David Kabiller: From "Goldman Slacks" to AQR - "To Know Me is to Love Me" (EP.08)

Welcome to Take the Long View with Matt Hall. As you know, this is a podcast to help reframe the way you think about your money, emotions, behavior, and time.

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Helping you live richly. We're going to talk with the best thought leaders we know to learn from their meaningful experiences, and we're going to bury the vegetables of world-class thinking in stories and conversation, helping you put the odds of long-term success on your side. That's my whistle. Every day when I walk into the office, it's my signal that like it's on or I'm here or whatever.

Are there dogs around?

No, no one really cares. It's just the thing I do, and it's how I start this podcast. I'm so excited to be on the road. I'm in Greenwich, Connecticut. This is my first time in Greenwich, uh, and I'm here to be with David Kabiller, who is a boss. I mean, like, literally he's a boss, but he's also a boss in sort of transforming a new chapter in modern finance, and he's done so many cool things, but I've heard from some of my listeners that you don't like how I read the bio, so I'm not going to read the whole bio. It'll be in the show notes. But just imagine that I'm with someone who's done everything you would want to do if you're trying to search out one of the best thought leaders in the investment space. The name of the firm is AQR, Applied Quantitative Research. In the spirit of full disclosure, my firm, or our firm, Hill Investment Group, uses AQR. We're big fans of their work. And I do think you're at the front edge. You're this— my nickname in the past was Relentless Agitator, and I feel a kinship with you because I think there's some relentless agitator spirit inside of AQR. So David, welcome to Take the Long View. I'm glad to be with you.

Thank you. I just left my 85-year-old mom, and she's going to be so delighted to hear that intro. So, uh, I appreciate the intro.

Okay, good. Well, we have a few things in common, and let's start with tennis. I never played college tennis, but you were big-time Division I college tennis player. Do you still play tennis? Who are your tennis heroes? And has tennis played any role in your business success?

Yeah, well, it's very kind of you to say. I feel nothing but a failed tennis player, and I think that constant angst of not really achieving my dreams there has tried to manifest itself today in AQR and other things that I do. I, um, started when I was 10, which is a late start, and my whole life was tennis. I thought that could be the thing that got me to a life of happiness and joy, and, and my heroes Back then were Bjorn Borg and Jimmy Connors, John McEnroe. And while I played tennis in college, I did get a series of injuries and lost confidence. And while, depending on your benchmark, some could say that's successful, I feel like when my benchmark was, or, you know, today some greats like Federer and Nadal, which I, I just feel like a failed tennis player. And so it is a motivator. It still feels raw to me. The injuries and the inability to achieve what I wanted there. And I've had a recent interesting fun experience though, because there's a, a coach named Frank Salazar who is probably one of the best coaches in the world, who just left being the coach of Tiafoe and Denis Kudla. And my partner John Liu's kids are working with him. And so I now maybe once a week go out with Frank, who was the number one junior in the world years ago, who was a savant on teaching tennis. And at 56 We're learning new things, and it's very healing. It's like going to a therapist. I'm learning all these new things about strokes, execution, and playing at 56, and it's so freeing and so joyful. Mm.

Great. Well, who is your favorite modern tennis player?

You know, I hate being cliché, but I think Federer. You know, the grace, the integrity, the honesty. It's almost like we're living in one of the most incredible tennis times ever. Obviously, if you think of, like, Djokovic or Federer and Dalin— I think it's 55 Grand Slams they've captured together, and just seeing the three of them and the character that they show and the intensity. So all three, those three are probably my favorite players right now, and they're all coexisting. Mm-hmm. The great debate of who's the best ever is certainly to be had.

I'm a huge Federer fan, and it does sometimes feel like he is— he's playing a different game. I saw him play at Wimbledon several years ago. That was one of my dreams, to see him play on center court. And I've never seen someone so comfortable and at ease. I strive for that same level of ease in my own life.

Well, you know, it's interesting you say that. You start thinking of playing for the long term. You think about how he's adjusted his life to have longevity, how he moves on the court. It's less physically taxing than Nadal's physicality, which you see the injuries. You'll see Federer's conscious choice to play less tournaments, to not play the French Open. So he is making choices. Today that benefits the longevity of his career.

Yeah. I was watching the other night, um, Nick Kyrgios sort of self-destruct in this match he was playing in Cincinnati. And I've seen Kyrgios play live, and, um, I feel this sense of conflict when I watch him because I feel like tennis needs characters like Kyrgios to bring interest and, you know, sort of the— the modern attention span might need some of this crazy excitement, uh, you know, drama to stay tuned to tennis. And at the same time, I love the class and elegance and the respect for the game that Federer has. So I, I don't know how to feel because I want tennis to be more popular, or as popular as it was back in the McEnroe, Borg, Connors days.

Yeah.

So anyway, that— I too am a Federer fan, and I'm impressed with how he is playing a long game.

But your Kyros— come, I saw the match, by the way, and you think about the media and perception, and when you see him superficially and you see those antics, you could be really turned off. It's kind of fun, but it's kind of a turn-off because he tanks at times. But then when you get to know him— when I say know him, I've seen some deep interviews about understanding psychology— so you look closer, you see some of the pathologies, but it inspires empathy and understanding. And so I agree with you that you need him in the game because he creates animation and excitement, but it's also things about perception, misperception. If you judge him by the one act whether it's a security going down or investment process not working, you can come to an erroneous conclusion. He's just a bad guy. He lacks character. Well, in that moment, but there's something much more there to him. And so when you see deeper interviews, again, you inspire empathy to see his character. And I think I kind of want to talk to him and reason with him because he's got such amazing talent and potential. So I don't think we can give up yet on him.

Yeah, no, good point. And speaking of wanting to talk to him, do you remember there was a referee who overstepped his bounds and went down and said, and not in this most recent match, but in a match prior, like, don't do this, come back.

Yes.

I think, I think other people share that same sentiment. Okay, great. Well, let's go back to Deerfield, Illinois, like early days for David Kabiller. What were your early days like? And when did you figure out that you were sort of destined for this success in the investment world?

I remember being driven, feeling the emotion of how do people succeed. And I remember reading a book about success and It was like a case study of 10 successful business people. And that was like at 9 years old. And I just wanted to get somewhere else, a happier life, a life of freedom. And it wasn't necessarily about money, but I wanted to understand what success was and determine what it was. And as we know, there's a very holistic approach, not just financial. It's maybe it's freedom, it's joy. And so it started at a very early impulse. My dad was an orphan and a men's clothing salesman. So I didn't even know about the world of finance. My path was, could tennis be my place to greatness? You know, you have your— you're young, you're 10 years old, and you think maybe. And a lot of false perceptions when you're young. And I didn't really have anybody in finance. And so I'll fast forward to— I was at Northwestern, and I'll never forget this night. We just had played Minnesota in tennis, and we were driving back in a snowstorm, and one of the seniors said he had an interview the next morning at Goldman Sachs. And I never heard of Goldman Sachs. This is 30-some years ago, growing up in Chicago, men's clothing salesman father. And I thought he said Goldman slacks. I literally did not know about the firm. And it sounds naive today. There's a lot of East Coast sensibilities, but I'm this Midwestern guy. And then I went back to studying my books. Senior year comes. I had got injured in tennis. I played all 4 years. And I'm faced with, what job do I want? And I had this passion and fire for something. And I remember talking to a guidance counselor and she looked at me, I'll never forget, she winked. She goes, I'm really gonna be interested one day to see what you do, 'cause she saw my ambition and desire, but I didn't know how to manifest itself. And I remember I took the LSATs and GMATs and I was gonna go into business school and law school 'cause I thought 2 degrees is better than 1. And I was gonna defend doctors and hospitals against lawsuits 'cause I was interested in science. So I had this really focused point of view. So I entered, I went right to Northwestern. I applied to one business school and there was a combined program I ended up just doing the business school, and I went to a careers fair. And this is something really important to me, and I hope to everybody and all your listeners. I mean, we just don't know what we don't know. And at business school, it was like the Wizard of Oz. You know, it's black and white and everything turns to color at some point. Like, how'd that happen? Well, I went to all these career fairs, and I saw somebody speak on a panel about careers in investment banking. And by the way, I had this naive view. Investment banks, what do they do? They invest? I didn't even know what they did. I heard the words, and I had a perception of arrogance. And sort of stiffness and ties and horn-rimmed glasses. But then I heard about all these other careers in investing, like sales and trading and asset management. And so the world opened up. And there's a summer job between years in business school, and a very close friend of my family— I had all these brochures on the desk of pamphlets about Goldman, Morgan, and others— and he pointed to Goldman Sachs. And he was the only person my family knew who was in finance. He said, work for this firm. I'll never forget the words. Work for this firm. And you'll never have to worry about anything else the rest of your life. And I think he was just talking about there's some really high-quality people working there. So I made it my mission to get a job at Goldman Sachs. And I was 22 at the time, and I looked like I was 12 at the time as well. And I remember going through the interview, and the guy looked at me, and they were interviewing like 40 people, and they were taking 2 for the summer job or something. It was pretty— and I didn't have any experience. So he asked me, "Is there anything I should know about you?" at the end of the interview. And I said this, and it sounds so cheesy, but it was appropriate for the dynamic because it was a highly empathetic, connected thing. And I said, because it was only 30 minutes, I said, "To know me is to love me." And again, it sounds— I apologize for the clichéness of it, but it's almost embarrassing to say now, but I said it to him seriously. And he was like in his late 40s. And I told my friend this after the interview, and he's like, "You're never getting that job. That was like ridiculous to say that." And I ended up getting the job. It was really at Goldman that this whole world of finance unfolded to me, and I was really interested in truth, or I was really interested in how do people then make money. Just as I was interested in what makes Bjorn Borg the best tennis player in the world at the time, or years ago, you look at his odds and maybe he won 60% of the time. He still lost a lot. And in the world of finance, we're consumed by anecdotes. Small cap, large cap, growth, value. And there's that quote, even a broken clock is right twice a day. And I'm sitting there surrounded by amazingly smart people at Goldman with an infinite amount of different stories about what works. And I was on this mission to figure out excellence and what's the best way to invest. It was just an intellectually curious idea of like, how do you do this? And I kept hearing different anecdotes and you're surrounded by tons of anecdotes, whether it's media or the people around the firm, and even bad ideas work. Over short periods of time. My journey at Goldman was in 3 different divisions. I was in the fixed income division, I was in the equities division, and I was in the pension service division. So I was in 3 divisions over 10 years, and that was a manifestation of curiosity. I'm a big believer, by the way, that money or any financial success is a residual to innovation and excellence. And to me, my balance sheet that I was always trying to build was knowledge. I saw a lot of friends leave Goldman because somebody would offer them 2x in terms of compensation. To me, it was all about growing my knowledge, building my skills, and let money or any future success be a residual to that knowledge and human capital. But I'd take a pay cut to go to another division. When I went from fixed income to equities, I took a pay cut. Or when I went to pension services, I took a pay cut. So I was all about knowledge gained. And so I had deep understanding over time of the fixed bond division, equities division. And then pensions and how they work. And then I did the CFA. And so my experience for 10 years at Goldman was knowledge. And it was in 1993 where I met a couple special people. And there were a lot of special people at Goldman, actually, some really incredible talent. But something quite distinguishing about my partner Cliff and John and Bob was, while I saw so many smart people, there was an intellectual integrity and curiosity. And, you know, all three of them were getting their PhDs at Chicago, right? These guys are wired. They were going to be professors. And oftentimes you're wired a little bit differently. Some people could be Machiavellian about making money. I think my partners were all about how do we figure out these markets? How do they work?

How'd you sniff that out? I mean, I love it, but how did you figure that out? Because that seems to be one of your gifts is the ability to filter people for what you're after?

Yeah, you know, I think— I'm curious, you know, I think about intuition. Some people say, what is intuition? Is it some psychic phenomenon? And I think intuition is just paying attention, asking questions and listening. And when you meet Cliff and you meet John and you meet Bob, you can judge who they are by the choices they made. So there they go to Chicago, arguably one of the best empirical finance if not the best in the world. They seek excellence. So you can judge by their actions. But then when you talk to them, what they care about, what they prioritize, the consistency, the intellectual integrity, the intellectual honesty, doesn't mean you always get things right in the short term, but their North Star is always, how does this work? And so through my questions, through my interactions, through the choices that they make, a lot of people can say stuff, but you also look at their choices. Their values are reflected in certain moments of adversity. And I worked closely with them for 5 years, so I had great context. But again, I do think I have hopefully humility. I'm always interested in the mythology of icons. I think we all deify humans. We're all humans. One thing that is maybe distinguishing that I notice about myself, and I'm just a guy, is curiosity. And I'm curious about you, here we are talking about me today. I've said this earlier that I am authentically curious about others. I think the only way to know self is in context of others. And I think my intuition is just paying attention, listening, and being aware of others' energies and their truth.

Wow, great. So let's dive into, you've gotta have some sort of entrepreneurial seed in you because you're at this great place, you're at Goldman Sachs.

Yeah, right.

And you've had a good 10 years, But what happened that started you down this path of let me do something else, let me start something, let me begin a whole new chapter of my career?

I got tired of sewing, Goldman Sachs comment. I think there was, it's running away from something versus running to something. And I think I never need my name in the lights. I really value freedom and creativity. You think about artists get to paint, they start with a clean slate, a canvas, and Goldman Sachs, is wonderful, but you think about the impact that I could have there. Wonderful place, whatever, it's 30,000 people. As I think about an artist or a painter, I want to create, whether it's influencing other people and human development. I'm really interested in that. And I think my journey at Goldman was building lots of knowledge, whether it's products and channels of distribution, which I found very interesting. There's that quote, right, where luck is where opportunity meets preparation. I think I always felt that I wanted less constraints to create. And the confluence of events had happened, and I had other opportunities to leave through the years, but it was a wonderful place, and I wasn't just going to leave for anything. I had to find something aligned with my principles and my DNA to create. And I think if you meet people where you have shared values and synergistic skills, that's where the dance begins. And I think we had shared values. Like, for me, just to personally do financially well without our clients doing well, or figuring something out, let our success be residual to innovation and figuring something out. Cliff, John, and Bob have that to the core. And again, I say, you know, we can have tough times in the short term, uh, but when your wiring is that way, long term, the odds in your success when you really are about the intellectual integrity, honesty of what you're trying to pursue. So the shared value is a big deal. And then I'm more of a business person. When I say business person, I'm really interested in humans. So I understand finance certainly at a reasonably deep level, but certainly not my partners. But I'm really interested in it. But I'm so interested in organizational health, organizational design, human development, clients connection.

So we saw that synergistic skill So how do you get Cliff and others to follow you down this path?

Yeah. What was really interesting, because Cliff was running the Quant Research Group in the early '90s with a group of maybe 12 people or so, plus or minus. And one of the guys who had worked for Cliff, we started talking, and the group was outstanding. They had outstanding results, although it was small. It was only a couple years old. And I had good relationships with a number of people there. And so Pre-AQR, I was gonna leave with one individual and a couple other people, Bob Crail, other co-founder, to start a firm. And ultimately I decided not to go with that individual. I remember choosing to stay, and I was sitting across from Cliff in the cafeteria at Goldman, and I said, you know what, I'm gonna stay 'cause I don't think it's the right fit for me to do this with this guy. And I said, however, if you want to go, that'd be a different story. And it was funny. I looked at Cliff at that point. I don't even think he was thinking about it. And then you see the math going off because he was doing obviously quite well at Goldman. And he didn't really jump at it, though. He gave me nothing. He just kind of— I saw a little kind of smile, and he gave me nothing back. And that was that. And then for the next year, I relentlessly pursued Cliff And John and Bob. Bob was going to go with me. And originally Bob came back to the firm, didn't resign. And so me and Bob both wanted to go and start AQR. I think Bob wanted the freedom and he wants less bureaucracy. And so I would spend a year trying to convince Cliff to do this. And he was an immovable object for a while. He was doing quite well. The group was doing quite well. He loved it. It was everything he wanted. And I remember him calling me up, telling me his decision was not to go. And I was so bummed. I remember seeing my mom and dad and I was depressed for this whole weekend. And they're like, what's wrong? And I remember saying to them with such this intense passion, I put my finger, I go, 'Cause I was this far away from creating something really special.' And I remember saying that and I was just so visceral about, I was so bummed out when he said no initially. And I think I saw the empathy of my parents were like, oh, they didn't know what it was or what it could be. And it was like, oh, okay. but I still kept at it. And I think I've heard Cliff say this, that, you know, when he decided to stay, sometimes you have to get that rush that was the right decision. I think Cliff felt it maybe wasn't the right decision. And so I kept at it. And I remember 6 months later, I finally get a call from Cliff at my home in Chicago, at the time I was living. And he never called me. The guy would just never ever call me. And he goes, hey, it's Cliff. And I'm like, what? And he had nothing to say. There was nothing. He couldn't get the words out because he knew he was with me. He'd be opening up a Pandora's box. I'm pretty agitated moving forward and making things happen. And I go, you ready? He goes, yeah. And that's where we— yeah, it was that simple of a conversation.

What do you think that if there was no burning platform for him before to do this, what happened? What changed?

Well, what he has said is that I think the rush to get that it was the right decision. I think Cliff's real love is research, is the intellectual discourse. And I think, you know, you're at an amazing place like Goldman, and there's lots of other responsibilities that are taken over. You know, you're one of a confluence of businesses. There's tons of people, lots of different committees. And I think if you think about it, for all the obvious reasons of doing your own firm in terms of the rewards, the intellectual, the psychic, the financial, the freedom to do it yourself, it was all those obvious things. And I think when he decided to stay, I think he was realizing emotionally it didn't feel like it. And look, we were all doing fine there. I remember writing a— I wrote a sheet down of everybody I knew and the probabilities of raising capital, and it literally came out to an expected probability of $1 billion because I was trying to reduce the uncertainty of our success. Now, we would always talk and meet after hours of Goldman. We were trying to have integrity, so we'd always meet at this Thai restaurant called Rungsit. At like 7 at night to talk about how we could do this. And so I try to reduce the uncertainty of our success by saying, here's what we think we can raise. And so I think Cliff just came to the decision, you know, it's like, help me help you. But I think he never got that rush. And he knew that there was a good chance we could build something special.

So your co-founders were going to really rely on you to decrease the uncertainty because you were going to create the sort of distribution and sales and fundraising element and allowing them to focus more on research.

Is that fair? Yeah. So I think there was a synergistic skill. I think they knew that a business guy— and I had and have immense respect for them. And there was a mutual recognition of shared values. And I think there was clarity of synergistic skills, that I'm more of a client person and business management kind of person. So that became clearly a synergistic package. Mm-hmm.

Program called Strategic Coach, and they force you to identify what your unique ability is, the thing that you should really be doing 80% of the time during your days where you're really focused. What would you say has been your or is your unique ability?

I think when you combine empathy and intuition, but again, not a psychic intuition, an authentic care of others, I think I come at this with a sense of tremendous gratitude. You know, the fact that being an orphan, you know, son of an orphan and men's clothing salesman and having these dreams of doing something that would be rewarding to me, to feel a good, healthy dose of luck that we all need, which is really a confluence of events, and having the humility to recognize that any quote-unquote success has some combination of luck, risk-taking, and skill. And I come with a sense of real gratitude. And so my skill is bringing a sense of empathy, intuition, and gratitude to each day to see them do well, an authentic care of others. And of course, when they do well and other people do well at AQR, I'm thrilled. Obviously, there's an alignment of interest. I was at West Point. I was meeting with a general, Becky Hallstead. She was one of the first, I think, woman commanders of 250,000 troops in Iraq and Afghanistan. And she said a couple of things that I thought of great leadership that I can only aspire to. That did resonate with me is, and I don't think she created this concept, but good leaders recognize that their people are not in service of them, but they're in service of their people. And I feel a responsibility to do that. And she also said, take pride in the success of the people that work. And funny thing, when I say for, I feel like with, but the people that work for you, she would say, like you would take pride in your children's success. But I viscerally feel that. I mean, to still work, and sometimes there's challenges in the work environment, but in my quiet moments, I know that when people at AQR are doing well emotionally, intellectually, and financially, and there's alignment, I feel that holistic growth and development of the people that work here at AQR with and for us, that that really satisfies a big part of my soul. And I think that's a unique ability. It's just something that I feel that I think helps.

Speaking of AQR people, I saw this— I think it's on a slide, but it says something like 250,000 people come to like a career website for AQR, and then some smaller portion of those people start some process where they apply here, some smaller portion get interviews, and like 1% get hired. You have around 1,000 employees, and then 8 to 10 offices around the world. So hugely successful, really amazing journey over these last, like, 21 years. As you think about the things that you look for in that 1%, just like in those early days how you sort of were able to sniff out something special in your co-founders, how do you institutionalize what you're looking for in that very, very select group of people who actually make it here?

So I think intellectual curiosity, the wiring to understand things, that's a really important one. Intelligent risk-taking, people who are relentless to discover or innovate, who don't accept status quo. So I think there's this kind of agitation, this unsettled personality that is— it starts with understanding the right questions to ask. So curiosity, somebody who will be self-starting and take risk. And somebody who will challenge conventions and not just accept anecdotes, who could be very data-driven. And it's for different parts of the business, you might have to accentuate something differently. So if we're on the research side, right, you might accentuate the IQ and mathematical reasoning and logic, but you also want somebody who really understands, who has EQ too, who understands the nuances of finance and the grayness of things and isn't so binary. So there's a holistic sort of scoring of a person who come into finance. On the business development side, We do like to hire people who are cerebral. We do want to hire people who are curious, who have similar attributes to research people, too. We think effective sales is about education and sharing our philosophy with people. I find selling ice to an Eskimo repugnant. What we want to do is educate people to understand what we do so that they invest in for the long term. And so we look for these highly empathetic, cerebral people who want to be educators. So different parts of the business, we do accentuate different things, but intellectual honesty and doing the right thing is core to everybody.

Yeah, in preparing to talk with you, I saw an article, I think it was in Institutional Investor, talking about how you hired a very important salesperson early on, and there was a distinct anti-golf spirit in the piece. Do you want to speak to that at all?

Our firm has a strong culture and a commitment across the different groups to do the right thing and to educate. And I think it's important because oftentimes in money management firms, the salespeople sometimes can be the stepchildren. They actually can sell what's hot, or, you know, they go out and they entertain and they build good relationships and people do business because of the relationship. Well, I think it's important to have great engaged relationships and very trusting ones and rich ones. That are based on trust, honesty, and respect. My first hire in business development was Greg Andrade, who was a professor in finance at Harvard. He went to MIT undergrad and got his PhD at Chicago too. And I was trying to make a statement with that too, because first of all, he's a wonderful person who's an educator. But I think as a statement to my partners in research, that was an important moment where we were building a business development team that were going to be partners with our research.

That would respect and honor research.

Totally. Totally. The partnership between our business side and our research side and the deep mutual respect is huge because there is also the shared values there, too, and synergistic skills. So Cliff and John and I always had that, and Bob. But as we built the firm, we needed to perpetuate that partnership between research and business development. And that part of it is, again, mutual respect and shared values and synergistic skills. Mm-hmm.

You and others here at AQR have been massively successful. Has your success changed you in any way that you can identify? Part of my question is connected to— as the business has grown and gotten more complex and global and 1,000 employees versus a small batch of renegade friends from another firm, it's changed and it's an enterprise now and it's a global enterprise. Do you find that the complexity of the business has changed you in any way? And especially I'm interested in how you are able to manage your time, and if you have this idea of time freedom.

Mm-hmm. I appreciate the comment about the success, and I understand that you look at certain metrics like asset management growth, etc., and you could say it, but I'll tell you, as statisticians that we are here, we understand the challenges in active management. You know, I think about our humble beginnings, challenging performance, or I think about the 2007 challenging performance, and always has come back, and over the long term it's been great. but even recently, it's been challenging for us. I don't think there's a feeling of we've arrived. I think the hunger and drive and determination— and when we don't deliver well for clients, none of us feel good about it. And so I feel we're grateful that we have a great firm with a great culture and that we've done well long term. And we're really proud of what we do and hopeful for the long term. But as statisticians, you know it's a tough business. It's always sometimes tough in the short term. Even the best processes have tough times. So there's no resting on laurels and there's no feeling of arrival. And this whole constant ability to, or desire to, get better. What's the impact of machine learning? What's the impact of big data? These are not new concepts to us, they're new in the media. How is this affecting markets? How do we evolve ourselves? Some of it's noise, some of it's just BS, but they're all evolutions and how do we adapt to get better? So this relentless pursuit of getting better is there. So, changed us? That DNA is just how we're wired. It is true though that we have more people. Part of it I really love— I didn't know this about myself, but I'm really interested in organizational design and human development on the HR side, and I love working with my colleagues in HR because it's all about how do we maintain our culture, how do we develop our people. So how it's changed me is that I'm really, as opposed to being external interfacing, I'm really much more internal interfacing now, and my clients who used to be external are now internal. I actually do love that. I do love being in service of the people here, and I am really interested in our Quanta Academy and how does AQR continue to attract the best and brightest with our shared values. How do we continue to grow them and involve them with these shared values of constantly challenging convention, trying to seek to get better, servicing our clients. And so my mission has changed. But to one that I love.

So let's talk— you mentioned it just a second ago, the Quanta Academy. Let's also talk about the Insight Program and how that impacts the firm.

I'm so interested in how we all become the best version of who we are, and whether it's me growing up thinking I want to be a tennis player, you know, in Chicago, never heard of Goldman Sachs, and figure out where I've gotten to. I'm really interested in how can we help inspire our people's development here. And, you know, you can say you care about your people, you can say I'm interested in their development. Stop talking. Tell me what you're doing about it. So a number of years ago, we decided to formalize and create something called the Quanta Academy. And quanta, obviously, the small particles of life. And we spell it geekily so with an upside down A, which is a mathematical symbol meaning inclusive of all. And so this is really our learning and development program, which is inclusive of all, to build up the small building blocks of what makes somebody be a great professional, or have a satisfying life. And there's 3 components to it. First is technical skills and knowledge. And look, for AQR to be successful, we've got to build the right technical skills and knowledge for our people, whether it's computer coding, whether it's finance, whether it's industry competitive analysis. We need to have the right technical skills and knowledge.

I think you have as many PhDs or more than most of the top business schools in the country.

Mm-hmm.

That's fair. I mean, you've made that a priority.

You know, I remember a dean of one of the business schools called me up and was teasing me like, I can't believe you do this. And she was kind of almost implying it was superficial for a PR stunt. And I said, look, for AQR, it's very different. We're not interested in part-time academics. We're interested in full-time academics. So the people we have here, whenever possible, we're looking to get them full-time. We're not looking to rent them for any kind of PR benefit. We want the best applied minds in finance working here on solving these problems. And so she was teasing me that was like a PR thing because we're renting it for reputation. No, we want everybody here full-time. There's some professors who are still part of academia, but you're right, we have some really experienced, outstanding former professors and some current. But I also don't want to dismiss— with two-thirds of the people here have advanced degrees, and we have some unbelievable applied thinkers. But there's interesting things. You think about your professor, you're choosing to go to academia. How applied are you? And there's some who are absolutely outstanding and spectacular. But there's also some people who've gotten master's and some outstanding people who come out of undergrad who are just so brilliant because they're really interested in the applied side that they wouldn't go get a PhD because they wouldn't want to be a professor. So the key thing is a really eclectic group of non-correlated thinkers also. To try to deal with this. But yes, we do have quite a lot of academics.

Okay, so what's the next element? That was the technical piece.

So the next element is leadership and management. And I've always been shocked— and Golmös is a wonderful place, but, you know, having spent 10 years there, I always did see that sometimes if you have the biggest P&L behind you, you become a leader or manager, and that can create some problems and challenges. And so we all have these words about what is leadership and management. We have every person has a point of view or a visceral response. But they're not muscles that we oftentimes exercise to reflect on what is it, what are the components, how do you do it? So we actually took our entire partnership— I think it was a couple of years ago— we went to West Point. They have something called the Thayer Institute, and we'll have these experiences. And we met with about 6 generals, and we had a whole weekend together reflecting on and building skills and creating frameworks for leadership management. We'll also bring in professors and leading experts and authors on the topic of leadership and management. We also have a whole staff of executive coaches who come into AQR to consult. So there's constantly— you think about Federer going to Abu Dhabi and working on his game in the summers. You build these muscles and knowledge, and we don't take it for granted. Good leadership and management just doesn't happen. It needs to be reflected on. It needs to be framed. It needs to be worked on. And so we have a very significant program and effort. So just as we'll bring in academics or outsiders to think about technical knowledge, we'll do the same thing on leadership and management. And the third thing, which is one of my favorite— and I guess they're all favorite because they're all necessary— the third component would be personal well-being. I think we as founders have a covenant. I'm a really big believer you got to give to get. And we owe people who come to AQR a great experience, hopefully their own self-development. And sometimes we're going to disappoint. This is cyclical business. But the North Star for us is delivering a great environment where people get to discover themselves. Just as when I remember when I was back in business school and formerly wanted to be a professional tennis player, going to business school thinking about defending hospitals and doctors. And then I was exposed to all these different things. We want to expose our people to different things. So there's various dimensions into the personal well-being, whether it's meditation, and your emotional well-being, or whether it's councils on physical well-being and health. But also, I created— one of the things I think is really cool is this book club we created. It's not a typical book club. I remember it was inspired by the show Two and a Half Men, where Alan Harper and Charlie were in this bookstore, and Alan starts crying, and he's taking all these books, and he's thinking life is passing him by, and he hasn't read all these books. And if you think about all of our lives, we're really busy. If you think about Catcher in the Rye when you're younger, or The Great Gatsby, whatever you read, Sometimes it's in one ear, out the other, because you're just expediting, trying to pass. And just as we are quants, we're trying to learn as much as possible about the past to inform our better decisions about the future. And of course, we want to build systems that will work in the future. How about reading some of the greatest literature ever written? How to live a life well lived, to take moments and reflect on reading great works by Dostoevsky or whoever, or various topics. And what we'll do is we'll bring in a professor. Like, for example, a number of months ago we had Michael Puett, who's the head of Asian Studies at Harvard, come in and give us a lecture and teach us a class on a book called To Live. To Live was a book, was banned in China for 20 years, and it was about the arc of a life of an individual going through the Chinese Revolution. And AQR has 70-plus Chinese foreign nationals working here, and, you know, while we're all human, we have different perspectives of what happiness is, what a fulfilled life is. And we just don't understand each other perhaps as well as possible. So to have the head of the Harvard Asian Studies come in and to teach us a book called To Live was really insightful. And we're sitting around in this classroom that we built downstairs, which is like an academic classroom, with this great professor, learning a lot about Eastern philosophy about life with our colleagues, many of them from China, was a great cross-cultural understanding. And then we had Martin Seligman, who was another professor who came in, who's done some of the most rigorous statistical research, a professor at Wharton, on happiness and a fulfilled life. And so to have Martin come in and talk to us about the ingredients of a happy, fulfilled life in a very statistical way is both relevant, but it's meaningful and impactful. And so it got a lot of our people, because inertia can be a very powerful force for all of our lives. We get up, go to work, we do our thing, we think we're happy, but are really open to the world of art. So the book club is a moment of pause to reflect and another example of how we're trying to invest in creating lives well lived.

Great. Okay, couple quick questions. You know, the name of this podcast is Take the Long View. It's all over my wall in my office. It's on our pens. It's— we end our emails with it. It's everywhere. And it means a lot of different things to us. Can you give an example or talk at all about how you think the firm or you personally have taken a longer view in some way that has benefited you or might be counterintuitive to the listeners?

You're certainly right about the importance of it. And I keep thinking, what is the long term? Is that 20 years or 5 years? And there's the reality, what it should be, because you don't really learn much about anything over these short periods of time, and that's even years. So we recognize as statisticians that you are super right, that we need to take a long term. And one thing we've recognized is that the only way to have good long-term results is being disciplined to sound and economically intuitive principles over the long term and rebalance. When we look at Warren Buffett, right, arguably many consider to be one of the best investors in the world, but he's had 6 years, if I remember correctly, or more of material underperformance. But people have been really well served by sticking with them. And it's much easier to stick with something that's conventional, but to lose unconventionally is a lot harder. So when AQR tries to deliver alternatives, differentiated stuff— sometimes it could use a little leverage, sometimes it could use derivatives— and when it has its tough time, it's more difficult for our clients to stick with things. But we'll challenge convention, because we know that even though beta in the market has had an unbelievable last 11 years in a row, that it's very easy to believe that all you need in the world is the S&P 500, because it compounds like this. And it's been an anomalous run at really low volatility. And so people are very much seduced into, that's all I need. And we know we're not going to accept that reality. And people will say, well, look, you're wrong now for 10 years. Look at that. I mean, I should have just had a single asset. When we take the long view historically, that's just not reality. When you look at valuations today going forward, given valuations, that's even probably a lower probability bet. I guess one insight is, is that we could easily adopt the more conventional approach and traditional approach and accede to, yeah, you should just index everything. Yeah, you should just buy the S&P and not fight that battle. Or we can take the stuff that we believe in, which has a little bit more complexities, and deliver them to people and explain to them the intuition. And then when they have their tough times, really be transparent with them. Let them understand it. And if anything, it's such an interesting thing in our business too, because where else in the world when something goes on sale do people run out of the store? It's only in the world of finance. And so we're big believers in diversification. We're big rebalancers. When we have our tough times, people we believe will be best well-served are the people who are actually rebalancing into us. Contrarian investing is a really tough thing to do, but it's probably one of the things that works best over the long term, as long as what you're reinvesting in has sound economic intuition and principles behind it. So again, I think we're big believers that there's an easy way and a commoditized way to just accede to convention, but we're not going to. And you know, because of our principles of, um, and intellectual belief in what we do and the benefits to people's portfolios over 5, 10, and 20 years, we're going to keep fighting the battle we fight.

Okay, last question. You're at a cocktail party and someone says, I know you're in the money management investment world. What exactly does that thing you do do?

My mom is always apologizing. She doesn't want to ever tell anybody her son works for a hedge fund manager. I'm like, that's not so bad. It is a word that actually is so heterogeneous. It means so many different things. So if I'm at a cocktail party, I actually keep it frankly quite simple. I'm in the business of managing money for large, sophisticated investors, be it financial advisors or institutions. And I don't even go further. We can spend a little more time on the question, not to disappoint, but I feel my being is so much more than defined by Managing money, I feel like I can't even get into that battle. In fact, sometimes I feel like I have to say, well, I really wanted to be a doctor, or I really care about people. And so cocktail party soundbites to define myself by— I am a money manager. And if I want to condense who I am and the essence of me in that, I'll never win that. It's never satisfying to me. And so I accept the simplicity of it. And if it's an authentic moment, I'd rather talk about that person and I'd rather talk about something soulful or connecting. And when I look at who I am and what I care about, it is this organization, is human development. And so I'd rather have a discussion to define who I am, really about that aspect of my experience, certainly at AQR.

Well, it's probably easier for me to say some of this stuff, so I will. You know, I would say you're the key person in helping build a really important firm that is driving modern finance forward in a way that is helping real people. I'm the ambassador that talks to the real humans on the other end, but what you have created here does ultimately impact real people. And I'm super grateful for the brave choices you made that led to this point. And I'm a person who feels a strong connection to what you're doing at AQR because I feel like that spirit of innovation, it was here in the beginning and it feels like it's here now. And we need that. Our world ultimately, I think, is changing in, in the same way, you know, Moneyball and data and statistics are changing sports in many ways. But in our world, you've made some really brave choices that have led to, I think, really great outcomes, at least for investors we work with. And they don't get a chance to thank you directly. So on behalf of them, I'll just say thanks for the role you've played and thanks for creating 40 Act mutual funds. That the rest of the world, just not big institutions, can access. That's been a hugely important piece of AQR's evolution and then making available to firms like mine who I think really get what you're doing and understand how to apply the tools you're making. This is not trivial stuff. It's big stuff. And I, I'm grateful.

Well, first of all, it's very kind of you saying, actually helpful. I think in the short term we feel disappointed in not delivering as well. And then there's always short terms. But to your point, which is relevant, long term, the conviction we have due to the people we have, the substance that's on our side, and what we're doing, we're confident in the long term, but always a little bit angst about the short term in anything. And so it's very kind words that you say, and our motivation, intensity to do the right thing for our clients is profound.

Thank you. Thanks for spending time with me. Thanks for having me in Greenwich, Connecticut.

Thank you.

And check out the show notes. You'll see more information on David's background and any special items we may have referenced during our conversation. And thank you for continuing to listen, subscribe, and write reviews. See you next time. What does financial independence mean for your family? Please note the information shared in this podcast is not intended as advice. The intent is to share meaningful experiences. I am likely not your advisor, nor wealth manager, nor financial planner, and my opinions are my own and not necessarily shared by Hill Investment Group. Investing involves risk. Consult a professional before implementing an investment strategy. Thank you.