BBR In The Weeds — BBR's Investment Philosophy: 25 Years and Looking Ahead

BBR Partners has been navigating markets, volatile and calm, for over 25 years. Over time, tactics have evolved, but our core principles have remained unchanged. Co-founders Brett Barth and Todd Whitenack, joined by Portfolio Strategist Rob Pierce, sit down for a candid conversation about our core principles, an ever-evolving toolkit, and the dynamic current opportunity set.

This video and podcast conversation expands on our recent piece, BBR at 25: Investment Lessons and Philosophy, going deeper on what 25 years of client focused investment management have taught us and how BBR continues to evolve.

25 years in, we are continuously improving.

*Recorded March 2026. The markets and the world have moved since we filmed this. Our thinking has not.

IMPORTANT DISCLOSURE INFORMATION This presentation by BBR Partners, LLC (“BBR”) is intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from BBR or any other investment professional of your choosing. We believe the information contained in this presentation to be reliable; however, we do not warrant its accuracy or completeness. Certain estimates, investment strategies, and views expressed are based on past or current market conditions and on information provided by third parties, which has not been independently verified and is subject to change without notice. Due to various factors, including changes in market conditions or applicable laws, the information presented may no longer reflect current opinions or positions. To the extent that any portion of the content reflects assumptions and/or projections, no such content should be construed or relied upon as an absolute probability that such an assumption or projection will prove correct or projected result will occur. To the contrary, a different result (positive or negative) can, and most likely will, occur. Materially different results could occur at any specific point in time or over any specific time period. Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy, or any non-investment related or planning services, discussion or content, will be profitable, be suitable for your portfolio or individual situation, or prove successful. Neither BBR’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if BBR is engaged, or continues to be engaged, to provide investment advisory services. BBR is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. No portion of the content should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if BBR is engaged, or continues to be engaged, to provide investment advisory services.  A copy of BBR’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at  www.bbrpartners.com.

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Transcript

SPEAKER_02 0:00

Brett, Todd. I've only been here for about three years. I know both of you have been here from the beginning as founders. I think over the last year, as we celebrated 25 years, we took that as an opportunity, a milestone to look back on things that we've learned, how things have gone. I personally am a big fan, uh, have a big interest in financial history in bubbles. I think when we look back at 2000, that was one of the bigger financial bubbles, the dot-com bubble. Curious how you guys navigated that market, what you think about that with hindsight. And I know one of the big things for the firm and how we got started was both of you had a view that we should steer clear of the most expensive, frothiest parts of the internet bubble when most other people were plowing into that. Uh talk to me a little bit about how you made that decision and how it was a benefit for the firm coming out of that period of turmoil for markets.

SPEAKER_03 1:00

Sure. You know, um, we were never big believers in this time is different. And that was one of the first times in my career that we had the you know 98, 99 internet bubble as you as you talked about, but this time is different. And we never really bought into that. Uh and we mixed that less with an opinion that the market was too expensive, although it was clearly very expensive in using the metrics you help us with today, it's as expensive now as it was then, which we can talk a little bit more about those red flags. Um, but we blended that with the view that portfolio construction should be thoughtful around strategies, not asset classes. And people had diversified allocations in late 99 that were owning lots of different tech stocks. From our perspective, that wasn't diversified. It was in the early days of people reading, you know, David Swenson and others in terms of thinking about what are the underlying risks of different strategies. And one of the things we did day one was develop an asset allocation approach that allocated to strategies, not asset types. And that's one of the few things that hasn't evolved at all for us. And so going into 2000, being diversified, but truly diversified, not because we were bearish, but because we thought that was the right risk manager's approach, turned out to go really well. And so the fact that the market was down in 2000, 2001, 2002, uh, and we lost very little money, if any at all, because a lot of those diversified strategies did quite well uh in those environments was just you know formative in terms of we had a view, and that view worked out really well, and that was just helped build our confidence.

SPEAKER_04 2:44

Yeah, and I think the the what was interesting, you know, we started our business in February of 2000. The market peaked six weeks later, right? And and um we didn't see that peak until 2007, very briefly, and then we didn't see it again until 2013. So we went through our 13-year period where the market was effectively in a drawdown 95% of the time, right? Um we wouldn't have signed up for that day one, right? That that wasn't the plan.

SPEAKER_03 3:12

Yeah, we would have not launched an asset management firm if we'd known that's what market performance was gonna look like.

SPEAKER_04 3:17

But in hindsight, the the approach that we were taking, being diversified, using an endowment-like approach, using different tools in the toolkit um than the traditional portfolio was the exact right approach to take through those periods of time. Um I think that that we probably made some mistakes, you know, post that period of time, you know, with our 13-year experience of markets being in a drawdown. But um, but the the core lessons from that are still very applicable today.

SPEAKER_02 3:48

What do you think it says about the culture of the firm that at the time we had the courage and conviction to stick with something that wasn't working in the near term because we thought long term that was best for clients? You looked across Wall Street and you had tons of people who were throwing caution to the wind to chase performance because they thought there was career risk in not doing so. We took the opposite attacked. How did that evolve? How did we think about that? Was that something you only understood with hindsight, or was that something you were cognizant of in the moment?

SPEAKER_03 4:20

We were very cognizant of that risk. There were a number of equity managers over the course of the 90s that were, you know, very, very value biased, or uh hedge funds that were short these high screaming internet stocks. And that turned out to be a massive detriment to their business model. So we didn't we took a diversified approach, but we didn't take a dogmatic bet against it approach. Um, you know, as I like to say, and I stole it from a good friend of mine, being diversified means always having to say you're sorry for something, right? So it wasn't like we were short internet stocks or didn't own any of them. We just took a very diversified approach. And so I think that was a little bit more all weather, and that allowed us to not have to buck the trend. We just didn't participate it in it quite as much. Um, but again, sometimes it's better to be lucky than good. Um, as Todd said, we were that close to the top when we launched. It wasn't like we weren't riding the wave for very long.

SPEAKER_04 5:22

And I think it also comes back to the approach is the right approach for our clients, right? So our clients have generated significant wealth. The way you make sure you keep it is compound it at attractive rates consistently over time, right? The way you can make sure you lose it is to have a huge drawdown, right? And we've talked about 50% drawdown, you need to make 100% to get back. The market from March 2000 till end of 2002 was down almost 50%. If we had a directional equity portfolio, it would have taken a long, long time to get back. And then you bring in the psychological elements, which make it very difficult to stick with something that's underperforming like that. So for our client base, this was the right approach. And that I think is ultimately what we had a lot of conviction in.

SPEAKER_02 6:12

How did that experience shape and inform how we think about risk and return? I know most people lead with return or expected return. We lead with risk and kind of the range of potential outcomes for portfolios.

SPEAKER_04 6:26

I think one is that you have to get risk right. You know, what I was just talking about in terms of psychologically, it's difficult to stick with something that's underperforming your expectations. If if you if you have too much risk or a client isn't isn't aware of the risk in a portfolio, um, you're going to have bad outcomes when bad things are happening, right? So ultimately, if if we can spend a lot of time upfront describing in lots of different ways what risk in a portfolio might be, or different types of portfolios, and we can zero in on what's the what's the portfolio where a client's going to be able to sleep at night in a difficult period, then seek the most return for that portfolio. We're going to be in an optimal position to actually be able to lean into those things that are weak in a in a more difficult environment.

SPEAKER_03 7:18

Um how we think about that has not changed. I again, I think the fact that our clients were able to weather that 0002 drawdown, weather that 08 drawdown, uh, to be able to take advantage of one of our other core tenants of mean reversion and lean into those drawdowns to take advantage of the back end was self-reinforcing. How we measure that risk has clearly been, you know, has evolved over time. I mean, what our risk models looked like were Excel spreadsheets that Todd and I built. And I remember going to a late night class to learn, you know, Monte Carlo simulation that we could create ourselves. You know, it wasn't till 08, 09 that we were factoring in turbulent regimes, which all of our clients are familiar with us talking about now. And so it, you know, we were early on thinking about how do you look at risk and illiquid assets that don't market as well. So the the thoughtfulness around measuring the risk has changed a lot, but thinking risk first hasn't changed at all.

SPEAKER_02 8:19

I want to dive a little bit into the psychological or behavioral aspect of managing portfolios. In finance, certainly a lot of the things that we do are modeled mathematically. I think you can get a false sense of security when a model tells you something that you want to hear, also largely dependent on the inputs, too, right? And I think these days we hear a lot about if you had just held XYZ stock from this date until this date, you would have made XYZ returns, but it completely ignores kind of the journey between those two points. And from a client perspective, from an investment perspective, when we think about the behavioral risks inherent in seeing a 50% drawdown and still sticking to the plan, obviously when you when you think about diversification, think about limiting drawdowns and allowing clients to actually see their goals, plans, and objectives to fruition, how much value that creates and just allowing portfolios to compound. How have you seen that differ to the downside and to the upside? I think on the downside, people are concerned about losing more money. On the upside, people are concerned about not making enough money. And I think that's always just kind of inherent in investing. There's a huge psychological component to it. How have you seen that evolve over time? How have we looked to manage and help with that? And how have we looked to keep the focus on compounding as opposed to chasing outsized returns?

SPEAKER_04 9:41

I think on one hand, you know, um the first 13 years, or and maybe even a little bit after that, um, you you had clients that that were much more comfortable with that diversification type approach, right? They looking backwards, that was beneficial, right? And and um what's shifted over the last you know, 12, 13 years is that as the SP has been the best performing thing, and there are these stories of you know, if you held this stock from the low in 2009 until now, you would you'd be a billionaire, right? Right. Um it's it it becomes harder to argue for diversification and the merits of that. It really goes back to what are the goals, right? If your goal is to take $100 million and turn it into $2 billion, then you need to be really concentrated and make big bets. If your goal is to take that $100 million and compound it for generations and and um and and grow it without the risk of significant drawdown, taking a diversified approach makes more sense. So it still can be the right approach, depending on what the client goal is. You know, we tend to not have a lot of clients that are trying to turn 100 into 2 billion right tomorrow, but uh but ultimately I think it comes back to the to the goals of the individual client.

SPEAKER_00 11:04

Yeah.

SPEAKER_03 11:05

I think the thing that has evolved is the upside part, not the downside part. Um, as I said, we taking that diversified, thoughtful, risk-managed approach, limiting the drawdowns, compounding over time, um, is something that was in our DNA day one and hasn't changed. I do think what has changed is that capturing the upside. And so for instance, one of the mistakes we made in 09, um, I would argue was not being aggressive enough. That we, you know, stuck our neck out to buy really cheap debt, but we did it on a hedge basis. And what we learned is, you know what, if something's really, really cheap and you want to own it, just go own it. And I think we've done a much better job of that over time. Um, I would also say, uh, and you've seen this in the last three years, changes post-pandemic, um, changes with AI coming in, that there are some pretty big waves, and we want to make sure we've got access to ride those waves and generate real outsize returns. You know, we were able to do that in 2025 in gold and commodities through different managers, um, that we can generate some asymmetric upside in diversified parts of that portfolio where we're really letting it ride, um, certainly not on a portfolio-wide basis. But again, being diversified means doing bits of all of that, not just being conservative.

SPEAKER_04 12:26

And I think it comes back to you know, the um the Howard Marx quote in in terms of if you if you can be solidly second quartile consistently, you'll end up over the long run with first quartile, top quartile returns, right? So the the top decile. Top decile, right? So, so ultimately um you don't have to to always outperform. What you do need is some in that period, some market volatility, right? And and that's really what we haven't seen. I think our returns have still been excellent over the medium term, but it's harder and harder to keep up when the market's up 20% a year. Um, we don't expect that that will be the case, you know, in perpetuity. And you even look at this year, right? Coming into this year, the consensus, broad consensus, it was hard to find anybody that was negative about 2026 equity markets. And look how the year's starting. There are a bunch of things that are now headlines that weren't headlines before, um, not predicting that it's gonna be a bad year in equity markets, but sometimes what happened in the past or what everybody expects isn't necessarily what's gonna play out. And and having that diversification, we're feeling really good about that in the beginning of 2026. And I think you're starting to see um more and more folks that are that are on board with that diversification when they're less so in a period when the market's up 20, 25%.

SPEAKER_02 13:54

And that's always the case, right? People gravitate towards what they know, and people gravitate towards the information that is out there, but it's always the information that is not out there that actually drives changes in prices. And I think we've seen that with artificial intelligence, with geopolitics, with many of the things that weren't on people's bingo cards coming into 2026. I think maybe the biggest one is kind of US versus non-US. Coming to 2025, the major theme that was broadly consensus was that US exceptionalism in financial markets was going to persist almost indefinitely and almost on a dime that pivoted, right? There was the dollar weakness that was a part of that, also just a push for global diversification, uh, cheaper equity valuations, actual exposure to the artificial intelligence supply chain. That came after an extended period of US outperformance, right? From 09 to 2024, the US markets ran away from everything else. I think people became accustomed to that. They forecast what had been recent trends, and that seems to always be the case. And now we're seeing only 15 months here, but a pretty stark reversal of that. Would love to hear how you think about kind of the US versus non-US story, and you can tie this back into the dot-com era if you want to. Um, but the belief that US always outperforms is something that's out there right now. If you look back more than 10 years, right? 30, 40, 50, 60 years, it's kind of an even split on a decade basis of US outperformance versus non-US outperformance. How do you think about that in client conversations and in portfolio construction? Sure.

SPEAKER_03 15:34

Yes, I I I think one, um as I was gonna say, yeah, just just historically, our first 10 years, non-US did outperform US, right? So we we've got a lot of history where we've seen the opposite. It's not like just the past 15 years where it's been the other way, which is a lot of people's financial career. Like BBR did really well being globally diversified in our first decade.

SPEAKER_04 15:58

And the we also did very well being overweight the US for the last 15 years. This is you know, really at the the advent of the the conversation around deglobalization, we identified not the non-US underweight as something that we wanted to chip away at. And we've been chipping away at it. We're still overweight US, but moving closer towards equal weight non-US. Um, you know, theoretically, in a world where non-US and US are where we're deglobalizing, they should be less correlated, right? And that from a portfolio construction standpoint is really beneficial if you're trying to have a diversified portfolio, right? So the the those cycles historically have tended to be eight to 10 year periods of non-US or US outperforming. We got to 15 years. So it was pretty long in the tooth. And and ultimately, there's scope. There's there's there's a scenario where non-US could outperform for the next eight to 10 years, right? Um, we're again we're not predicting that, but I think it it's a better fit in um client portfolios today, given valuations are are generally more attractive in non-US securities. Um, and and ultimately you have lower, lower correlations but to the US. Um, and and that mean reversion sort of ideology that we've employed since day one is something that that works very well here. Today we're looking at, you know, one of the markets that's got an uh return on equity that's similar to the US is India. Indian equity markets have underperformed pretty significantly over the last 18 months or so. Um that's an area we have very little exposure, but we're looking at um actively looking at building that exposure. And I think the the growth profiles there, the the consumer, the growing, the emerging consumer in that, in that um, in that country ultimately is is something that is gonna be potentially a nice tailwind, a secular tailwind for Indian equities over the call it next five to seven years. And that's something we ultimately want to have exposure to. Right now, there are concerns because the the offshoring in business in India is is certainly gonna be impacted by AI, right? We can look through that noise and see the the strong underlying fundamentals and and build exposure to a region that we don't have a ton of exposure to today.

SPEAKER_03 18:25

Right. If you think about how Todd just described it, and this is sort of the lens I use, there's the macro story. And I think a lot of people stop with that. You know, uh India is politically dysfunctional, growing slower than China has an AI problem, or Europe, you know, demographic, structurally inefficient, um uh, et cetera. You got to move on past that. And then the next step for us is to think about valuations, right? And we we alluded to those valuations. Some people even stop there. I would say there's two more steps. One is can you generate alpha, right? Can we hire a smart manager who can find those ideas, just like Todd articulated? Um, there are markets that are a lot more inefficient, India being one, even Europe, Japan, Korea have been great for us, uh, even a little bit in China more recently. Um, and then lastly, thinking about technicals. I mean, one of the reasons the US has been so strong has been fund flows into the US. One of the reasons the US has underperformed is sort of a global revolt post-Liberation Day around, you know, they still need to hold a lot of US dollar assets, but do they want, does the rest of the world want to continue to own the US in the same way? Um, smaller markets are impacted even more by those flows, but thinking through that, there's a lot more to the story than just the story or the price, and to dive in and that that level of work. And that's the level of work we we want to be doing all the time when we're hiring a manager.

SPEAKER_04 19:52

And to that point, the flow story on India has been bad, right? So flow foreign equity flows have been out of India for for the past 18 months, and and that tends to flip-flop over time. And and again, if if if we can find something that that is is strong fundamentally, like we can find a manager that's good, you know, to start. And fundamentally the the stocks are attractively valued, um, fairly priced, then that's an and and the flows turn, then then you'll see a real outperformance from from that area. And that's something we we ultimately think we're we're not there yet, but we think we we will want to have exposure to.

SPEAKER_02 20:32

Brett, on the macro versus micro, from an investment decision perspective, you can own the broad index, or you can choose to own a subset of it through some form of active management. We have very much been of the mind that US, especially large cap US markets, are very efficient. There's not a ton of value to be extracted from stock picking there. On the other hand, in places like India, in places like China, in places like Korea, Japan, you might want to own a subset of the market. Even if demographics are a headwind, even if there are a lot of political headwinds to the market as a whole performing well, there are good stories underneath the surface. That's a big input into term into how we think about risk management, into how we think about how portfolios will perform in different regimes. We've talked about it a little bit, but today equity markets are pretty expensive. That doesn't mean there aren't equities you want to own. How do you think about moderating equity beta or equity market risk in those different types of regimes?

SPEAKER_03 21:41

Sure. Um, I think it goes back to how we build public equity portfolios. So, first of all, uh that question to me relates almost exclusively, not totally exclusively, to public equity. Because what you do on the private equity side is somewhat independent. It's not nearly as independent as I think the world thinks, because you know it is a Benchmark when you're making an investment, and it's often a source of liquidity and/or a benchmark when you're looking to exit the investment. So they're certainly not disconnected. And so for instance, um we think that IPO markets, which you've already seen, is doing much better than it was a year ago or two years ago. So owning later stage growth equity privately is interesting because of the ability to exit through IPOs. And you've got a bunch, whether it's SpaceX, Anthropic, you know, OpenAI all sort of teed up for this year. Uh that's not to say we are investing in those three companies, um, but that that that is part of the driver. Uh, in terms of the risk, you know, our equity portfolios on average are like high 0.8, 0.9 beta. And they get that way a couple different ways. Part of it is the one beta of owning index, and we can adjust how much index we own as part of those portfolios. Part of it is a low turnover but active, long-only part of the portfolio where we tend to be not exclusively, but tend to be lower beta. Um, that lower beta is because not all the managers are 100% invested all the time. If they've got a lot of good ideas, they're 100% invested. If the market's really rich and they've got a smaller subset of ideas, they can be less than 100% invested. That that reduces our risk. Two, they tend to own stocks that trade more idiosyncratically because they think they're interesting stories that have catalysts to make money, but are not driven by the vagaries of the market going up and down each day. Uh, and then lastly, managers that can be long and short. You know, just the fact that they're short means that our net exposure might be less than 100%. And it allows them to manipulate that exposure based on the opportunity set. You know, um, and things like healthcare, that net was a lot lower. That net's a lot higher today, uh, as that manager is finding more biotech opportunities. So um there's lots of ways that builds into the portfolio construction. Some of it's us with the allocation, but a lot of it's the man manager driven where we've got confidence in those managers, and the managers are executing based on those market conditions.

SPEAKER_04 24:13

And and it it you know, Europe's an interesting one in that that you you can you can make a you know coherent case for for why your European equities shouldn't be attractive over the medium term, you know, writ large. That said, there are a lot of great businesses in Europe, and um, and many are peers to names in the S ⁇ P 500, right? Um, but quality stocks in Europe have really underperformed over the last you know 24 months. And that to us is an interesting way to own something similar, right, at a more attractive valuation. And and that so for us, that that we the waterfall would be do we want to own it passively? The answer is no. Do we want to own it actively? We look, we've found folks that we think are really high quality that that are focused on quality-oriented businesses that happen to be based in Europe but are global businesses. Every, you know, hundred times out of a hundred, I'd rather own that that global peer at a much discounted valuation than especially if you're not worried about what next quarter's performance is going to be and you're not chasing it.

SPEAKER_03 25:23

The other thing, and I I give you a lot of credit for this, Rob, is for how we think about that across the whole portfolio, right? What does fixed income look like today now that interest rates are higher than they were three years ago when you joined and the attractiveness of stocks versus bonds? How do we think about returns that can be generated in diversifying strategies given increased volatility, increased corporate actions, complicated credit, you know, capital structures versus fixed income? And so thinking about that on a relative basis, and it's really driven by the work you do, helps us think about risk reward across the portfolios as well.

SPEAKER_02 25:59

Yeah, I mean, I think every choice is a relative value trade, right? Do I own equities or do I own fixed income? And I think one thing that we've said a lot internally that I think we've been internally consistent about is it's not really about being right in investing, right? This is a game you get to play over and over again every day, and it's about getting the odds in your favor. And if you can stick with that plan for long enough, good things will happen. And I think people get caught up a lot in like, is this right or wrong? And I think that's not the right way to think about it because it's not a single coin flip where you need it to be heads.

SPEAKER_03 26:34

It's funny, that's exactly where I thought you were going with the question about passive versus active, right? And um the question on is India going to win, you know, outperform or not is a single binary question. I don't think any of us have an edge on that. Is it more likely to win? Is something we can have a view on. But the view that we can have the strongest opinion on is is it a game I want to play? Because I'm likely to win it. And is that a game where I can make 20 independent bets? And, you know, my family always gives me a hard time that I'm always talking about odds and bets, and that what we're actually doing is investing. But like if I can, if I can be the house and make 20 bets, I'm much more likely to end up winning that game at the end of the day uh than if it's one bet and it's an even toss. I want to make 20 tosses where I've got a 60, 65% chance in each of them individually. Um, notwithstanding we're not gambling with our clients more. Certainly not. Um we would never do that. Certainly how I think about things.

SPEAKER_02 27:31

Yeah, I mean, one way to interpret evaluation colloquially would be as odds.

SPEAKER_03 27:36

Right.

SPEAKER_02 27:36

Right?

SPEAKER_03 27:36

If you're trading at 25 times earnings, fortunately, all the young people now are thinking about odds, whether it's sports betting, calcium, or anything else. So we can talk about this and everybody understands it now.

SPEAKER_02 27:48

Yeah. Uh it really is 25 times earnings. There's tons of good news.

SPEAKER_03 27:51

We should have a money line at the top of our investment committee demos.

SPEAKER_02 27:55

We should. Our dashboard will just be a money line. Um, and I heard Ray Dalio talk about it in this way too. He he didn't use odds, but he talked about horse betting. And if you're buying a 25 times stock or a 25 times index, you're betting on the favorite, which means you'll probably make a little bit of money.

SPEAKER_00 28:14

Right.

SPEAKER_02 28:15

But the chances that you make a ton of money are are pretty small. Whereas if you buy something that's trading at 10 times earnings, it might take a little while to go there. But odds are that over time it's going to re-rate to a multiple that's significantly higher than that.

SPEAKER_04 28:29

I think with the the thing that's interesting today, and and we've talked about this um in uh in our team meetings recently, is that we have for more than any time I can think of, more ideas than than capital. So Which is strange if you think about how expensive equity markets are. Yes, and that's where I'm going. I think we're in an environment where where you wouldn't, at a headline level, think that there's tons of opportunity, but from a bottoms-up basis, we're finding lots of individual, very interesting things to do. And that's ultimately in terms of setting up the odds in your favor, that should be something that that works well over the medium term because we're force ranking amongst things we're invested in and things we're not invested in into the best ideas that we can find. And I think the other thing, one of the things we we didn't really talk about, but um is relevant in that post one of the you know mistakes we've we made post the financial crisis was probably being too diversified, right? So um one of the lessons learned, and it took us a little while to get there, was that that being over-diversified meant that it's harder to keep up on the upside, right? And we were a little too defensive in the you know early teens type type time frame. And we've worked over the last 10 plus years to improve the the concentration in our highest conviction strategies of managers, and um, and that's worked very well. And and tying back to what I was starting with, ultimately, if you have a lot of great ideas and you're leaning into conviction, that should set up really well in the medium term in an environment where we're generally headline level, we're thinking expected returns for traditional equity markets are not what they've been over the last five to ten years. Expected returns in the fixed income market are coming down a little bit relative to the high point a year or two ago. So um, so for us, that's exciting and there's a lot to do.

SPEAKER_03 30:27

Right. And I and I think that emphasizes a part of the culture that's been with us since day one, which is on the investment team, we want to be rigorous, we want to be intellectually curious, you want to be looking at ideas all the time, not just doing research on what you think is interesting, but sort of doing research on everything. It doesn't matter if we love a manager in the space. And to Dod's point, making sure we own a manager, not three managers in that space to limit the diversification. But by doing that, you then need to be meeting other managers in that space all the time so that you're constantly force ranking those best ideas. That's something we've always thought about. And I think as our research team has grown, notwithstanding the portfolio getting modestly more concentrated, is something we've been able to do more and more and more. And it's allowed us to populate the portfolio or try to populate the portfolio with these really interesting ideas, regardless of market conditions.

SPEAKER_04 31:22

And the I think the the another thing that's that is different today than it was, you know, in late 99 or early 2000 is that um, you know, when we first started applying an endowment type portfolio uh to families, the the diversification largely came from hedge funds, right? Um the and we we built private equity and real estate and real asset exposure over time, but it given the nature of those types of investments, it took a while to get exposure to those to those underlying categories. So the diversification that worked really, really well was generally on the hedge fund side. The number of tools in in the toolkit today relative to 25 years ago is exponentially higher, right? There are so many more things we can do more creatively, and scale is part of that, right? We have we can bring scale to the to the table and set up you know bespoke structures with individual managers that that are specific, specifically the exposure we want for our clients at an attractive fee fee base, which reduces the reliance on one tool, which was hedge funds, right? So hedge funds as a as a um you know core of what we do has shrunk over time. Dramatically, actually, from dramatically, yeah. So it it it and to the point where it's it is a tool, but it's not a a tool that we're overly relying, overly reliant on today. Um, and there are so many more other categories that that um that we're doing interesting work on that those are the things that are the most exciting um on a moving forward basis.

SPEAKER_02 33:00

On that front, I think right now is one of the more interesting times, especially in public equity markets that I can remember. If you think about the SP or the ACI at a top line level, it's like 2% off the all-time highs. But we've very rarely had as many stocks underneath the surface, seeing single-day declines on the order of five to 10%. A lot of this is tied up in what if questions about artificial intelligence. But I think it's probably a good point to talk about active versus passive. When markets are really expensive and when concentration is growing within a market, it's it's tough for active management to keep up with the passive index. Right now we're kind of seeing that, if not unwind, at least plateau and and falter with how much of the index is in the 10 largest names. What are some of the things you're most excited about and seeing underneath the surface from active managers where there's a ton of value to be captured?

SPEAKER_03 33:58

You know, I I would just highlight first that I think active and passive is cyclical. And to your point, um I think we have probably come around the peak of that cycle. And there's lots of reasons. Part of it is valuation, part of it is what's driven that concentration and AI and the hyperscalers and and what's you know, the Mag 7. And we can, you know, everyone is more or less familiar with those phenomenons and what has changed. Um I think the fact that that has happened is good for us as it relates to finding those smarter, interesting, more active ideas. That I think there is a multi-year secular tailwind driving that going forward. I'll let you dive into individual ones though.

SPEAKER_04 34:43

Yeah, I think one is that's topical today is is credit, right? So so private credit, direct lending, you know, is is seeing some significant weakness and concern. Um, that's an area that we avoided, right? We were not investors in that category on behalf of the.

SPEAKER_03 35:02

Private credit stuff we did was very idiosyncratic.

SPEAKER_04 35:05

Yeah. We did no general market, you know, middle market direct lending in the US in the US for for a long time, right? More recently, we've started to dip our toes in. Um and that's because I think the the at the time when it was becoming popular, it was effectively compete, you were competing on rates and covenants against everybody else, and it was effectively a commodity, right? And and the the the risk return skew was not attractive. The and I think you potentially could see the other side of that in the in in the near to medium term, right? And you're starting to see that weakness of related to blue oil, et cetera, today. Um, there's lots to do in the credit markets in in a more volatile environment. Again, the lack of volatility on the equity side is it has been evident on the credit side. We've we've talked for years about the the distressed opportunity and it it um never actually materializing at a market level. But there are lots of microcycles ultimately in in credit and and areas of stress and distress that that our managers can take advantage of. I think that that's going to be a more fruitful area going forward. Um another one would be um real assets ultimately. Um, in this, it's going back to the deglobalization theme, reinvestment in US infrastructure is is something that um has a real attractive secular potential tailwind. Um and that's something we want to have exposure to. We have in lots of different ways, and we've built that over the last couple of years, kind of ahead of the trend, I think, a little bit, but uh, but I think our clients will really benefit from that over over the medium term. And then at the other end of the spectrum, things like biotech, right? Biotech is, we were early in biotech. We'd rather be early than late, right? And and um we saw weakness for for a couple of years, but we're now really starting to turn the corner. And the amount of innovation that's happening in the biotech space, um, AI does play a big role in that.

SPEAKER_03 37:14

Contrarian story, right? With people talking about the FDA and other things. It's not, I still think we're early.

SPEAKER_04 37:19

Yeah, and but but the it it was one of our best performers last year, right? So um that that's one where I think that has legs, and ultimately the innovation that's going to happen based on on all of the work that's been done on the human genome, and ultimately the the AI applications that that go on top of that um will mean that there are more and more drugs to solve various diseases and issues that are released more quickly than they have been in the past. So having that exposure in the ground today is something that we're really excited about over the next call, call it three to five years.

SPEAKER_03 37:55

Yeah. Uh I'd also just add real estate uh writ large, you know. Uh real estate was one of the few asset classes that performed in line with what your finance textbooks would say. As interest rates came up and discount rates came up, cap rates came up and prices came down, equity markets kept hitting new highs, but real estate assets came in. And so whether that's disruption in capital structures, the ability to buy core real estate tax efficiently in long-term holds at interesting returns, uh, nichier strategies that are earlier, like industrial outdoor storage and things along those lines that just been have worked well, and I think are things that or I know there are things that we're still very optimistic about.

SPEAKER_04 38:35

And again, it doesn't going back to another lesson learned. I would say complexity isn't always the best answer, right? So listed real. Right? It is you think you're doing something. You're your odds aren't as good with it, right? Yeah. Ultimately, and and the um listed real estate, just public, you know, real estate stocks. If you look at the chart of everything in in 2025 in the US, listed real estate was at the bottom. And and there are lots of high-quality real estate businesses that that seem disconnected from their fundamentals. And that's something that's fairly simple to own, right? And in and doesn't have to be a private equity fund or a hedge fund or some alternative structure. It can just be an ETF or a long-only type type account. And that's something that we're, again, we have exposure to it. Private read, something along those lines.

SPEAKER_03 39:32

Yes.

SPEAKER_02 39:33

It's a fascinating time period. I think there are a lot of parallels that can be drawn to 99-2000. Certainly they're not mirror images of one another, but I think the dominant theme of a technology with transformative, disruptive potential has gripped markets really since November 2022 when ChatGPT was released. I mean, AI isn't necessarily a brand new technology. People have been researching this for decades, but I think actually having an app in your hands that lets people experiment with, use, and make a conceptual belief more tangible is very apropos of what we saw in the late 90s, early 2000s with the internet and what that made, what that meant for the distribution of information. I think today what we're talking about is even bigger than that, right? With the potential to replicate human intelligence. It's kind of fascinating if you think from 2022 through 2025. The actual ultimate form of artificial intelligence was largely unknown. And I think with that gap or with that chasm in knowledge and foresight, people were able to paint really rosy pictures of what that meant for the future. Interestingly, over the last call it three months, as we've gotten more and more tangible examples of what artificial intelligence can actually do, people have become bearish on what it means for the outlook, for the macro. Will artificial intelligence actually become a reasonable substitute for labor? What does that mean for how the economy and financial markets behave and how they react? What does that mean for the role of government and its ability to tax and have transfers? There are just so many questions that are now forced upon us in a way that they weren't for the last three years when we could paint a very, very rosy picture.

SPEAKER_03 41:24

So you do a good job in that vein of getting us to think about these Gartner hype and disappointment cycles. Where do you think we are in those cycles?

SPEAKER_02 41:35

Where do I think we are right now in those cycles? I think we're probably at the first peak before we kind of have a realization that actually adopting artificial intelligence in a way that can sustainably and broadly replace humans, we're probably not quite there yet. I think the poster child for this right now is software, enterprise software. There's a belief that cloud code, open AI's codecs will, in the very short term, potentially be able to upend and replace software at an enterprise level. And I think just because you can do something doesn't mean that you should or that you will. I I would think about cybersecurity as an example, right? We might be able to build something that can reasonably approximate cybersecurity internally, but the reputational risk, career risk of doing something so is probably too much at this point. If you're using CrowdStrike and you get hacked, that's one thing. If you're using BBR Strike and you get hacked, that's probably a bigger issue. And I think there's just some impediments and inertia to full-scale adoption, that means that might take longer than people expect today. I think if you go back to 2022, people might have thought that artificial intelligence would be a reasonable replacement for human labor at scale in 10 years. Today, if you talk to some people, their time horizon might be as soon as six months. And I think you're probably somewhere between six months and 10 years. That doesn't mean that people are writing down the terminal value of businesses that they think can be replaced. And I think, you know, if you think about Cheg is a company that comes to mind the study tool, that was a $100 stock in 2021. Today it's 65 cents. And investors don't wait for a company to become obsolete to sell it. They're forward-looking, it's a discounting mechanism, right? And and Cheg, to a lot of people, was kind of low-hanging fruit. I don't need to pay for a study tool when I can use ChatGPT or Gemini or Anthropic to do it. I think it's a bigger leap to replace entire enterprise software. Today, what you're seeing is that the software earnings are actually being revised upwards because for the next one, two, three years, companies are still going to probably need a sale for. going to need a crowd strike. That doesn't mean they won't re-rate the terminal value. And I think you're seeing both of those things at the same time.

SPEAKER_04 44:07

There's a real argument, I think, um, on the data is the is foundationally important to to any AI sort of application. And if if you think about um the the state of most companies or or business data, it's not in a state today to be able to to fully maximize the value, right? So there's even in a scenario where there is you know large scale replacement over time. It doesn't seem feasible that it that is it is so imminent that you know in in 2027 most white collar jobs are going to be replaced, right? Because ultimately there the data's not in a in a state where where it it's feasible to be to be utilized the right way. Right.

SPEAKER_02 44:54

Yeah. And I think one thing that people have talked about is is kind of getting away from large language models to so-called small language models where for example BBR can use our internal proprietary data as it relates to clients or managers and have a much more focused targeted tool to undertake the tasks that we need to undertake as opposed to using a large language model that's trained on the entire breadth of human knowledge and actually have the niche use cases.

SPEAKER_03 45:30

Just to try and switch gears a little bit, you know, one of the things I've seen evolve over the last 25 years is the impact of geopolitical events. You know I spent the mid-90s working for Goldman in Asia and whether it was North Korea saber rattling causing a massive sell-off in South Korea, Tai Bot, yeah Thai bot, South or China causing Taiwan to sell off. And then you know we launched in 2000 2001 was 9-11. Todd and I spent a lot of time thinking about like 9-11 versus Pearl Harbor and or Tonkin Gulf and what those events meant for equity markets. Over time geopolitics seemed to have mattered less right we are on the verge potentially of you know we've got the largest buildup of troops in the in the Middle East you know since the Gulf War and markets are oblivious to it. That has certainly been an evolution we've seen over our 25 plus years. You know, as a strategist today how how would you help us think through investing around geopolitics because for me it feels like it might matter longer term in value, but it certainly doesn't drive you know historically I would say they're buying opportunities, but they're not creating the buying opportunities anymore.

SPEAKER_02 46:41

Yeah if you look at the data it really doesn't matter. It might be a blip on the radar where people have a knee-jerk reaction to sell in the first day or the first week but I think markets fairly quickly recalibrate to things like earnings growth, economic growth, financial conditions, interest rates. And most of the geopolitical events that coincided with large drawdowns were actually due to something like the dot-com bubble or 08 or COVID. You have geopolitical events that occurred around the time of those and people can sometimes look at those and say, you know, the go for three, six, 12 month return from this geopolitical event was quite poor. But when you actually think about the drivers it was much more the dot com bus global financial crisis. I think talking about technology though, we talked about the dot com, we talked about AI, one technology technological innovation that I think lessened the impact of geopolitical events massively was the shale revolution because the transmission transmission mechanism from geopolitics to market impact historically had been in energy markets where you had a supply shock that led to a contraction in the supply of oil, that led to oil prices spiking, that led to inflation fears, and then you had the Fed hiking and that knockdown asset prices kind of writ large. What the shale revolution did was essentially flip an oil shortage into an oil glut and made America both the biggest supplier of oil, a net exporter of oil, and at the margin the net press buyer of oil, right? Or net seller of oil. So all of those things I think just lessened the transition mechanism. It kind of blunted where geopolitical crises started in the energy markets. And we're not seeing that today. I think if you think about 25 and what we've seen so far in 26, geopolitics have dominated the headlines whether it was Venezuela, Greenland, what's happening in Iran, markets have had periodic short-term bouts of volatility before grappling or or reorienting towards the fundamental backdrop that I think remains pretty strong.

SPEAKER_04 48:54

Yeah I think the the the thing you need to be careful about is it feels like the the world has become desensitized to to some of these issues, right? The the and in some ways the scale of the issue is getting bigger and bigger there's a point where it does matter right and and um you know the Middle East is certainly something that could go into but Russia Ukraine China there's a lot of stuff going on out there right that could have pretty you know China and TSMC could have huge economic implications. Right. And and so so ultimately that all circles back to not making a big bet one way or the other being diversified having having exposure in different areas that are gonna that are going to perform differently in that type of environment um and not taking too much risk. So the the the fault I would say in looking at that and saying geopolitics don't matter would be to have too much risk on at the time where they actually do matter right and and and so that's the thing you know the sort of it it in in our guts I think the the you you don't want to ignore the fact that that that geopolitics can matter and something could be big enough that that it it does move the markets over time.

SPEAKER_02 50:10

If you think about chips or semiconductors as kind of the new oil or the new critical input to the global modern economy and then you overlay that with your point about China Taiwan with the globe getting 95 plus percent of cutting edge chips from TSMC in Taiwan and some of China's overtures as to their claim on Taiwan you can think up pretty quickly a flashpoint where geopolitical event matters pretty quickly.

SPEAKER_03 50:38

I remember I worked on the TSMC IPO in the late 90s trying to explain to people what a fabulous semiconductor company we still don't know.

SPEAKER_02 50:49

Circling back to AI, I think there's been a lot of negative headlines you can put a positive spin on it too right if you think about most economies globally demographics are aging the input of labor to economies is slowing. And if you're looking for I think an offset to that the ability for artificial intelligence to at least complement human labor and I think drive productivity gains is going to be critical on a go-forward basis.

SPEAKER_03 51:22

So we've talked about things that were really risky 25 plus years ago when we started the geopolitic stuff we just covered valuation uh being as high now as it was then um talked about you know that was the internet and online now we've got AI and big technological shifts you know I'm the glass half empty guy. I think that helps on the investment side we've talked about how managing risk first and you do it through being diversified. Are you more optimistic or pessimistic today? I'll answer the question last about like what keeps me up at night and keeps me positive. But what are you thinking on a go forward basis?

SPEAKER_04 51:59

Or what what is optimistic or pessimistic about what? About markets and are there things we're not thinking about that are going to have big positive or negative impacts I'm I don't know that I would say I'm optimistic about markets but I'm I'm optimistic very optimistic as I as I referenced earlier about about the opportunity set right to to find interesting things to do. Right. And I think this plays right into our skill set right when the easy game is when the SP is doing the best of anything else right and and and and I think that that might not be the case over the next five to ten years. Maybe it is but maybe it isn't and and if it isn't we're well set up for that and that's what makes me optimistic um but I think that the you know there are equal reasons to be excited about markets and and concerned right and and well honestly the the my instinct when every strategist is positive is that they like this doesn't feel right right definitely consensus today. So so and I don't I it'd be interesting to see a a a rerun of consensus today relative to December right and I wonder how much that's changing. But that shows you how much can change over you know six eight weeks right so um we'll see on the market side but super optimistic about the things we're investing in. Right.

SPEAKER_02 53:23

Yeah and and and and I I think it's the you know it's the unknown unknowns right nobody had uh you know um you know pandemic as a risk that we needed to manage around um we'll let you go next I think it it's time horizon dependent I would say in the short term I am I won't say pessimistic but concerned that we have valuations where we they are we have a slate of geopolitical events that could pose a real risk if they reach kind of the upper end of of where they could go. And we have artificial intelligence which I think in the near term is going to cause a lot of angst and consternation. I think fortunately markets often give you more than one chance to buy and if we think about the Gartner hype cycle that we talked about earlier I do think that we will get a reset in AI valuations at some point in the next let's say two years. But longer term I'm a believer that artificial intelligence is going to be hugely transformational. And I think over the long arc of history I'm a believer in human ingenuity and innovation. So I would say in the next couple of years I would be very attuned to the risks but I think if you're looking out three five ten years there's going to be a ton of opportunity and that tends to accompany technological disruption and innovation.

SPEAKER_04 54:51

Yep. Okay the the and and how does that translate again to to client portfolios I think it's not being over concentrated in those themes you know maintaining the right level of risks in portfolios rebalancing things that have actually done well over time um adding to some areas that haven't done as well um and I think we have portfolios that can kind of that can muddle through those times and and again then take advantage of of the weakness that could come right it's not guaranteed to but um but that that again is is an environment that I think plays right to our strengths.