The Role of Active Management in the Modern World

A trio of thought-leaders explored The Role of Active Management in the Modern World with the MOI Global community at the Latticework 2017 summit, held at the Yale Club of New York City in September.

The expert panel featured: Robert Robotti, president of Robotti & Company, Michael van Biema, founder of van Biema Value Partners, and Andrew Burns, associate at Global Endowment Management.

Jim Basili, managing partner of Blacktree Capital Management, moderated the conversation.

The following transcript has been edited for space and clarity.

Shai Dardashti, MOI Global: I am honored to have Jim Basili hosting our next panel conversation. Jim is a longtime friend; we met a decade ago, if I recall correctly. He is the managing partner of Blacktree Capital Management, a family office he established in November 2007. I am also very excited to announce that, in January 2018, Jim will launch a new fund called Lightsail Capital, making long-term investments in a group of small growing public companies. We could talk more privately, but Jim has a history of investing in smaller companies in various contexts and what he’s doing now is very interesting.

Jim Basili, Blacktree Capital Management: It is my pleasure to be with such a distinguished panel here, and I am going to introduce them to you guys, and then we will launch into a conversation, which we are all going to enjoy.

Andrew Burns works at Global Endowment Management. Global Endowment Management is a multi-endowment, multi-institution firm, managing about seven billion dollars as an outsourced chief investment office for its clients, letting them aggregate their capital so they can benefit from the scale that some of their larger peers have. Andrew focuses on public markets for Global Endowment Management. He joined the firm in 2008, so he got there just in time to have a full market cycle of education in about two years. We will talk a lot about the changes that he has seen at Global Endowment Management since.

Bob Robotti is the president of Robotti & Company. He got his start in public accounting before coming to Wall Street, and that start was an incredibly auspicious one because he audited Tweedy Browne, the legendary value firm. If that is not pedigree enough — I’ve heard you tell, Bob, that the first stock you ever bought was a recommendation from Walter Schloss’s son, Edwin. On top of that, he also audited Gabelli & Company’s books, and then went on to work for Mario Gabelli before starting Robotti & Company. Robotti & Company have now been around for over thirty-five years, which is a very long time to have a market-beating track record, and their track record has beaten the market by a wide margin in that period.

Also here is Michael van Biema of van Biema Value Partners, a multi-strategy allocator, and Michael, before forming the firm, was a professor at Columbia Business School for about a dozen years beginning in 1992. In that time he taught at the vaunted value investing program for both M.B.A.’s and executive M.B.A.’s and he also managed to find time to co-write a book which many of you are probably familiar with and have enjoyed, ‘Value Investing: from Graham to Buffett and Beyond.’ Despite his finance and value pedigree, Michael’s own education was not in finance or value. He was an electrical engineer as an undergrad and got a Ph.D. in computer science. His first jobs after graduation were in the IT field, not in the investing field; perhaps, we will get to talk a little bit about the way those two fields are converging.

I would like to start by interrogating the title of this panel, which is, “The Role of Active Management in the Modern World”. We are going to break down that title a little bit and ask some questions about what that title means. The first thing that we are going to do is talk about that word ‘active’ — because there was a time when there was no other kind of management than active management. It is a sign of where we are today that we have to make a distinction between active management and something else. That something else, obviously, is indexation or passive investing. By some accounts, that now equals about a third of investor capital the United States, up from roughly nothing in the 1960s; it has been a very dramatic change.

I would like to ask each of you guys as panelists, “How do you feel about the ways passive indexation can be done right, and maybe more interestingly, the ways it can be done wrong?” Before we got on stage I spoke to each of you, individually, and you all said you felt there was a place for passive investing — and you all had some interesting comments on what that might mean in terms of the way it is done right and done wrong. Talk about what is good and bad, what is right and wrong about passive in the way it is done today.

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