Transforming ETFs with Bryon Lake of Goldman Sachs Asset Management

Barry speaks with Bryon Lake, Chief Transformation Officer for the Client Solutions Group within Goldman Sachs Asset Management. Bryon started at PowerShares in the ETF industry eventually becoming head of International ETFs for Invesco. Bryon then moved to New York to head JPMorgan Asset Management's global head of ETF solutions. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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

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  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:13Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:56Speaker 01

  Bloomberg Audio Studios.

• 2:00Speaker 01

  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:10Barry Ritholtz?

  This week on the podcast, I have another extra special guest. Brian Lake is Chief Transformational Officer at Goldman Sachs Asset Management. He got his start at PowerShares in the ETF industry early and really has spent most of his career at the vanguard of disruption. First at PowerShares, they're eventually bought by Invesco. He rises to become Head of International ETFs with them, and for a couple of years was based out of London, then comes back to New York and gets tagged to run ETFs for JPMorgan Asset Management. He just is one of these people that has, through a combination of luck and smarts, has been

• 2:55Barry Ritholtz?

  in the right place at the right time and has very much observed what it takes to satisfy clients, to reach a particular outcome, and to use the latest, greatest technology, whether it cannibalizes your prior business or not, to help achieve those outcomes. I found this conversation to be fascinating, and if you want to have some insight into what's going on at Goldman Sachs's $3 trillion asset management business, you'll find this conversation to be fascinating. With no further ado, my discussion with Goldman Sachs Asset Management's Brian Lake.

• 3:32Speaker 03

  Barry, it's a pleasure to be here. Thanks for having me.

• 3:34Barry Ritholtz?

  So, I saw in one of the news outlets, you get hired with this completely wacky title, like our mutual friend, Dave Nodig, was Chief Futurist. So, we'll get to the title in a bit, but I want to start with a little bit of your background that led you to the CTO position, starting with...

• 4:00Barry Ritholtz?

  Bachelors from Taylor University, International Business Economics and Finance. What was the original career plan?

• 4:06Speaker 03

  Yeah, no, you know, I think I had read a Warren Buffett book early on. So I loved investing. I liked watching stocks and, you know, I'd read the Wall Street Journal. That was always around in the home. And so I was able to really look into that. But I didn't realize that the entire asset management industry existed in the way, in the way that it did. I think it's one of those that because the asset management industry often is working with financial advisors or other institutions, it's not as consumer of a business. Whereas financial advisors obviously work with individuals. And so I didn't know the asset management industry existed in the way that it did. So I didn't know that, but you know, growing up, my parents were intentional about exposing us to you know, traveling internationally. We were fortunate enough to do some trips throughout Europe.

• 4:51Speaker 03

  And had just always been amazed by, you know, the different cultures and the different things that go into that. And so as we'll get into, I'm sure that that did end up playing out in my career. I think to be international business at Taylor, you just had to take a language, which of course I took, you know, eight years of Spanish and I can speak maybe 15 words. But you know, that's, that's how we kind of ended up with that one.

• 5:12Barry Ritholtz?

  So you start your career after college as an office manager at Fifth Third Bank. Office manager? What?

• 5:20Speaker 03

  Branch.

• 5:21Barry Ritholtz?

  Like you were literally locking up the bank.

• 5:23Speaker 03

  It was in a branch. So, so, so now there's some, some history there. My, my dad worked at Comerica Bank in Detroit. Comerica Park, the, you know, the Tigers Field is named after Comerica. It's one of the largest banks in, in the, in the country. And, and you know, some of the formidable years, I remember, you know, spending time, you know, the quality time I would spend with my dad, we'd be going to sporting events, right? And, you know, sometimes he'd bring somebody from work and I'd just sit in the back, back of the car and listen to them talk shop. And, you know, those things were just kind of, even if I didn't understand what was, what they were talking about, the cadence and the perspective, the professional kind of interactions that they were having just kind of always, always fascinated me. So my dad was at, was at Comerica Bank. I got a job at Fifth Third Bank as literally a branch manager. And what I distinctly remember from that time is you'd get there at about 7:30 in the morning

• 6:07Speaker 03

  and you'd pull all the deposits that came. From you know, the the previous nights and there was a bunch of restaurants in the area. And I would hand count three hundred, four hundred, five hundred thousand dollars worth of bills, cash. This was a little while ago now and and you'd strap it up and then you'd and then you'd have to like.

• 6:25Barry Ritholtz?

  How big a pile of money?

• 6:26Speaker 03

  I mean, oh, we're talking.

• 6:27Barry Ritholtz?

  A full duffel bag.

• 6:28Speaker 03

  Uh, two two me's next to each other, right? Like two major suitcases that that go into that's four hundred thousand dollars, something, something like that, because this is from a restaurant. You got small bills and all this sort of stuff. And as and and and as interesting as that was, I was like, this is not the forever thing. And then at the end of the day, you're helping, you know, the tellers balance out their drawers and all this sort of stuff. And I was like, this is, this is not the finance that I was that I was really picturing. And so that didn't last forever, but I do, that was exactly where it started at a fifth third, at a fifth third branch in Livonia, Michigan, not not far from where I grew up.

• 6:56Barry Ritholtz?

  How did you find your way to Invesco?

• 6:58Speaker 03

  So I went to Taylor University, as we talked about, that's in the the middle of Indiana. It's called Upland, Indiana. It's the highest point above sea level between Fort Wayne and Indianapolis. It's 10 feet above sea level. This is corn. This is corn. This is cornfield.

• 7:10Barry Ritholtz?

  You must have a great view from up there.

• 7:12Speaker 03

  You can see it all. You can see as far as the eye can can see of rows of corn and um, eh, but they had a great finance program and and and like I say, like the the culture at that university, which I'm still very connected with, you know, raised some really interesting people. And so I I graduate from there. I go back home to to Plymouth, Michigan, just outside Detroit. And I'm living there, kind of the post-college thing. This is when I'm working at Fifth Third. But there was a girl that I had met at Taylor University who lived in Chicago. And so I really wanted to find my way over to Chicago. So I find I find my way over to Chicago. And I get introduced to a gentleman by the name of Bruce Bond. Um, and and you probably know Bruce, but you know, for uh, people listening, Bruce founded PowerShares originally, which was a, which was a startup ETF business. He now runs Innovator, which is another ETF business.

• 7:56Speaker 03

  And um, and and this was, you know, over 20 years ago, the entire ETF industry was less than a hundred billion dollars. And uh, and and I was interviewing with with Bruce and he just so happened to be a Taylor grad as well. And another one of my mentors is in the room, Ben Fulton, who also has uh, been a very successful entrepreneur and was early on it at at PowerShares and um, I I distinctly remember I was I was interviewing. And I was, I was telling Bruce, oh, I think ETFs could, you know, really change the investment landscape. And this is really interesting. I was just parroting this article. And at the time, the article started with startup power shares next to the petting zoo in Wheaton, Illinois. So it doesn't exactly scream high finance, right? And so I'm interviewing with Bruce and oh, why do you want to be here? Oh, I'm really excited about this. And Ben interrupts, he says, who's the girl?

• 8:40Speaker 03

  And I said, well, her name's Casey and I really like her. And so now Casey and I are married, four kids later, we got a dog as well. But that, that was how I got to power shares. And so this was

• 8:50Barry Ritholtz?

  That was oh five.

• 8:51Speaker 03

  That's oh five. Yep. And, and so like I said, the ETF industry is a hundred billion dollars. Now, as you know, it's 15

• 8:56Barry Ritholtz?

  And half of that's SPY, right?

• 8:58Speaker 03

  Half of that, half of that's SPY. And it's, it's an amazing kind of story. The idea behind power shares was they were going to be the non-market cap weighted ETF provider. So what we now call smart beta, what we now call thematic, what we now call, you know, some of these other things that, you know, different exposures that nobody was really thinking about at the time. Power shares was really the innovator in launching many of those. And so I had the really good fortune of sitting in a very small group. So I was the 12th employee at power shares. I had a very, you know, I was very fortunate to sit with these people as they were building this business. The industry was going from, you know, like I said, the whole industry is about a hundred billion. To your point, SPY was, SPY was kind of 50.

• 9:39Speaker 03

  I'd probably had 10,000 conversations about ETFs within the first three years of my career, between the phone and then covering, you know, a territory and working with, with financial advisors, which was a, which was such an edge, as you know, you learn so much just having these conversations repetitively.

• 9:53Barry Ritholtz?

  Over and over again, right?

• 9:53Speaker 03

  And, and so that was kind of how I got to Chicago.

• 9:57Barry Ritholtz?

  So, so Invesco becomes a significant player in ETFs by acquiring power shares the very next year. So you're there for a year, suddenly you're acquired. What's your new role like at Invesco?

• 10:10Speaker 03

  Well, this is, you know, this is a really Interesting time for me. And so, you know, I know you like to ask your guests what books they like to read. I'm gonna, I'm gonna share a book early on.

• 10:20Barry Ritholtz?

  Okay.

• 10:21Speaker 03

  I got, I got multiple books for you today, Barry. But the book that, that I, that I like to read is there's a book called Innovator's Dilemma by Clayton Christensen.

• 10:27Barry Ritholtz?

  Oh, of course.

• 10:28Speaker 03

  Right. And so, think about what's happening now. So you have a large asset manager in Invesco, which was growth shop of the 90s, a, you know, hundreds of billions of dollar asset manager acquiring this, at the time, I think, power shares was $6 billion ETF, fast grow, new technology, changing the game on what we're doing.

• 10:48Barry Ritholtz?

  Very disruptive.

• 10:50Speaker 03

  Very disruptive. But, as you know, in the Innovator's Dilemma, the legacy incumbent technology really tries to protect what they're doing while the up and comer is trying to disrupt what's happening. And so, Invesco acquires the power shares business. They're gonna, they're gonna expand their offerings from traditional mutual funds to now include exchange traded funds.

• 11:09Barry Ritholtz?

  It's pretty, pretty forward looking at a time where there was a lot of skepticism. I remember the early days where you and I first met.

• 11:16Speaker 03

  Yes.

• 11:17Barry Ritholtz?

  At some ETF conferences, and you're just genuinely shocked at how much skepticism and, yeah, yeah, the kids are playing with this new fangled ETF thingy.

• 11:27Speaker 03

  Yeah. Which is, which is how so many of the new technologies come, come about, right? But what's in, so Invesco acquires it, very astute on their part. But, but what was amazing for me is I had this unique opportunity. I was the first person that they put on the plane from Wheaton, Illinois, down to Houston, Texas, or Atlanta, which is where Invesco had offices. And I was the one training them on ETFs. And so, we were having this interesting conversation. The light bulb went off for me. I was like, holy smokes. I could see both perspectives. They were, these were incredibly successful asset management, financial service individuals that were trying to digest and understand, which now in hindsight looks so obvious, but at the time, to your point, looked like, I don't know if this thing's really gonna happen. And so, that was a really, a really formative time for me.

• 12:08Barry Ritholtz?

  And, and you know, when you think about certain companies that have been really successful. They're the ones who have, for over long periods of time, they've figured out innovator's dilemma. They're willing to disrupt themselves. I'm thinking about, you know, the original iPod was a huge winner for Apple. And they just kept making it faster, cheaper, smaller, with more capacity. And you could just hear someone saying, guys, we're selling a ton of these with a gig capacity at $500. You now want to introduce a 3 gig capacity at $200? You're going to kill our old sales. Didn't matter. Better we do it than someone else, right?

• 12:46Speaker 03

  That's exactly right. You know, one of the quotes that we'd throw around a lot at that point is that if you didn't like change, you were going to like irrelevance even less, right? And if you think about that, that was what was going to happen. This innovation and this, this whole story is about innovation and continuing to look for new ideas. And, you know, as you think about how product gets developed, as you think about how distribution happens, these are all things that inform all of those, all of those things. But yeah, that was, that was an amazing time. That then evolved into, hey, we've, we've got investors from Asia, from Europe, from South America that are buying our ETFs listed on the New York Stock Exchange, because by the way, it's a security. And so all these firms that had trading lines open in New York were happy to buy an ETF off the exchange in that way.

• 13:27Speaker 03

  Hey, Brian, would you mind getting on a plane and going and talking to some of these people and figure out what's going on in, in these areas?

• 13:32Barry Ritholtz?

  So you go to Europe and the Middle East, you go to Asia. Eventually, after 12 years of work at Invesco PowerShares, you're running EA FE in terms of ETFs. Tell us about that experience.

• 13:46Speaker 03

  That was an amazing thing. I had been doing this global business development. And so, you know, combine a couple of things that we've talked about here. So I had had, you know, tens of thousands of conversations around ETFs. I had been given the fortunate opportunity to talk to incumbent asset managers and how they then are digesting ETFs in their portfolios and how that's going to change the, the industry and what's happening there. I had done that then globally. So you understand the overall ecosystem. What's the value proposition to investors to buy these? How are they using them in portfolios? And then Invesco says, hey, would you, would you be interested in moving to, moving the family to London? And, and running our international business, everything kind of ex U.S. I jumped at the opportunity. I couldn't have been more excited. I didn't know when we talked about my degree earlier, international finance. I didn't know I was gonna move.

• 14:29Speaker 03

  But we were very open to it and you know, credit to my wife for being willing to help raise the family.

• 14:33Barry Ritholtz?

  What was it like bringing the kids to London and sort of, hey, you're leaving everything behind? At least for a couple of years, but it's gonna be a great adventure. What were their reactions?

• 14:43Speaker 03

  We moved over with a three-year-old, an 18-month-old and like a six-month-old. And so the house hunt was all looking for a flat in London that had a entryway level with the sidewalk so that we could push the stroller in.

• 14:56Barry Ritholtz?

  Right.

• 14:57Speaker 03

  And in London, I don't, you've been there, like, there's a lot of steps. And so we, like, everything that we were, but that was kind of how we were, that was kind of how we were thinking about it. But it was, but it was an amazing opportunity to go over there and understand the business landscape. Now, at the time, Invesco had two of the most successful mutual fund managers. Neil Woodford being one of them. And, and, and there was this pull away from ETF because you remember ETF at the time meant passive. And, and the passive-active debate was raging on. And people didn't quite realize yet that the ETF is a technology.

• 15:34Barry Ritholtz?

  Right.

• 15:34Speaker 03

  What you put inside of it is the investment engine, right?

• 15:37Barry Ritholtz?

  And it's a, it's a vastly superior technology. If for no other reason, there are no phantom capital gains taxes like we see in most mutual funds, but especially active mutual funds.

• 15:50Speaker 03

  To, to, to name just one of the many, many, many benefits, but you know, you, you mentioned the, the MP3 player earlier. And, and this is the analogy that I always, I always love to use. You know, MP3 is the evolution from the CD, from the tape player, from the 8-track, from the vinyl record, right? What you put on all of those is the music.

• 16:10Barry Ritholtz?

  Right.

• 16:10Speaker 03

  And so we love the benefits of the MP3 player, but now what we stream on our phone, right? It gives us convenience. It gives us control. It gives us variety. We now have every single. Every single song that's ever been invented is in our pocket. Plus podcasts like this, plus audiobooks, plus all of these other things. So the convenience for the, the consumer, it's the better technology. And then what we're having is this interesting debate is so, okay, so go back. I'm a, you know, think about an active portfolio manager saying, oh, wait a second. These indexes are eating my lunch. What's going on with this thing? These ETFs and everything was synonymous. The media was singing synonymous index passive ETF, all the same thing. So we had to break that apart. We had to make it very clear to investors that the ETF was the delivery mechanism.

• 16:55Speaker 03

  What you put inside of it was the investment engine.

• 16:57Barry Ritholtz?

  Then that makes a lot of sense. So how long were you in London with Invesco for?

• 17:02Speaker 03

  So with Invesco, that was four years.

• 17:06Barry Ritholtz?

  And then JP Morgan comes a knocking and they say, um, hey, we're looking for someone to head up our international ETFs.

• 17:14Speaker 03

  Yeah.

• 17:15Barry Ritholtz?

  And since you're here in London anyway, let's, uh, let's have a conversation. Tell us how, uh, how you found your way over to JP Morgan Asset Management.

• 17:23Speaker 03

  You know, and it was, it was one of those interesting things where there had been about a 13 year run there, where I was at startup power shares, fast growth power, fast growth power shares, and then Invesco power shares. And even though I had never made a change, those were three distinct cultures, three distinct different cycles of the, of the business, if you will. And, and we're starting to get to this point and, and some of the things that I've explained now in hindsight are very intuitive. At the point, they were just starting to dawn on me, wait a second. If you could go into an established asset manager, deliver the disruption, but combine that with great investment capabilities, combine that with great distribution capabilities, combine that with a great brand, you can really change the landscape and, and, and build something incredible.

• 18:07Speaker 03

  And I, I like building, I, you know, I said, some of the mentors that we talked about earlier, they, they were builders. And so I, I, I made the, the difficult decision to, you know, go to, go to JP Morgan at that point in time.

• 18:17Barry Ritholtz?

  Huh, really, really interesting.

• 18:19Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

• 18:51Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 19:33Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work: employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 20:14Barry Ritholtz?

  So you're head of international ETFs in London for JPM. How did you end up back in New York running America's ETF?

• 20:22Speaker 03

  Yeah, we loved our time in London, and if I really want to get New Yorkers riled up, I'll say that New York is a great city. London is a world-class city. The quality of life is high, you've got parks, you can, you know, the weekends are a little bit slower than the intensity. Now, New York's the alpha city, I'll give it that, but you do have this kind of contrast between the two.

• 20:44Barry Ritholtz?

  Isn't that generally true in Europe? Europe is a lot more kicked back. Like, I tell a story all the time about being there in the midst of the dot-com implosion, and you could walk down the street in New York and everybody's stressed out. And, oh, yeah, the economy's collapsing, but I have healthcare and retirement, I'll be okay. It's a different headspace.

• 21:03Speaker 03

  I feel that human nature is true across both. They're still, you know, using our industry's language, there's still fear and greed that drive almost everything that happens. The culture and the approach is different. So you know, I used to, I used to tell people, if the objective was to climb that mountain, in Europe, you said, we're going to climb that mountain. Why do we want to climb that mountain? That mountain looks high. What would, what would be the purpose of climbing the mountain? What's in, what's in it for me to climb the mountain? In the US, you'd say, let's climb that mountain. People, let's go. And they're halfway up the mountain, then they crash, they roll back down. And then halfway up the mountain, they crash, they roll back down. Both reached the top of the mountain at about the same time. The, the approach of how you get to the top of the mountain with, you know, European culture versus US culture is, is always a little bit of an interesting one. Of course, dramatic generalization there,

• 21:47Speaker 03

  but there is a little bit too, kind of that thoughtfulness that, that kind of comes, that kind of comes through it in that. So, so, you know, we, we moved back to the US. We've got family back in the US. And it just, it just made sense for us at that time. We'd had our fourth child in the UK. So we're, we're, we're moving back. And, you know, I was fortunate that, you know, I'd had international experience very early on. So I understood the ex-US stuff. I had grown up in the US and, and knew that marketplace. And so it was really a combination of those two, those two things. The really important thing that was happening was investors were now starting to acknowledge and understand the difference between ETF wrapper and active. And the, those, those really started to be the interesting conversations where-

• 22:30Barry Ritholtz?

  They're not mutually exclusive.

• 22:32Speaker 03

  They're not mutually exclusive. And, and, and you had a lot of the passive providers that were going to do their thing. And it was becoming quite obvious that that was a commoditized product and a bit of a race to the bottom as far as fees. And that's great for investors. But if you have differentiated investment capabilities that you can deliver through the ETF technology, that starts to really bring you to an interesting, to an interesting space.

• 22:54Barry Ritholtz?

  So you're back in New York. What's that initial conversation with Goldman Sachs like? I want to, and, and my motivation for asking that question is, how do we get to the title, Chief Transformation Officer? They could have just said, hey, you're head of ETFs US, or head of whatever, wherever they, whatever they wanted you to do. This seems like it's a little more comprehensive.

• 23:18Speaker 03

  Yeah, that, that's fair. So-

• 23:22Speaker 03

  We've kind of unpacked my journey, you know, and I've been fortunate a bunch of those turns. I've tried to point some of those turns out through the conversation. And when you log those, you kind of understand that how the world is constantly changing and you need to constantly kind of stay out in front of that.

• 23:38Barry Ritholtz?

  Okay.

• 23:39Speaker 03

  And our industry is, I always say this, the best industry in the world. We literally get to wake up every day, helping investors meet their financial goals. Whether they're paying for healthcare, whether they're trying to retire with dignity, like that's something that really motivates me about our industry and I get really excited about. When we think about how the industry is evolving, there is innovation happening in so many places beyond just ETFs. I could, I could wax lyrical about ETFs for a very long time. But now technology has unlocked SMAs, direct indexing, models. You know, we're hearing a lot of influential people talk about privates and how those go into portfolios now.

• 24:20Speaker 03

  So private equity, private credit, alternatives like real estate, infrastructure. And when you take a step back, I had the great opportunity to kind of learn this cross section of the entire asset management industry through my, my kind of earlier years, different chapters, doing the ETF thing. But now I realize I can apply that across an entire asset manager. And so Goldman's at an interesting spot. Everybody knows Goldman. We are a $3.2 trillion asset manager.

• 24:49Barry Ritholtz?

  Which is a giant, like there are only so many companies.

• 24:52Speaker 03

  We're the eighth largest asset manager in the world.

• 24:54Barry Ritholtz?

  Right. There's only so many firms that have trillions of dollars as a wealth manager.

• 24:59Speaker 03

  It's, it's a, it's a big number that's not lost on us. We're, we're top five on active public. We're top five on private investing. So we've got this combination of public and, and private capabilities. We've got some of these technology underpinnings.

• 25:16Speaker 03

  And the conversation is really, you and I both know, I think a lot of, a lot of people would agree with us, our industry is going to look very different five years from now than it does today. That's, that's the innovator's dilemma that we, it never stops. There's, there's always this reinvention. There's always a new technology that comes along that is driving this. And so we, we really are focused to make sure that we are positioned to serve our clients five years from now. And to do that, we need to transform our business. The industry is transforming, and Goldman needs to transform along with that. And so there comes my title. Now, you know, I like to joke, like, the nickname Optimus Prime hasn't, hasn't kicked in the way that I really, really thought it might have at this point. I didn't get that gift sent to me by, by some of my friends

• 26:01Speaker 03

  in the way that I, that I'd wanted. But the, it's, it's really on the nose of what we're trying to do, which is, we feel very good about the investment capabilities we have, but we know we need to transform our business to serve clients five years from now. And if we aren't intentional about how we're doing that, we're going, we, we may miss that. And, and because I was able to live that, as ETFs did that at Invesco, as ETFs did that at JP Morgan, I can now apply that across the entire franchise at Goldman Sachs, which I, I'm having a blast. Now, it's, it's still build, there's a lot of work that we have to do that goes into that. But, but that's what I wake up every day thinking about.

• 26:38Barry Ritholtz?

  So I'm, I'm hearing two things from you that are kind of fascinating. First, you, you've lived through the innovator's dilemma and recognized how important it is to keep up, to be an agent of change, to not let some, hey, we're gonna eat our own lunch before someone else does. Totally get that. Now you come in to this role at Goldman. Tell me about the team you're putting together. What areas are you looking at? Cause that, that's sounded like kind of a goofy title when I first heard it. But now that I'm hearing you describe it, it's, it sounds like, um, management at Goldman has said, hey, this is really changing quick,

• 27:20Barry Ritholtz?

  and we have to be on the, on the, no pun intended, at the, at the vanguard of change, we have to be at the cutting edge, or someone else is gonna eat our lunch.

• 27:27Speaker 03

  Yeah, no, that, that's exactly right. And, To your point, if you're intentional about transforming your own business and making those tough decisions, you stay out in front of this. And so, you know, I got excited about that role. The platform, the organization is incredible. When I step back and think about world-class asset managers, they really have kind of four things that are kind of pillars that they need to be successful at. They need to have really good foundations. So operations, engineering, all the platform that it takes.

• 28:02Barry Ritholtz?

  Blocking and tackling.

• 28:03Speaker 03

  Blocking and tackling. They need to have modern and innovative products. What you build on top of those, the investment outcomes for investors, performance needs to be exceptional. And we're fortunate at Goldman to have some incredible investors in some great areas that really help unlock that for us on the public and the private side. You need to have a way to deliver that to the marketplace. You need to talk to investors about that. So, you know, how you market, how you distribute, that needs to come in because, you know, I've seen a lot of great product that nobody knew existed, and so it doesn't go anywhere. And then, you know, the fourth thing is you kind of have to have an operating rhythm. You need to know what your identity is as an asset manager.

• 28:45Speaker 03

  You need to know what your identity is as, you know, as an executive at these firms and have a way to execute against that in a process-oriented way. So those are the things that I really, I really think about as you frame that conversation.

• 29:00Barry Ritholtz?

  So Goldman is a big shop. You're obviously not doing all this heavy lifting yourself. Tell us about your team.

• 29:05Speaker 03

  Yeah, no, we've got, we've got an incredible team across all of those areas. So.

• 29:10Barry Ritholtz?

  Who are you working directly with?

• 29:12Speaker 03

  Well, that's one of the beautiful things about my role is I can work across all four of those pillars. And so I, you know, we've got incredible people on the ops side that are, that are thinking about the foundation, incredible people on the technology side that are thinking about, you know, the nervous system of the, of the asset manager. You know, our product team is incredibly innovative. The investors, you've had some of the investors on here before, Asis was on, who's an incredible and.

• 29:38Barry Ritholtz?

  He was great.

• 29:39Speaker 03

  He's an incredible investor. He's got a great story. And so working very closely with him and thinking about, you know, what types of strategies do we need to bring and so on and so forth. I mean, it does, it does, you know, that's this cool thing about this title is it does give me some nice scope to execute across really the entire leadership team of the firm.

• 29:55Barry Ritholtz?

  So you're not looking, when I initially heard this, I would, my initial thought is Goldman just want to be a bigger player in the ETF space, but this sounds much bigger and more comprehensive than that.

• 30:06Speaker 03

  So when I step back and think about what are the fast growing product areas of our industry, there's, there's three that are worth calling out. So alternatives, there's going to be more alternatives and private investments in particularly, particularly retail portfolios going forward.

• 30:25Barry Ritholtz?

  And when you say privates, we're talking credit, equity, debt, real estate, the whole gamut.

• 30:32Speaker 03

  Yeah. And you know better than I, but there's companies that are staying private for longer. You know, there's companies that can access plenty of funding while staying private. So the impetus to go public isn't necessarily there anymore, but people want to own these world-class companies. And so, you know, that's an important thing. On the credit side, if you can enhance your yield a little bit. So, okay, so, so alternatives is portfolios that own both public and private is going to be a big thing. So alternatives is going to grow exceptionally. Separately managed accounts and direct indexing. Again, we're, you know, now we're talking about investor outcomes. Am I getting a better tax outcome? Can, can we use technology to help improve my outcome on this? Direct indexing allows you to do that.

• 31:14Barry Ritholtz?

  Did you guys build a direct index product or buy a direct index product?

• 31:17Speaker 03

  We built, we've been doing this for years and this is one of the, the things that I think makes us unique is, is we've got a lot of these capabilities that, that were, that were homegrown within Goldman.

• 31:25Barry Ritholtz?

  In-house.

• 31:26Speaker 03

  In-house that we're, that we're now delivering to the marketplace. On the alt side, we've been doing that for three decades. Sometimes it was for Goldman's own balance sheet. Sometimes it was a proprietary thing, but now we've made that available to investors around the world. So there's really an access story there. And then of course ETFs are going to continue to grow. And as we think about, you know, public equities, you know, ETF probably has the biggest addressable market and, and one of the largest. CAGRs, but you've got to have all three of those.

• 31:54Barry Ritholtz?

  Right.

• 31:54Speaker 03

  I really think those three. So, so those are the three that I, that I really, I really spend a lot of time thinking about. And when we think about the general generational wealth transfer that's going to happen over the next couple of years. That's, that's going to be really profound. And I know that's definitely something that you spend a lot of time. Because it's going to go to the next generation. The next generation is going to want to use their new modern.

• 32:14Barry Ritholtz?

  Right.

• 32:15Speaker 03

  The new modern investment capabilities. And so these are going to, these are going to feed right into that. There will be tens of trillions of dollars in motion. And how we think about, you know, providing those services to clients is, is really important.

• 32:27Barry Ritholtz?

  So I really have always thought of you as a public markets guy, but you're, what I'm hearing is. Yeah, public markets are going to be a key part of this, but there's a lot more beyond just stocks and bonds that are publicly traded. And a lot more beyond ETFs and mutual funds. Where do you see Goldman going with privates in GSAM within the asset management group?

• 32:50Speaker 03

  Yeah, no, I think it's one of our top priorities. So we've got decades experience in, in, in doing private investments. And, and, and I do want to be careful because a lot of times people talk about alternatives writ large. And like, there's, there's a lot of specifics in that, you know.

• 33:05Barry Ritholtz?

  We're not talking about hedge funds.

• 33:06Speaker 03

  We talked about private equity. We talked about private credit. You've got infrastructure, real estate. You would use all of those in your portfolio for different outcomes. Real estate and infrastructure may be a low correlation or increased yield. Private credit, like slightly increased yield off of public credit. Private equity maybe gives you different upside, you know, opportunity versus, versus public equities. And so you, you can use those in your portfolios. And so, but again, it's just an innovation story. And, and these, these types of investments have been available to investors for decades, but not available to all investors. And not available through the, the format that investors wanted to access that. And I, you know, ETFs taught us not only the what, but the how, how do I get access to those ETFs unlock that?

• 33:48Speaker 03

  And I think we're going to continue to see that on the alternative side as we, as we have breakthroughs on technology. If we have breakthroughs on access. Those will become increasingly available to more and more investors so they can build more specific portfolios, going back to the purpose of why we do all of this, to get the outcomes that they're looking for. And if you can incorporate those into your portfolio to drive those outcomes, that really is a differentiator with that, and it's important for us to do that. And so we're really focused in those areas.

• 34:16Barry Ritholtz?

  So, so private alternatives have scaled up over the past few decades from a few billion dollars to a few trillion dollars. How large can this sector expand to over the next decade?

• 34:29Speaker 03

  So, alternatives and privates, substantially, tens of trillions of dollars.

• 34:37Barry Ritholtz?

  Tens of trillions?

• 34:39Speaker 03

  Yeah.

• 34:39Barry Ritholtz?

  Like this could be a 20, 30 trillion dollar space?

• 34:41Speaker 03

  Yeah, I mean, think about the companies, you know, there's a couple of companies that come to mind right now that are staying private, that are, that are huge, you know, trillion dollar companies are on the way to being multi-trillion, just a couple of companies, let alone the entire thing. And then when you pull in private credit into that, and when you pull in some of these other areas, I think this will be massive. And 10 years is a really long time.

• 35:02Barry Ritholtz?

  Yeah.

• 35:03Speaker 03

  And that's another thing that we've learned in this industry is that, you know, even when markets wobble a little bit, once you stretch out and look over the long haul,

• 35:09Barry Ritholtz?

  you hardly see it.

• 35:10Speaker 03

  These things, it barely registers on the chart. And so, these, these things do, do grow in that way. And, you know, I'm bullish on markets, I'm bullish on, you know, innovation, and, you know, as technology unlocks these, these wealth capabilities for more and more investors, that is only going to be a positive thing.

• 35:28Barry Ritholtz?

  So, I'm with you every step of the way so far, but, but let's take off our sunny, sunny goggles and say, what are the challenges going to be? How, what are the heavy lifting ahead in order to bring these sort of full suite of services, all these different products, especially these new fangled privates, into a core portfolio and a basic model? What's the challenge here?

• 35:56Speaker 03

  Education. And we've seen this play out, use my, use my past experience in ETFs. I can't tell you how many, oh, I don't know if I'm gonna ever buy an ETF. Oh, I don't know if I'll ever buy a fixed income ETF. Come on. Like, you know, I used to keep a list of people that tell me they would never buy an ETF that eventually call, "Hey, Brian, could you come tell me a little bit more about those ETFs?" And so- There's always the early adopters, the Mavericks. And then there's the bulk and it kind of pulls through. And so, you know, I think it's incumbent upon folks like our firm Goldman. You know, things like this where investors, you know, are educated about what's available to them. I know your firm does a lot of work around that as well.

• 36:39Speaker 03

  Education, here's the benefits, here's how it works, here's how, here's the concerns that you should think about. You know, whether it's liquidity or whether it's the return profile, the timings of those things, the cash flow. These are all things that people need to be educated on. But, but you know, let's use, let's use active fixed income ETFs as a proxy.

• 36:57Barry Ritholtz?

  Okay.

• 36:57Speaker 03

  There was, there was years investors, wow, like a bond isn't, isn't tradable on the exchange. And there's a liquidity mismatch. So gosh, what do I do? Well, now what we know is that when you put fixed income in an ETF, you basically take an analog vehicle and make it digital. We've taken these clunky bonds and we've made them digital. Not only that, but we've diversified it. So you buy one ETF ticker that diversifies you across 100 bonds. Often those bonds will trade at a tighter spread than if you went and bought the basket of the bonds separately. So you've got this innovation effect that happens on, on the exchange. You, you can buy one share, sell one share, you're not buying big $100,000 bond at a time.

• 37:36Barry Ritholtz?

  Fractional shares.

• 37:37Speaker 03

  Fractional shares. You can, you can, you can do all sorts of things. And, but it took education for people to understand how that was, was going to work. And I, and I think there's a really easy corollary there for the alternative space, which we need to continue to do that. I want to live in a good neighborhood. I respect a lot of the firms that we compete with that are also leaning in and trying to educate around, around this space. And, and so I think the industry needs to do a good job of coming together and making sure that we're educating. But, but we, we need to be intentional about that. We can't just let it happen. We need to lean in and we need to invest and we need to make sure that we're educating people around that.

• 38:12Barry Ritholtz?

  Fast forward 10 years in the future. What does success look like in this space? And I'm not just talking about AUM. Yeah, three becomes four, becomes seven, becomes 10. Hold that aside. What does GSAM look like 10 years from now? If you've been successful in your role as Chief Transformation Officer?

• 38:34Speaker 03

  Outcomes for clients are what they were intending to be. So, so there was a clear understanding of what they wanted to achieve and we were able to deliver that for them.

• 38:48Speaker 03

  Tying it back to this conversation, there's going to be some bumps in the road. There's going to be some turns that we need to make. Getting as many of those right as we possibly can. Educating well, making sure that we're communicating extremely clearly on what it is that we're delivering to investors. I might even stop there. If we can, if investors are pleased with the outcome and we match their expectations on that, and we get a couple of these tough calls right along the way, I think that would be success for us. I don't think we need to go deeper than that and wax lyrical about some of these other things. I think those are the things that we need to be focused on.

• 39:27Barry Ritholtz?

  And sort of a broader question. So you've worked in New York, you've worked in Chicago, you've worked in London. What are the differences with these total solutions for US investors and overseas investors? How do they look at ETFs? How do they look at the world of investing? How do they look at privates? There used to be a giant difference. Occasionally there were ADRs trading on the New York Stock Exchange. Has the world come together and it's similar? Or are there still big differences between someone putting money to work in Berlin or Paris versus New York and Chicago?

• 40:08Speaker 03

  I remember the first time I listened to Masters in Business podcast, I was running through Battersea Park in London and thinking, wow, this is great. And Barry always says his guests are extra special, man, that must feel really good. And I was watching them back.

• 40:22Barry Ritholtz?

  Everybody's extra special.

• 40:22Speaker 03

  I was wondering if I was going to get the extra special today or just the special or where that was going to go. You raise an interesting point. Our world is increasingly global. Information increasingly travels globally. So there is a convergence that's happening where portfolios are starting to look more and more similar. You still do have some home bias, things that play into portfolios that I think will always be the case. Some of that's just driven by currency. Some of that's driven by cultural differences. But there is a convergence. The conversations that I'm having around the world are on the institutional side, they're a little bit further ahead. On on the alts thing, they've been they've been using.

• 40:59Barry Ritholtz?

  Over there.

• 41:00Speaker 03

  Globally, I would say globally, globally, institutions are closer to 20% of their portfolio in alternatives, whereas, you know, a typical retail investor is less than 5%.

• 41:07Barry Ritholtz?

  Right.

• 41:08Speaker 03

  And and I think the retail investor goes closer to that 20% number. And and that's true. That's true, really globally.

• 41:15Barry Ritholtz?

  Five years ago, right before the pandemic, I was having a conversation with people in Europe. And they were sort of perplexed by the the passive craze in the US.

• 41:28Speaker 03

  Yeah.

• 41:28Barry Ritholtz?

  And now, admittedly, we had a lot more scandals in the 2000s, everything from IPO spinning, analyst spinning right up to Bernie Madoff. But they kind of scratched their head and looked at low-cost passive indexing as like a distinctly American phenomena. Is that still the case? Have they like? How much of that is is tax differences? How much of that is they just want a hand on the tiller? What's what's the gap?

• 41:57Speaker 03

  So you land in London Heathrow and you've got options to get to Midtown. You can take a taxi, you can take the Heathrow Express, you can now take the Elizabeth Line. I suppose you could walk if you wanted to. The the point being, there there's a lot of different ways and and really, the point is, is is what outcome are you looking for? And I would say that investors now are saying the best portfolios have active and passive capabilities within them. They both play a role. There's a sliding scale where sometimes different asset classes should be more attractive on the passive side, sometimes more on the active side. We had this with the Mag 7 where you saw such concentration risk in some of those names on the indexes

• 42:40Speaker 03

  that investors maybe maybe were managing risk by just going moving away intentionally from owning all all those names. I like to remind people, the S and P 500 was launched in 1923, had 233 stocks in it at the time. It didn't expand to 500 until the 50s. It didn't become an investable product until until Vanguard and Bogle put it into a into basically a fund at the time in.

• 43:04Barry Ritholtz?

  Seventy four.

• 43:05Speaker 03

  Seventy. I I had I had early 70s in my in my head as well, not available in an ETF until 1983. So if if that was the best investment, why did it take 70 years for it to be made available to investors? And and and what's telling us that we should stop that? So I'm a huge believer in innovation going forward. Then the great investments are being in, you know, great investment strategies are being invented every day. I think investors are more and more aware of outcomes as opposed to inputs than than they ever have been. And so all of these tools and, you know, there's thousands of ETFs now. There's going to be, you know, there's going to be a lot of alternative capabilities. These are, these are just, they're like the songs on on our.

• 43:48Speaker 03

  You can put the perfect playlist together for yourself and you can combine all these things to get that that playlist, maybe for the workout, maybe for the commute, whatever that is. And so this optionality, it's great for investors. It's a good outcome. Yes, they need to wade through it a little bit more. I'm sure there's great songs that I haven't heard yet. But that's how, that's, that's where this thing is going is as all these these investments become available in that way.

• 44:12Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 44:55Speaker 01

  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 45:35Barry Ritholtz?

  We were talking earlier about that title and how encompassing it is and that your charge is essentially to revamp and innovate in the entire suite of Goldman Sachs Asset Management products. Everything from what goes into them, the sort of outcomes you're looking for. It sounds pretty comprehensive. What is it about today that has led to so many companies saying, hey, you know, we really are at danger of falling behind and rather than rest on our laurels, we have to become cutting edge and be the change as opposed to being affected by the change? Tell us a little bit about your thoughts there.

• 46:20Speaker 03

  So investors have made it quite clear what they're trying to accomplish in their portfolio. So when you see things that are growing as fast as they are, like direct indexing, which is growing at a CAGR of north of 20% a year, when you see things like SMAs that are growing at the rate that they're growing, when you see ETFs that are growing at that rate, some firms led, some firms are responding to that, but ultimately it's the investors that are leading that conversation. Now, once we realize that stuff like an SMA or a direct index is the delivery mechanism, ETF is the delivery mechanism, and then what you put inside it is the investment capability, that actually becomes an interesting conversation.

• 47:02Speaker 03

  So many asset management firms, using ETFs as the example, are now saying, hey, we've got great investment capabilities, we just need to make those available in the ETF technology, which is how investors are trying to get that exposure.

• 47:15Barry Ritholtz?

  And define SMAs for people who don't know the shorthand.

• 47:18Speaker 03

  So a separately managed account is an account where you, as an individual, can allocate to a strategy and you actually own the individual names, and then they can trade it on behalf of you as an individual as opposed to owning a co-mingled vehicle like an ETF or a mutual fund.

• 47:35Barry Ritholtz?

  All right, so let's talk about some new products that have come out. Buffer ETFs, tell us a little bit about that.

• 47:41Speaker 03

  Yeah, I mean, this, this just continues on the, on the spectrum as we think about innovation. You know, so a quote comes to mind from Rick Rubin. I don't, I don't know if anybody's ever quoted Rick Rubin here, but you know, how do you?

• 47:51Barry Ritholtz?

  They have, the new book definitely caught a lot of people's attention.

• 47:54Speaker 03

  Right, and, and you know, so the one that, that stuck out to me, and obviously he's famous for producing The Beastie Boys, which is, you know, great New York and.

• 47:59Barry Ritholtz?

  And a ton of other artists.

• 48:01Speaker 03

  A ton of artists.

• 48:02Barry Ritholtz?

  His range is kind of incredible.

• 48:03Speaker 03

  I love it, and, and it's, it's absolutely amazing, but you know, he, he makes two important points. One is, it's not like serendipity happens and lightning strikes. You've got to grind it out. Like these artists that have made some of the most creative and best music, they, they, they're grinding it out. And sometimes it hits and sometimes you really got to work it. And he's asked, how do you put together an album of 12 hits? You write 20 songs, you pick the 12 best ones? And so, you know, that's something that comes to mind for me. I think, I think really what you're trying to do is find the tension between innovation and solving an investor need. And you and I could dream up something crazy from an innovation standpoint and wouldn't solve an investor need and be a waste of time and energy. There's also needs that are going unmet right now where people need to solve those.

• 48:48Speaker 03

  And so you're constantly looking for that tension between the two. And it really is a team sport. You work with investors that are experts at that. You work at, you, you look at the data, you talk to clients and understand what it is that they're trying to, to, to achieve. You know, the way I think about it at Goldman is, you know, to use our music analogy earlier, we make a lot of great rock and roll. We want to make sure that it's available in the MP3 wrapper, you know, the ETF wrapper. And so, you know, we launched active muni capabilities, which we think is a differentiator. We're leaders in that space. And then the buffers.

• 49:16Barry Ritholtz?

  Active muni, tell us about active muni.

• 49:18Speaker 03

  Yeah, active muni, I mean, you, you know, so if you're thinking about the, the, the high net worth or the ultra high net worth space, they think a lot about taxes. And so when you think about the muni space right now, you get the tax benefits of, of owning those. When you can do all the things that we talked about earlier with fixed income ETFs and munis, deliver, you know, you have like a great combination. So we launched the different spectrum of those, longer duration, shorter duration, high yield, et cetera, et cetera. And so those are, those are really interesting things. On the buffer side, I think this is also a really fascinating space. Embedding options and strategies isn't a new thing. Sophisticated investors, insurance companies have been doing this for years, covered call strategies. You know, I used to work with financial advisors, they did that themselves on some of the names that were in the portfolios.

• 50:01Speaker 03

  But now that the industry has developed to the way that it has and you can deliver these ETFs the way that we do, you can start to give investors the outcomes that they're looking for. And when you put them into a big UMA or a broader portfolio, these can really play an interesting, an interesting role. So buffers are great. You can get invested. A lot of people nervous, there's uncertainty, whether, you know, what the headline risk of the day, right? Whatever that is. And you say, hey, you know, these are designed to protect you to the downside, five to 10%, 15%, but you could still participate in the upside. So you can keep yourself in equities. And if that helps you sleep at night and it helps you stay invested, you are going to get a better outcome in the long run. And so they're a tool that investors can use along with the other tools. We launched three. They're designed to reset on a quarterly basis. And so there's some thoughtfulness

• 50:45Speaker 03

  around that. You know, at the beginning of each month, you've got one that's resetting.

• 50:47Barry Ritholtz?

  So, so we're recording this literally first day of the new quarter.

• 50:51Speaker 03

  Yeah.

• 50:52Barry Ritholtz?

  Q1 2025, if it's going to be known for anything, it's going to be all about the volatility. That, that felt like the craziest 5% drawdown we've ever experienced. Wait, that was just 5%? Why did it feel like it was, you know, between the news flows and, and, and all the mayhem around tariffs? How do you see market volatility influencing investor behavior? Is, is the move into products like buffered ETFs just a short-term reaction to the volatility we're experiencing? Or is this a more longer lasting phenomenon?

• 51:30Speaker 03

  Yeah, this is the, this is the Warren Buffett, you know, near-term voting machine, long-term weighing machine, right? The volatility, the markets intraday, that's just bouncing around based on the headlines. I think we're in an increasingly headline-driven marketplace. There's more information available than ever, whether you're on X, whether you're watching Bloomberg, whether you're listening to something. But at the same time, investors need to be reminded that just because they're more informed, doesn't mean they need to make new decisions. You need to have a strategy. There's a lot of strategies that work, by the way, but you need to have a strategy and stick to that strategy. And if you do that and you keep an eye on your expenses and you rebalance on a regular basis, you and I both know the outcomes are going to be good. If you are panicked in a scenario where the market's drawn down 5%, You maybe weren't in the right strategy to begin with. And so these things are common.

• 52:15Speaker 03

  The market has a 10% drawdown pretty much every single year. So you should expect these things. And so to me, it's all about the preparation. If you're panicked making a decision the day that the S and P is down 1%, you're doing it at the wrong time. You're not in the right headspace to do that. You should have made that decision six months prior when you were, when you were, you know, thinking, you know, soundly about what was going to happen. And I do think that all these tools that are available, whether it's buffer ETFs or active munis, or, you know, some of the other strategies that we're delivering, that those, those can benefit. Now, we think about direct indexing. It benefits from these drawdowns because the, the way the technology can embed losses in your portfolio can help offset some of the gains that you're going to have at some point down, down the road. And so, you know, I think investors are starting to wake up to that fact as well. It's like, oh, hold on a second.

• 53:01Speaker 03

  Over time, if, as long as this thing continues to go up, this intra, intra-month, intra-day volatility may actually benefit me in a way because now these different capabilities are available to me. And, and again, that's something that's a relatively new phenomenon that's been unlocked by technology that just didn't exist before that.

• 53:16Barry Ritholtz?

  So, so let's talk a little bit about direct indexing. We're big direct indexers. I was skeptical about this, I don't know, 10, 15 years ago because the technology was so cludgy, you would literally get these, you know, stacks of reports. But today, because of A, free trading and B, software, it's, it's fast, easy. You could tilt it in whatever factor style you want. But, but my initial thought on direct indexing was, oh, some people aren't going to want tobacco or don't want guns, or you go through all the list of don'ts. But that hasn't been the biggest driver. It seems like the biggest driver is managing capital gains taxes and tax loss servicing.

• 53:59Barry Ritholtz?

  Tell us a little bit about Goldman Sachs Asset Management's direct indexing product.

• 54:03Speaker 03

  People don't want to avoid taxes. They want to defer them, right? And so these are.

• 54:07Barry Ritholtz?

  But these aren't deferring taxes. These are being able to offset gains. So you're not, it's not like you're kicking the can down the road. You are actually paying less taxes according to black letter IRS law. There's nothing. Speculate, this is, this is well understood and perfectly legit.

• 54:25Speaker 03

  Really, really well put and that's super clear. And so, you know, basically what happens is you manage it back to an index. So let's call it the S and P 500. And so the idea is we're trying to give you the S and P 500 outcome, but at any given point in time, some of the names in the S and P might be up, some of the names might be down. And if you can trade and take some of the losses on, on the names that are down, you can offset some of the gains that are on, on the up stuff, you know, later on. Our technology, we developed again in-house, you know, we think it's a really modern and dynamic technology because it'll trade on a daily basis. This isn't a monthly thing or, or some like set rigid time. We can actually take, take advantage of some of the, the, um, the intraday volatility and intra-month volatility that, that we've been seeing lately.

• 55:08Speaker 03

  And so, you know, it's, it's a fast growing space for us. We're, I think, number one or number two in the country on, you know, direct indexing solutions. And to your point, it is, it is helping individuals improve their tax outcomes. Now internationally, you know, direct indexing was a little bit more, you know, this customization thing.

• 55:28Barry Ritholtz?

  Right.

• 55:28Speaker 03

  And, and we do still see that with some of our institutional accounts. In the U S, it's really a tax story. Internationally, it's a little bit more of a customization story.

• 55:35Barry Ritholtz?

  When you say customization, I tend to think of value driven. So, um, O'Shaughnessy, Jim O'Shaughnessy told the story of, I think they were managing money for the New York bishops retirement plan. And of course, if you're managing money for the Catholic bishops, no abort efficence and no companies that are paying for things like that, like they're following a specific set of, these are our five key principles and we can't violate them. And express that in a portfolio, you can do that with direct indexing.

• 56:08Speaker 03

  Technology allows customization. And that, that's really what we're talking about there is there's a customization based on in that, in that sense, values driven investing. And that technology has unlocked that and because maybe one size doesn't fit all. And so now that we have that technology, you can develop specific strategies as, you know, to drive the outcomes and, and the exposures that people are looking for.

• 56:27Barry Ritholtz?

  So, so look around the corner for me. What are some of the new techno, like ETFs are fairly well established, still not very well adapted. But that's coming along. What are some of the other technologies we're looking at down the road? Where are the next areas that are ripe for innovation and disruption?

• 56:45Speaker 03

  I think the client experience is going to be a big part of that. How frequently can you get that information? You know, one of the hallmarks of ETFs, of the separately managed accounts that we've talked about, direct indexing, is transparency. It used to be buyer beware. The, you know, the financial services company in their ivory tower had more information than you. And so buyer beware. Now it's the other way around. Investors have more information available to them than ever before. It's, it's a bit like, you know, here in New York City, you know, you, you go to a restaurant, you pull up, you know, your favorite app and you won't go to a restaurant that's got less than four stars. It's got less than a thousand people that have rated it. You have that information as a consumer available to you. And that's true in the financial services industry as well.

• 57:26Speaker 03

  And so that's, that's the thing that's really exciting to me is that the transparency that we're delivering to investors is helping them get that outcomes and they're, and they're more, they're more aware of that than ever. And I think that's just going to continue to increase. We, we acknowledge that we need to be providing real time information. We acknowledge that holdings need to be on the website on a real time basis. If you want access to portfolio managers, they're more than willing to talk. That's the type of innovation that I think we're going to be seeing.

• 57:54Barry Ritholtz?

  I want to throw a curve ball at you. You've spoken about doing the dirty work early in your career.

• 58:02Speaker 03

  Yeah.

• 58:03Barry Ritholtz?

  Which I think of as, you know, get the reps in, do the heavy lifting. But, but tell us about the dirty work and how that helped shape your work ethic today.

• 58:12Speaker 03

  You gotta paint the fence. Mr. Miyagi told us, right? Like there, there was a method to the madness there. A lot of times I'll, I'll, I'll talk to people and it's, you know, they're, they're, oh, what about this? I'm trying to, I'm thinking about my career. And basically what they're asking me is what's the minimum I can do to get promoted or get paid more money?

• 58:28Barry Ritholtz?

  Wax on, wax off.

• 58:29Speaker 03

  Wax on, wax off, right? And of course we want those outcomes for people. But if you get your mindset to the spot of, I want to deliver excellence. I want to do this job the best that I can. And whether that's just wrapping up the day's reports, whether that's taking your call notes, whether that's making sure that you're entering your CRM information correctly and accurately. There's all sorts of things that you can do excellently. And we see these people all the time, whether it's professional athletes. Or whether it's some of the great artists that we're aware of. These are people that want to be professionals and excellent at what they do. They're not doing the minimum to get promoted to the next thing. And so that to me is the dirty work. You gotta do, you gotta do the work and you gotta be willing to push yourself to do that work. Have the discipline and carry, carry through on that.

• 59:14Speaker 03

  You don't get the virtue if you haven't done the hard work. And, and so you have to put in the work to get the outcome that you want. And, and what you'll find is that those things increase, I've found exponentially. And so, once you start to put in the work, it starts to grow exponentially and you start to see that.

• 59:31Barry Ritholtz?

  Are you suggesting that, uh, hard work compounds over time?

• 59:34Speaker 03

  I absolutely think, I think it does. And, and I'll add to that. You build your talent stack over time and, and I've referred to that.

• 59:41Barry Ritholtz?

  I love that phrase.

• 59:42Speaker 03

  Throughout the conversation, but you know, I had the good opportunity to have a lot of client conversations. Then I learned international. Then I learned, you, you know, how to work with people that think about things differently than you do. Like, once you add up all these things, you, you can make connections and you can think about things in a way that maybe people that don't have the same talent stack haven't thought about.

• 1:00:01Barry Ritholtz?

  Huh, really, really, really fascinating stuff. So let's jump to our favorite questions. We ask all of our guests, starting with what's been keeping you entertained these days? What are you watching or listening to?

• 1:00:12Speaker 03

  Okay, so.

• 1:00:13Barry Ritholtz?

  By the way, this is a pandemic holdover question that I, I keep finding.

• 1:00:19Speaker 03

  Everybody's still on the lookout for like great stuff. Okay, so let's keep with the theme and, and so a big, a big thread that's pulled through, um, uh, our conversation is innovation and music. So the defiant ones.

• 1:00:34Barry Ritholtz?

  Uh huh.

• 1:00:35Speaker 03

  That you haven't seen it, I'm recognizing your faces.

• 1:00:37Barry Ritholtz?

  No, I've, I've seen the preview for it.

• 1:00:39Speaker 03

  Jimmy Iovine and Dr. Dre.

• 1:00:41Barry Ritholtz?

  Uh huh.

• 1:00:42Speaker 03

  So the, the, you know, you want to talk about.

• 1:00:44Barry Ritholtz?

  It's like an Apple documentary or something like that?

• 1:00:46Speaker 03

  You think about these two individuals, they basically have produced almost every artist that we've heard for the last 20 years. Right? It's firsthand interviews with them and their artists talking about, oh, you know, Tom Petty, what was it like when you were singing that song? And Jimmy Iovine was in the studio with you yelling at you and do it again and another cut? Or what about, what about this? Or, you know, Dr. Dre, when you were. Compton in LA early on like you know, tell me about what the first record scratch on a hip hop album sounded like, right? So they're talking about that. Now it culminates in the building of the the Beats headphones, which was of course acquired by Apple. That's even another meta thing for me as well. So there's this amazing creative juice. They're they're grinding it out. Both of them tell a story of like grinding it out. They create amazing music.

• 1:01:29Speaker 03

  And then it culminates with, hey, wait a second, like, there's not high quality headphones out there for people that, okay, so that's one. The defiant ones, it's not on Netflix anymore. So you gotta go to Amazon Prime and buy it and buy it there.

• 1:01:40Barry Ritholtz?

  At least rent it.

• 1:01:41Speaker 03

  SAS Rogue Warriors. Another one on two for two.

• 1:01:45Barry Ritholtz?

  I never heard of that.

• 1:01:46Speaker 03

  SAS Rogue Warriors, World War Two, the UK builds an off record kind of Rogue Warrior group, the original kind of SEAL Team Six, think about them like this. And these guys, they they start in North Africa and they would do secret missions overnight. They'd go on to German aircraft camps and blow up planes overnight, or they'd really disrupt their fuel flow. Or they would do these things that were more targeted strikes to disrupt the the flow. So SAS Rogue Warriors. I think that maybe is a BBC. It's more international. You gotta get one of these, one of these other apps to watch that one. Those are the things I'm I'm watching. I like to listen to audiobooks. So right now I'm listening like, listening to Go Like Hell, which was Ford versus Ferrari is the is the movie that you've seen.

• 1:02:30Barry Ritholtz?

  Sure, that was great.

• 1:02:31Speaker 03

  It's based on this book and

• 1:02:33Barry Ritholtz?

  How's the book?

• 1:02:34Speaker 03

  It's excellent. It it goes to many, many different layers of detail than you can get across in the in the movie. Quotes from Enzo Ferrari about, you know, you want to go fast, find good competition, find somebody that's willing to die out there. Like, these are, these are great things, right, that are that are driving and innovation there as well, right? So Shelby comes up with the GT forty, which I just took my son to a museum over the last week and we were seeing one of the original GT forty. Forty, of course, is the

• 1:02:57Barry Ritholtz?

  Shockingly low. People don't realize forty inches tall.

• 1:03:00Speaker 03

  Forty inches tall. And one of the drivers was was six foot two, so they built a little bubble. They gave him an extra inch over his, over his head on that, right?

• 1:03:08Barry Ritholtz?

  Just so the helmet will fit in the car.

• 1:03:10Speaker 03

  Just so the helmet would would fit on that. Now, this is interesting, right? So Ferrari, independent auto shop in, you know, northern Italy, and then big Ford. You know, they're telling this story of like a big corporate bureaucracy and all these things and how do they compete? And and then here's, here's my last book for you, Barry. How Music Got Free.

• 1:03:28Barry Ritholtz?

  I recall seeing that title go by.

• 1:03:29Speaker 03

  How Music Got Free. So to really bring all of this home for us today. So the MP3, in fact, the MP1, MP2, MP3 and MP4 are invented in Germany. What they discover is that the human ear can't understand the fidelity of the MP4. So they don't need that much information. So they drop it back down to an MP3. The MP3 then launches things like, ready, Napster, right? So now Napster is, is out there and all of a sudden, the entire music industry, the bottom has fallen out on all of their revenues because instead of spending $18 to buy a CD, everybody is stealing music off of Napster. And this is, this is the parallel of the conversation we were having earlier, the delivery mechanism. We're all listening to the same music.

• 1:04:13Speaker 03

  We're all listening to the same rock and roll, but this invention, so it tells the story of, you know, guys that are working at the pressing plant of the CD, sneaking out, sneaking the major, the, what do they call them, the master, excuse me.

• 1:04:24Barry Ritholtz?

  Right.

• 1:04:25Speaker 03

  Out ripping it onto the computer and throwing it on to Napster. And then it talks about the Sony executive sitting here in Midtown saying, oh my gosh, my revenues are down 40% this year because nobody's buying CDs anymore. And it informs like this real life story of how the entire music industry got.

• 1:04:41Barry Ritholtz?

  How music got free.

• 1:04:42Speaker 03

  How music got free.

• 1:04:43Barry Ritholtz?

  I'm definitely adding that to my list. Tell us about your mentors who helped shape your career.

• 1:04:48Speaker 03

  You know, so I, I mentioned my dad, you know, that, that, you know, I learned so much from him and he guided in that way. I was fortunate, my mom and dad, you know, very loving home and we were, you know, we were, we were great there. You know, we talked about Ben Fulton, we talked about Bruce Bond, uh, to stick with the bees, Bobby Brooks, like these are, these are individuals that are in the industry that I've got the utmost respect for. I've also been fortunate to have some really good bosses throughout the, the years that I learned a little bit, something different from, from each of them. You know, Bruce is an incredible entrepreneur. Ben's an incredible product person and entrepreneur. In the UK, I'd worked with some people that had consulting backgrounds and, you know, at the time I wasn't so sure, but the, you know, the, the way that they think thoroughly and logically is a real differentiator. And, you know, and then some of the client people that I've worked with over the way

• 1:05:33Speaker 03

  that they can connect with people, uh, and, uh, and really build rapport and, and ultimately trust those, I've been very fortunate to, uh, to have those people in my life.

• 1:05:42Barry Ritholtz?

  Some great names. Our final two. Questions. What sort of advice would you give to a recent college grad interested in a career in either investing or finance?

• 1:05:52Speaker 03

  You know, we talked a little bit about this, but if you're more likely, if you're fresh out of college, you are rich in time and potentially poor in life. And so that is a distinct advantage where you can take that time and invest in yourself, develop that stack that we talked about earlier. The other thing that I would say is I wouldn't be at Goldman if I didn't start at PowerShares years ago. And I had the opportunity to be a small fish in a small pond. And then I grew to be a medium sized fish in a small pond. And then I had an opportunity to go to some of these other firms that I've been in now ultimately at Goldman Sachs. And so I do think sometimes people look for the biggest pond and the biggest brand.

• 1:06:32Speaker 03

  And I think if you can get into a small pond, you get exposure to more skills in a slightly different way. And you can build that skill stack in a different way. You know, I often find people, you know, they want to start on the analyst program and go, that's great. And firms like ours train people and they do an amazing job, but there are nonlinear ways to access some of these things.

• 1:06:53Barry Ritholtz?

  And our final question, what do you know about the world of investing, ETFs, products, innovation and disruption today that would have been useful 30 years ago when you were first starting out?

• 1:07:06Speaker 03

  Ultimately comes back to being a people business. You can have the best innovation, you can have the best product, you can do all like the biggest marketing campaign. It's all about keeping the purpose at the center as your north star of what you're doing. Outcomes for investors, we talked about this, help them achieve their financial goals, retire with dignity, pay for healthcare. Keeping that at the center and making sure that you're aligned with your purpose around the people. I've been so fortunate, you know, you and I have been friends now for going on a decade, a little bit more probably, others in the industry. It's the people that really make this thing, this thing go. You know, I know that sounds kind of cliche, but 25 years ago, when you're just trying to make it happen, you're, you know, maybe it's this next thing and it's really sitting down, listening and connecting with people.

• 1:07:51Barry Ritholtz?

  I think that's a great answer. We have been speaking with Brian Lake. He is a partner and Chief Transformation Officer at Goldman Sachs Asset Management. If you enjoy this conversation, well, be sure and check out any of the 500 and somewhat we've done over the past 11 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts. And be sure and check out my new book, How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth and How to Avoid Them. How Not to Invest, wherever you buy your books at. I would be remiss if I did not thank the crack team

• 1:08:33Barry Ritholtz?

  who helps me put these conversations together each week. John Wasserman is my audio engineer. Anna Luke is my producer. Sean Russo is my researcher. I'm Barry Rithelins. You've been listening to Masters in Business on Bloomberg Radio.

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