| Areté Quarterly Q415 |
Business Update
When I founded Areté, I had a vision of where the investment management industry was and where I thought it was going and saw an opportunity. In a sense, it wasn’t that original; I just thought as technology improved capabilities and reduced costs, that the type of very high quality management services that large instutional investors enjoyed would be economical on a much smaller scale. Interestingly, nobody else was doing it.
I always thought of this effort in two parts. One was to do a great job of research, analysis and management. The other was to offer the services at a reasonable price and with great transparency and therefore fulfilling a socially useful function. These two parts combined comprise what I consider a quality investment business. Indeed, that is why I named the company Areté: it means quality in Greek philosophy.
While the Fed’s policy of supporting asset prices and suppressing volatility the last seven years has created an environment fairly hostile to active management and much more conducive to simply “riding the wave” with passive exposure, there are indications that both the landscape for investing as well as that for investment services is changing.
As I note in the Areté Market Overview Q415 [here], there are three broad economic trends that must be resolved in order to establish some sense of stability. Although the timing of such resolution is uncertain (as are earthquakes, avalanches, and sandpiles), resolution will happen – and it will happen regardless of what the Fed says or tries to do about it.
This creates a new and more challenging environment for investors, but as I also note in that blog post, “the landscape for investment services is likely to undergo at least as much change as that for investments themselves.”
More specifically, “Most conventional investment approaches are designed for conventional environments. Mutual fund investment strategy can be completely undermined by fund flows, passive strategies rely on reasonably efficient market pricing and good asset allocation, both of which may be challenged. Many exchange traded funds (ETFs) have significant liquidity mismatches in their structure. Further, new customers will be looking to save first, and will only invest with solutions that are far more efficient and appropriately encompass (new) societal values.”
The conclusion I draw is that although the Fed’s actions since 2008 have largely forestalled the business opportunity for Areté, there are strong indications that things are changing. A more challenging investment environment will highlight the value of active investing and independent research. In addition, societal values that are placing greater emphasis on efficient solutions are more likely to favor Areté’s quality/cost proposition. I see these as promising signs that people will increasing appreciate why Areté is “a better way to invest”.
Thanks for your interest and take care!
David Robertson, CFA
CEO, Portfolio Manager
When I founded Areté, I had a vision of where the investment management industry was and where I thought it was going and saw an opportunity. In a sense, it wasn’t that original; I just thought as technology improved capabilities and reduced costs, that the type of very high quality management services that large instutional investors enjoyed would be economical on a much smaller scale. Interestingly, nobody else was doing it.
I always thought of this effort in two parts. One was to do a great job of research, analysis and management. The other was to offer the services at a reasonable price and with great transparency and therefore fulfilling a socially useful function. These two parts combined comprise what I consider a quality investment business. Indeed, that is why I named the company Areté: it means quality in Greek philosophy.
While the Fed’s policy of supporting asset prices and suppressing volatility the last seven years has created an environment fairly hostile to active management and much more conducive to simply “riding the wave” with passive exposure, there are indications that both the landscape for investing as well as that for investment services is changing.
As I note in the Areté Market Overview Q415 [here], there are three broad economic trends that must be resolved in order to establish some sense of stability. Although the timing of such resolution is uncertain (as are earthquakes, avalanches, and sandpiles), resolution will happen – and it will happen regardless of what the Fed says or tries to do about it.
This creates a new and more challenging environment for investors, but as I also note in that blog post, “the landscape for investment services is likely to undergo at least as much change as that for investments themselves.”
More specifically, “Most conventional investment approaches are designed for conventional environments. Mutual fund investment strategy can be completely undermined by fund flows, passive strategies rely on reasonably efficient market pricing and good asset allocation, both of which may be challenged. Many exchange traded funds (ETFs) have significant liquidity mismatches in their structure. Further, new customers will be looking to save first, and will only invest with solutions that are far more efficient and appropriately encompass (new) societal values.”
The conclusion I draw is that although the Fed’s actions since 2008 have largely forestalled the business opportunity for Areté, there are strong indications that things are changing. A more challenging investment environment will highlight the value of active investing and independent research. In addition, societal values that are placing greater emphasis on efficient solutions are more likely to favor Areté’s quality/cost proposition. I see these as promising signs that people will increasing appreciate why Areté is “a better way to invest”.
Thanks for your interest and take care!
David Robertson, CFA
CEO, Portfolio Manager
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