have the second date at the bar, they date for six months, they propose, and they get married. That is not a normal state. That is a rock star marrying in Vegas. Last time I checked, they don't work out that long. You have to have this process. It has to continue to follow. Being a public company will take care of itself. If you do all these things right, and that's where I focus.

• 44:31Ted Seides?

  From all the conversations you have with institutional investors, what pieces of advice do you give someone on the allocator seat?

• 44:42Speaker 03

  I'm not necessarily in the vice business, I'm in the listing business. I try and illuminate for them what everybody else is doing around the world and how people are taking on the market in different ways. There are growth markets around the world. Australia is a growth market. The Middle East is a growth market. Canada's a growth market. These are defined contribution plans in Australia. They have a compulsory savings rate, but they have to think about things differently, but they have perspective. And I've tried to sync up these different groups. So you should speak to this person. There was a group in the Middle East that I had speak to someone in Australia. Very similar, I'm not on the call, but I'm able to sort of be that facilitator. Because I'm here and I'm here and I'm here, they're not. Look, I heard this, this may be interesting.

• 45:27Speaker 03

  And half the time they're like, thanks for the idea, no mask. There are times where they say, put me in touch. That's interesting what they're doing. I want to learn that. And then there are times where they may even be interested personally in going there, maybe trying to help them out. A lot of the US pensions now, some of them are considering this total portfolio approach. They've been very public about it, moving strategic allocation to total portfolio approach. There are organizations that have done that globally for years.

• 45:56Ted Seides?

  What are you most excited to continue learning over the next couple of years?

• 46:02Speaker 03

  One of the things that just drives me about this industry is that some people think it's very stagnant. I think it's constantly evolving. You and I have been in this for a long time. I would love to get a conference agenda from 2005, 2015 and now. One 2020 strategies. There was obviously a lot of the hedge fund stuff back in the day. There was portable alpha. I'm sure some of those things still exist and I'm sure people are doing very well in those, but the industry does evolve and I'm very excited. I think the next three or four years probably shapes the next 10. I personally believe that in an industry like institutional

• 46:42Speaker 03

  asset management, which is so competitive, the demands on people's time, we don't have a right on their time. It is not a God given right that they should take our meeting, ever. But if we can stay in the thicket of that discussion and that relevance in that competitive environment, that's what excites me. There is so much more that we can do with these organizations that transcends product. The quicker that asset managers can get closer to their clients and have these big strategic partnerships, it's a win-win for everybody. How we do that, I don't have the answers to all of that. I've given you some of them,

• 47:23Speaker 03

  but I think it's worth diving into that even further. And that comes through conversations and partnership. That's what I'm excited about.

• 47:33Ted Seides?

  All right, James, I can't let you go without asking a couple of fun closing questions. So what's your favorite hobby or activity outside of work and family?

• 47:40Speaker 03

  That 68 California Special Mustang. I became a casual observer of those and got really into those. I love the Providence. Lee Iacocca is actually one of my most interesting folks that I've gotten to read about, learn about. He was the grandfather of the Mustang. And what he identified was that there was this baby boomer group coming through in the mid 60s that wanted a good looking car that was affordable. In fact, I think back then they went for $2,368 and the poundage of those cars was $2,368. It was a dollar for a pound. He was able to tap into the market demand and create something that was affordable and stylish. It's on its seventh generation. It's like the longest running

• 48:25Speaker 03

  line of cars. I was fortunate enough a number of years ago to buy one and it just so happened that I was the second owner of it. A gentleman had passed. He was 93 years old. He bought this car in Los Angeles. I've got the original receipt. He drove it everywhere and there's a picture of him the weekend of Woodstock on the Hudson River with it. It has never been painted. It's got chips all over it. It's the original car and I barely even drive it, Ted. It's four speed stick shift. And those ones, if you're just a little off on the clutch, man, you are bunny hopping that thing down the road. It's the fascination of Iacoca. It's the fascination of that car.

• 49:09Speaker 03

  It's the fascination of that period. On the weekends, we'll sometimes just slightly detail it. If you detail it too much, you rip the paint off. What I'm tapping into is nostalgia.

• 49:20Ted Seides?

  What was your first paid job? And what did you learn from it?

• 49:23Speaker 03

  I worked in a department store in Sydney and they kept me away from all the sort of fashionable stuff and they put me in the suitcase department. We didn't have cell phones in the mid nineties. So I'm sitting there behind the counter, just staring around, doing my four hours and leaving. There was no flow on these suitcases. I learnt within a week or two, what do people use a suitcase for? They're going somewhere. By asking those questions, I was able to start to qualify what type of suitcase they needed. If it was a businessman, you need durability. If it's a family going on their first trip, get them a big one. And then I would start to read the brochures, where they were made, what they were made of, and was able to talk about the product.

• 50:07Speaker 03

  When you travel, you get a very fond attachment to your suitcase. It is everywhere with you. I had this Tumi that I bought and this thing lasted me 20 years. And I dragged this thing every, it probably went around the world 50 times. And it was battered and bruised. And I remember being on a trip with Mark Lipschultz in the Middle East. He's like, can I just buy you a new suitcase? That was my first paid job. What I learnt from it was ask questions. Don't just stand there. Don't just be a cashier. And I think in this industry, you're either at McDonald's window. There's high demand and you're standing there and you're just taking fund dogs. Or you're proactively going out there and learning about people. So I got out from behind the counter, got out to the customers, found out what they were doing,

• 50:52Speaker 03

  qualified what they needed.

• 50:55Ted Seides?

  Which two people have had the biggest impact on your professional life?

• 50:58Speaker 03

  My first boss, John Wilson, he's very old school. Back in the nineties, you could be kind of rough on people. He trained me the right way and I learnt quickly. He was maniacally focused on detail. Detail was everything to him. He used to have this philosophy and this carried with me to this day. If you make a typo in an email or a client's name, how do you expect them to want them to give you money to manage? This is when you could actually go through the airport and into the lounge. He was going from Melbourne to Sydney to Brisbane. The only reason he was going to Sydney was to pick up presentation materials for a finals presentation.

• 51:39Speaker 03

  It's the Queensland Industry Electrical Employees Retirement System. And I'd put the apostrophe in employees in the wrong spot. And I had gone over this thing so many times. And I gave it to him. The first thing he saw was the apostrophe. And I learnt that from this day. And then Bill Thompson, I admired him from afar. I was a senior associate VP, senior vice president. He was the CEO. He did things the right way. There was a delineation of responsibilities in the organisation. He kept people focused on things. I remember him saying, we had a conference. He said to the entire, if I see a flotilla of Mercedes out there,

• 52:24Speaker 03

  I will be deeply annoyed. You are presenting yourself to the clients in the way that you have to be familiar with them. You have to be relatable to them. I do not want to see that. And he just taught these little lessons that have carried me forever.

• 52:40Ted Seides?

  How's your life turned out differently from how you expected it to?

• 52:43Speaker 03

  Oh, my goodness. I'm here. I'm in America. If you'd showed me a map of America in 1998 and told me to point to the cities, I would have got Detroit mixed up with Idaho or something. I've been to 47 of the States out of 50. I didn't grow up in snow. I've tried to drive a car in Michigan in snow and skidded it off the road. I just never thought I would be here and I didn't think I'd be here this long. I came here for a year or two just to test it out. And then I just absolutely fell in love with it. It's a marvellous place. I miss Australia dearly, but I would say being here and also being in finance. So basically everything has turned out differently.

• 53:24Speaker 03

  There was a period there where I just thought I was going to write scripts for comedians. I did that for a week. It weren't very good. And then I got into this and I've loved it ever since. And I just love people. That's really what it boils down to. It's a relationship business.

• 53:40Ted Seides?

  I gotta ask you one that probably isn't as happy. Mets, Jets and rejects. Please discuss.

• 53:45Speaker 03

  Well, the Mets are 21 and 9 as we speak right now. So I came here in 02, there were a handful of Australians that were here as well. And all of a sudden, they were like Yankees fans as if they'd been around since 1923. And I just thought it was so basic. The Yankees had won in 96, 98, 99 against the Mets in 2000. Just missed out in 01 with the Diamondbacks, but it was such an easy decision. And I've always liked the underdog. They got into the NLCS last year. They've been in a couple of World Series. They've actually been a little bit more successful. The Jets is probably one that I will never get over. I'm a season ticket holder in the end zone, four rows back with a couple of high school teachers.

• 54:30Speaker 03

  Go to every game and I think it just becomes a joke fest at this point, laughing at situations. I love the underdog. I like following them. I like the trauma. And I remember there was a game last year where they lost to the Rams. And I turned to my friend Tim, who teaches out in the Bronx, and I said to him, "One day we will look back on this game when they win the Super Bowl." And he said, "No, we won't."

• 54:55Ted Seides?

  All right, James, last one. What life lesson have you learned that you wish you knew a lot earlier in life?

• 55:00Speaker 03

  Not take things so seriously. I turned 50 a couple of weeks ago. I did play sports. I did make some pretty good teams along the way, just through perseverance. But I would get myself so wound up. One thing I've noticed in America is that you kind of stop playing team sports around high school unless you get into college. You can kind of stop or you play socially in the park. We played competitive sports. I played 26, 27 before I came here. But I would just get so wrapped around the results. And I would really beat myself up about it. I took up golf when I got here and I'm at a point now where there's just this piece. Sometimes it's going to hit the hozel and go 45 degrees right. Sometimes it's going

• 55:41Speaker 03

  to go straight and land on the green. I just can't care about the result. I just got to stay in the process. And I'll look back on that and I was like, there was so much fun that could have been had, had I not been wrapped around the axle. Having said that, whenever I played, whether we won or lost, but I remember the people I played with and I still keep in touch with them. I can't tell you any of the games. I can't tell you what happened, but I can tell you who I played with. And one of the things I want that I think is different in asset management is for us as a group in 20 years to think very fondly of the people that I've worked with. That to me would be a nice experience because I don't think everybody has that. Anywhere they work, they have a real tension about

• 56:23Speaker 03

  people around them. Their egos clash. This culture that Doug has really been focused on and persevered with, I think we could have that experience and that I would like to enjoy it and remember the people that I worked with.

• 56:38Ted Seides?

  Great. James, thanks so much for coming by.

• 56:40Speaker 03

  Thanks so much for having me. It was a lot of fun.

• 56:43Ted Seides?

  Thanks for listening to this sponsored insight. Sponsored episodes are paid opportunities for another 12 managers a year to appear on the podcast. If you're interested in telling your story in front of the largest audience of investors in the industry, please email us at [email protected] to apply for one of the slots.