| Areté Quarterly Q117 |
Business update
One of the bigger projects I have been working on the last couple of months has been reviewing all of the content on the Areté website. While I have shared thoughts on a wide array of topics over time, it became abundantly clear in the review that the vast majority of writings have related in some way or another to my vision for the investment industry.
In an important sense this shouldn’t be too surprising. After all, a big part of the motivation for founding Areté was my belief that a large population of investors was being underserved and that the industry could do better. Areté is very much an expression of this belief.
As such, virtually everything Areté does and every business decision I make is done so with the intent of both creating outstanding value for investors and an economically attractive business model for Areté. Indeed, these actions and decisions, and their rationale, have been the frequent subjects of my writings.
Pulling these ideas together into a single vision statement for the industry accomplishes a couple of things. One is to show how all of the pieces fit together into a cohesive view. An investment service, for example, constitutes a “package” comprised of several components, many of which include business tradeoffs. As a result, the only way to get an accurate assessment is to look at the whole.
A second benefit of this exercise is that by analyzing the capital markets, the ecosystem of investment service providers, and investors themselves, it is quite clear to me that some things need to change. Much of this involves matching services with investors in a more cost-effective manner. For certain, providers need to make some important changes and I continue to believe that many of them will find it exceptionally difficult to do so. I also believe, however, that investors themselves need to re-evaluate some of their practices in order to get more out of the industry.
Yet another potential benefit of this exercise is that it burnishes Areté’s reputation as a thought leader in the industry. Just as a critical mass of investors are beginning to seriously consider the consequences of a financial system that was never really fixed, there appears to be a fresh effort to determine sustainable solutions. The CFA Institute, for example, recently highlighted some of the important problems in the industry in a publication entitled “Future State of the Investment Profession” [here]. Areté has been doing this all along.
While Areté is all about helping people and organizations improve their investment outcomes through solid research, these things don’t happen just because it’s a good idea. Ultimately change happens because it has to; people simply can no longer afford to do things in the same old, inefficient ways.
Several years of strong markets and an acquiescent Federal Reserve have masked the immediate need for things to change, but this can’t last forever. Indeed the increasingly imminent prospect of major changes in the investment services landscape seems to be creating some serious concern among incumbent providers. Regardless, when the opportunity arises, Areté will be ready to pounce.
On a different front, I have also made good progress on the proprietary valuation model I mentioned last quarter. As I also mentioned, the primary application of the model will be to provide a sound and even more flexible model for valuing stocks for the mid cap core strategy.
Due to the power and flexibility of the model, however, I also believe there is potential far beyond this immediate application. It can easily be applied to a broader universe of stocks and also provides a terrific platform for a host of other interesting research projects. If you know of anyone who might be interested in working together in some capacity, please let me know, I’d love to hear about it. There is more opportunity to exploit than I can realize on my own.
Thanks for your interest and take care!
David Robertson, CFA
CEO, Portfolio Manager
One of the bigger projects I have been working on the last couple of months has been reviewing all of the content on the Areté website. While I have shared thoughts on a wide array of topics over time, it became abundantly clear in the review that the vast majority of writings have related in some way or another to my vision for the investment industry.
In an important sense this shouldn’t be too surprising. After all, a big part of the motivation for founding Areté was my belief that a large population of investors was being underserved and that the industry could do better. Areté is very much an expression of this belief.
As such, virtually everything Areté does and every business decision I make is done so with the intent of both creating outstanding value for investors and an economically attractive business model for Areté. Indeed, these actions and decisions, and their rationale, have been the frequent subjects of my writings.
Pulling these ideas together into a single vision statement for the industry accomplishes a couple of things. One is to show how all of the pieces fit together into a cohesive view. An investment service, for example, constitutes a “package” comprised of several components, many of which include business tradeoffs. As a result, the only way to get an accurate assessment is to look at the whole.
A second benefit of this exercise is that by analyzing the capital markets, the ecosystem of investment service providers, and investors themselves, it is quite clear to me that some things need to change. Much of this involves matching services with investors in a more cost-effective manner. For certain, providers need to make some important changes and I continue to believe that many of them will find it exceptionally difficult to do so. I also believe, however, that investors themselves need to re-evaluate some of their practices in order to get more out of the industry.
Yet another potential benefit of this exercise is that it burnishes Areté’s reputation as a thought leader in the industry. Just as a critical mass of investors are beginning to seriously consider the consequences of a financial system that was never really fixed, there appears to be a fresh effort to determine sustainable solutions. The CFA Institute, for example, recently highlighted some of the important problems in the industry in a publication entitled “Future State of the Investment Profession” [here]. Areté has been doing this all along.
While Areté is all about helping people and organizations improve their investment outcomes through solid research, these things don’t happen just because it’s a good idea. Ultimately change happens because it has to; people simply can no longer afford to do things in the same old, inefficient ways.
Several years of strong markets and an acquiescent Federal Reserve have masked the immediate need for things to change, but this can’t last forever. Indeed the increasingly imminent prospect of major changes in the investment services landscape seems to be creating some serious concern among incumbent providers. Regardless, when the opportunity arises, Areté will be ready to pounce.
On a different front, I have also made good progress on the proprietary valuation model I mentioned last quarter. As I also mentioned, the primary application of the model will be to provide a sound and even more flexible model for valuing stocks for the mid cap core strategy.
Due to the power and flexibility of the model, however, I also believe there is potential far beyond this immediate application. It can easily be applied to a broader universe of stocks and also provides a terrific platform for a host of other interesting research projects. If you know of anyone who might be interested in working together in some capacity, please let me know, I’d love to hear about it. There is more opportunity to exploit than I can realize on my own.
Thanks for your interest and take care!
David Robertson, CFA
CEO, Portfolio Manager
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