This is Master's in Business with Barry Ridholds on Bloomberg Radio.
This week on the podcast, I have an extra special guest. What can I say about Julian Salisbury. He is the chief Investment Officer of Asset and Wealth Management at Goldman Sachs. He's a member of the Management Committee. He co chairs a number of the asset management investment committees. He covers pe, infrastructure, growth, equity, credit, real estate, on and on. Really a fascinating person who has seen the world from a unique perspective in multiple
cities as an investor. He's been with Goldman for twenty five years and helps oversee over two and a half trillion dollars in assets under supervision. I thought this was an absolutely fascinating way to see the world of investment management. And I found this conversation to be fascinating and I think you will also, with no further ado, my discussion with Goldman Sachs. Julian Salisbury, Welcome to Bloomberg.
Thanks Berry. It's great to be here.
I've been looking forward to this conversation for a long time. Let's start out with a little bit of your background. You begin in audit practice at KPMG. What was the original career plan.
Honestly, I didn't really have a long term plan. I grew up in a family where my mother was a mathematician, my father was a chemist. I didn't really know much about the world of finance. Investment banks were not really a known concept in the area I grew up. I graduated college, realized I need to needed to get a job. And my dad had always said, as you know, many young kids get this advice doctor, a lawyer, accountant, engineer,
and accountants seemed like a reasonable option. And I kind of stumbled my way into accounting and what I found was it was just a phenomenal training ground for somebody who wants to then go on to invest especially doing more micro level analysis like that. Background of being an accountant was just was just great bedrock training.
Very precise, very specific. So how do you then go from tax and order practice to finance and invest in very different fields.
Yeah, I'd love to tell you there was some great master plan, but you know, in the UK, you when you qualify as a chartered accountant, first of all, you have to complete your three years training. So you know, people these days want to change job after a year eighteen months you had to finish the three years. I
finished the three years. I qualified. The following week, I'd lined up a bunch of job interviews with a variety of banks, and again, I had ended up in the financial services audit practice at KPMG, so I'd got to know banks a little bit, and frankly, you know, I heard they pay more. So I interviewed with a bunch of banks, got a number of job offers by the end of the week, and joined Goldman Sachs in October nineteen ninety eight.
So let me throw one of your own quotes back at you, because I feel like it's so revealing. Quote the world defining and is it as complicated as newcomers expect. It's simply shrouded in techno jargon. Explain what you mean there.
I continue to find this truth to this day. But when I first joined the firm, I was doing P and L and risk reporting for a credit trading desk, and people start talking about DEVO on this, and duration that jumped to default, this, futures versus cash. I didn't know what any of these terms meant, so I took it upon myself to go off and took a course in bond math, took another course in derivatives, and realized the underlying fundamental concepts were barely I mean, it wasn't
even high school math in most cases. And it was really more about learning not a different language, but a different dialect. And it's interesting because you'll find people who'll be fluent in one dialect, and then you know, they become fluent in credit dialect. And then you talk to somebody who works in an equities business and they start throwing greeks at you, and you've never come across these terms. Again,
it sounds highly complicated. Most people, you could sit them down in half an hour and explain, you know, the majority of the concepts.
That that's been kind of true in a lot of professions over history, is that almost by design, their language keeps outsiders at arms distance, and hey, if you want to learn our secrets, you have to pay us. Are you suggesting that all of this techno jargon is just to create a little mystique around.
I wouldn't say that's entirely what boy you find it And this becomes more and more true, I think is people become very specialized in order to compete and win in so many things today and finance, you have to be super specialized. So you find people who are super deep in one area, one narrow area, and it might be it might be investment, great credit or distress credit. It might be equity derivatives, it might be growth equity, and they all develop their own little system of useful terms.
But then they end up becoming almost like a barrier. That makes it hard for an outsider who hasn't grown up in the world of finale, who doesn't have you know, a father who ran a hedge fund or an unkleho ran a private equity firm. It's hard for them to break in without some way of developing that jargon.
So that shorthand works for the practitioners, and there's no malicious intent there, it's just, hey, that's how these people talk in their chosren specialty.
Yeah, it's quite natural.
Really interesting. So you mentioned you joined Goldman Sachs in nineteen ninety eight, coming up on your twenty fifth anniversary. Congratulations, thank you, that's pretty good heady times in ninety eight. What's kept you with Goldman for twenty five years.
Look, I think first of all, it's the people just super high quality people across the business, no matter what part of the firm they operate in, just the average intensity level, integrity level capabilities, and it's just really hard to match when you get to other organizations. So people is a huge part of it. Another part of it is I've been lucky in that I've you know, although I've been in one firm for twenty five years, I've just done so many radically different things.
You've been in a lot of different divisions, You've had a lot of different job description.
Yeah, I've been in I think all but one division at this point, and I've worked in three different offices too continents. I would say it's been a little more evolutionary after the first five or six years, but that ability to constantly be learning and at times be quite entrepreneurial in terms of starting new businesses. So what I tend to find is after three or four years, it depends how big and complicated the task is. But after in some cases it might be two years, in other
cases it may take a little longer. Three four years, you know, you start to think what's next. You know, you develop reps. A lot of things are hard to start with, and then it's like I love sports analogies. It's like lifting weights. At some point you have to start changing the exercise or increasing the weights, otherwise you stop developing and learning. And sometimes it's a and then you can go back to what you were doing before and you come back and you've benefited from that cross training.
But it's the ability to constantly learn and keep adapting.
So you mentioned a couple of continents. You've worked in London, in Moscow and now New York. How have your roles changed in each of those locations and what do you learn working in very different parts of the world.
Yeah, So I joined, as I said, in ninety eight, and I was doing P and L and risk reporting for the investment grade trading desk and then the high yield desk. I ended up being hired onto the high yield desk as a research analyst and did that for a number of years, a couple of years, and then I was the beneficiary of the TMT bubble bursting in two thousand and one, so the whole sector that I
was covering went bankrupt. So I went from being a publishing high old research analyst to a distressed debt analyst and an investor.
Same companies, just same companies. Yeah, they just became distressed.
The high your bonds quickly went to zero and then you're buying the bank loans at discounted prices. So and that was that was fairly evolutionary. And then in about two thousand and three we set up a group called the European Special Situations Group, which was a multi asset class proprietary investing business. It was centered around credit, but
really invested in both credit real estate growth equity. I led the corporate research team there for a few years and then, you know, in a fit of madness, I guess at the end of six you know, the credit markets were pretty uninteresting. There wasn't a lot to do. It was kind of bad companies issuing low quality bonds, and I thought about, you know what's next. I actually went out to visit the team in Asia and thought
about moving out there. And my wife happens to be Russian or bella Russian, so I had an interest in the Russian market. And around that time, Russia was starting to open up a little bit. It was a very different place till we find ourselves today. They were starting to want to attract international capital and I did a couple of trips out there and the next thing I know, my boss is buying me a one way ticket to Moscow. So I spent the next couple of years there. The
role there was quite different. Was really building a growth equity business, and we had some great successes. Not backing oil and gas companies or formerly state owned assets. It was really finding growth equity companies, young entrepreneurs that were building businesses. I did that for a couple of years and then I moved back to London at the end of O eight, which was a really interesting pivot. Yeah, I was asked to come back to lead the European Business,
which you know, took about buying at the bottom. You know, at the end of eight we owned a lot of I liquid assets and whilst on a relative basis, you know, those assets outperformed what was going on in a lot of other private firms. You know, it was certainly I think we had one hundred and sixty nine positions on the book at the time and there was a problem with one hundred and sixty eight of them at the end of eight. That was kind of like a you know,
almost like a distressed buy at the bottom assignment. But was interesting about that was the quick need to both separate the portfolio between the old stuff and the new stuff, because there were a lot of new investment opportunities and if people were too burdened down by dealing with legacy situations, they couldn't really focus on the new opportunities. And frankly had to do with the same with the people.
I think that was a proposal from one of the central bankers. We need a bad bank and a good bank. You inherit a whole bunch of positions that have come through the financial crisis. You really want to look at this as hey, here's the legacy stuff that comes with a little air on it, and here's our opportunistic Hey look at all this stuff that we have no exposure. What was the financial crisis like when you were in London? How in the US? It was sheer mayhem? What was it like over there?
Absolutely? I mean it was an existential event. I mean people were wondering, am I going to have a job? It was the here I made partner actually in two thousand and eight, and I thought, great, I just made partner. Is this group? Is this business is going to exist by the end of the year. So it was certainly stressful, but in some ways those events and we saw it again in March of twenty twenty, we saw it again, you know, around you know, we see these big moments
where it draws people together. So actually everybody gets, you know, any kind of nonsense and couch time, all dissiplates because everyone's so focused on dealing with a task at hand. So in that way, it was quite a good defining moment. The other thing I would say is in some ways it was I remember a few years earlier there was one investment that I was working on that ended up being spectacularly successful, but there was a period of time where I was quite worried that it was going to
lose a lot of money. And the reason I was worried it was my position. It was me and the rest of the world was looking good. The thing in wait, everything was broken and bad. So that actually helped in a way that everybody was dealing with the same broad based crisis as opposed to when it's just you or just your firm or just your fund, where in some ways it can feel more stressful.
So what brought you back to New York and what you.
Was at SO I led the European Special Situations Group from eight to twenty thirteen, and then at that time I was asked to run the global business and it seemed pretty natural to move to the US at that time. There are a couple of reasons for that. One, the London market is where it's about most of my career. I knew the market, but I also knew the people there. I was very well calibrated at a very strong and trusted team, the vast majority of which are still with
the business today. So I felt like that was the last place I needed to be. So then it was a question of Asia or the US. If I'd moved to Hong Kong, I think it would have looked like a fairly self serving tax trade. If I had done that, it would have been because I thought that was one of the more interesting markets at the time where there was real out for generating capability.
But so you said, let's find the most expensive taxable city. Yeah, world, Yeah.
Now, what I decided to do what's right for the business, and what was best for the business at the time, was to be in New York. It's a New York headquartered firm. It's a it's a US centric firm. I think that's fairly well understood. And at the time, we
were going through a lot of regulatory change. Capital rules were changing, risk appetite was changing, and being at headquarters where you could stay close to the people, you know, whether it's head of compliance, head of legal, head of risk, some whoever was running the business needed to be close to those decision makers in order to shepherd the business through that post financial crisis period where there was a lot of you know, the volcal rule like brought into focus.
You know, could we do these businesses? Could you run private equity business? Could you run distress credit businesses? So we really had to work through that over over a number of years, and that's what really brought me to the US. And you know, I wasn't a huge fan of New York before I moved here, but now we've been here almost ten years, we love it and you know, I can't imagine leaving.
Tell us a little bit about what the Goldman Sachs asset and wealth management business is, like, what do they focus on?
Sure, Well, at the simplest level, we manage money for our clients about two point seven trillion dollars of assets today. Three main client segments institutional clients, our own private wealth clients, and then third party wealth clients where we manage money on behalf of other wealth managers distribution partners. So those are the three main segments. Within institutional we manage money on behalf of pensions, endowments, insurance companies, sovereign wealth funds.
So that's essentially what we what we do from from a client segmentation perspective, and we do that globally US, Europe and Asia. In terms of the from the from the investing side of the business, we really are somewhat unique in that we cover the full range.
Of products from meaning both public and alternatives.
Yes, and really even within that the full range, so everything from money market funds, core fixed income, high yield, fundamental equity, quant equity, and then the full range of
alternatives both direct and indirect. We have a business where we invest in other people's private equity funds, private credit funds, and then we have a series of direct investment strategies private equity, growth, equity, credit, real state, infrastructure, sustainability, life sciences, so what we find and then of course we have a multi asset solutions business where we talk to clients about the entirety of their portfolio, their strategic asset allocation models.
So what we find is with our clients increasingly, they don't want to just be pitched on a product or pitched on a single idea. It's like, what do I do? How do I address my needs? What are my liability structures? How do I make long term investment decisions? And then how do I execute upon that overall advice through these individual investment opportunities.
So that sounds like a substantial menu of options that can be fairly customized for each individual client, regardless family office, high net worth individual, or one of the institutions. Take us through a little bit of what that process is like, because I have to assume it's not cookie cutter. If you're dealing with a sovereign wealth fund, that's a very different conversation than a family authors.
Look, every client is different. They have a different liability structure, different investment goals, different investment risk tolerances, and we have different teams. We have an institutional client team, we have private wealth advisors that cover our own clients directly, and then we have a series of people that cover the distribution partners. So it's pretty bespoken, tailored to their individual needs. And yes, some demand and expect a high level of
customization and a higher level of service. If somebody's giving us billions of dollars, then they expect a very high
level of customization. At the simpler end, it can be a relatively plain, vanilla product, but even our private wealth smaller private wealth clients are increasingly looking for broader set of advice and customization in terms of how we design their portfolio, which could be implementing values that they have or tilt that they have a desire to include or exclude certain products or q SIPs within their within their equity portfolio or fixed income portfolio.
Really intriguing. So so your chief investment officer of asset and wealth management, that sounds like there's a pretty big list of responsibilities under that. So not only are you describing the broader asset allocation decisions with various clients, you're also selecting the specific assets that go within each of those allocations. Is that is that more or less right?
So we have we have different teams that do this. So we have our MAS team, a multi asset solutions team, who are really providing more of the overall portfolio advice, and that's that's a discrete skill set by doing that. And then we have investment teams in each of these areas, so we have specialists in each of the sectors that I set out for you. I'm responsible for each of these individual investment teams making sure we have the right
players on the field, the right processes in place. And then as it relates to the private side activities, I co chair all of those investment committees, so the individual deals that are coming through in our private equity business and our growth equity business and our real estate business. So we have you know, I'm one person. My primary responsibility at the end of the days to make sure that we have the right people on the field, you know, fulfilling each of these roles and functions.
You're the coach and you're sending different players in to do different jobs. So your background, you've worked at merchant banking, you've worked in special situations. How does all of that come into play as chief investment officers.
It's interesting because some of it's helpful and useful, and then sometimes it can bur in. You you know, when I ran a special situations group, it was a pure investing business. We didn't really have clients, we didn't really have to worry about marketing or advertising, didn't spend time on podcasts or TV. We kept everything as quiet as possible and one hundred percent of the focus was just finding interesting investments that we generated the highest return on
equity possible for the firm. Wouldn't be a dollar of risk that we would deploy that I wouldn't personally review. We'd have a couple of hundred deals a year coming through investment committee. And that was interesting and it was a great model while it lasted. But I would say that the industry changed, the regulatory environment changed, and also I used to sit back and think, this is great. You know, we just get to focus on assets and asset risk management. I don't have to worry about flying
around the world collecting capital from LPs. We have one LP and it's the firm, it's Goldman Sachs, and they're in the same building. The problem is, you know that there are multiple problems with that, but one is you miss out on a huge information piece, which is understanding what these huge asset allocators and investors want and understanding what their liability structures are and what their needs are from an investment perspective, really informs your view on the
forward path of asset prices. And then you know, I would also say we were seeing increasing need from our clients to increase allocations to alternatives, and we were doing a lot of this for ourselves, but we didn't have enough investment product to be able to offer to our
clients and scale and grow the business. So it was a very natural evolution to take a series of businesses which have been prosecuted either wholly on balance sheet or to a large extent on balance sheet, and start to evolve that business model where we continue to commit our own capital and our partner's capital, but to bring in client money alongside us.
So you touch on so many fascinating areas. I have to follow up at least with three of them. One is you mentioned clients once. How do you separate when clients want something from when clients need something, and then lastly from when hey, all these clients are all clamoring for the same asset class. Maybe this has had a little bit of a good run and it's time to think about leaning the other way. How do you juggle all of those OK.
Our job as an advisor to our clients is to know them intimately, to understand them, to understand their funding structure or their liability structure, to understand their risk tolerance, to understand their investment philosophy and approach, and then really to bring to them a variety of solutions. We have a team that really looks at their portfolio holistically across all asset classes, and then we have individual teams that can help bring implementation in each of the individual asset
classes to make up that overall portfolio. But it's really a solutions oriented approach and a very client centric approach.
You mentioned liability. I want to discuss that because I think the layperson who hears this may not understand when we're talking about financial liabilities. What we're really talking about is, hey, we have a bunch of people retiring in ten years and we expect to have to pay out X dollars. Go into a little bit of what those liabilities are, not you know, the usual use of the word sorry.
When I say that, I mean, by the way exactly people should be. If people had forgotten about asset liability mismatches, they've got the starkish reminder of it possible, or the collapse of SVB for a few weeks ago. Generally, it's asset liability mismatches that causes you know, the bank bank failures, but it also causes in some cases hedge fund failures and other financial institutions to fail. So what I mean
by that is what is your source of funding. If you're an individual investor, for example, your your source of you don't have to give that money back. It's your money, so you may be able to afford to tie it up as long as you've kept enough money aside to meet your near term liquidity needs. You know your cost
of living essentially. If you have a private equity fund where you've raised money from institutional clients, they have given you that money for ten years, often some cases it could be longer, so you have time to invest that money, generate a return on that money, and give the money back. If you have hedge fund money, you may have to give that money at a month or three months notice, so you have to be very careful about how long
you lock up your investments for. And if your source of funding is overnight deposits that can be called on that are on demand, then you have very very short liabilities. So what I mean by that is, first understand the duration of your funding source. That's what I mean by liabilities. Insurance companies have very long dated capital. Pension funds have quite long dated capital. It tends to be quite sticky.
So first it's understand the duration of those of that funding source, and then the second is understand the return requirement of that funding source. So, for example, a lot of pensions and endowments would tell you in order to meet my obligations to pay pensioners for the next few years, I need to generate on average a seven percent return on that portfolio. And if I do more, that's that's good.
But I, you know, in extremists, I should want to achieve a seven percent return and take as little risk as possible. So then they have to look at what's my what's my mix, and how does each investment that I make help me achieve that goal. So it's it's really understanding funding source duration, funding source, return requirement, and then for certain types of financial institutions, understanding the capital rules.
So for example, if we raise, if we invest money for an insurance company, how we structure that can make a difference to the amount of capital they have to hold against it. So it's our job to better understand these. Of course, you know, the best funding source is to just have lots and lots and lots of your own money, with no particular time horizon on which you give it back, no particular capital rules that you have to comply with, no compliance you know, no clients to actually have to
answer to. But you know, most people don't have the luxury having that much money in it.
Perpetual capital is the ideal, absolutely and actually can do that. So earlier we were talking about assets and then you referenced risk management. Tell us a little bit about the difference between managing risk and merely owning assets.
Well, look, I would say whenever you are making investment recommendations to your clients, you have to think about a range of potential outcomes. Of Course, there's a base case outcome for most investments that you might make. If you invest in a bond, base case would typically be that it pays a coupon until maturity and there redeems at par It might not be a straight path between when you buy it and when you get redeemed. That's a
general expectation. There's a general expectation in the markets that if you hold equities long enough, they will generally go up in price. Again, it may not be a straight line. Similarly, when you buy private assets, there's a general expectation that these things will are created in value. But what you have to really do for each client is help the understand what's the risk of the deviation that could occur
around that base case. And sometimes people become relatively blase or they kind of fall into this mode of thinking there's only ever going to be a tight range of outcomes, and they don't think about the extreme event. What could happen in a more stream Could I survive an extreme set of circumstances? So a great example. You know, some of these things you can plan for and some you can't.
Like So, for example, it was probably unreasonable in March of twenty twenty that companies would have a war chest. A hotel company would have a war chest that would see them manage through twelve months of zero revenues based on the global pandemic. So there are some things that you can't but there are a lot of things that you can.
On the flip side, the airlines had a couple of weeks runway it turns out now to be enough.
Yeah, exactly so, but there are certainly things you could prepare for. So can I withstand an equity draw down? Do I have the liquidity available to meet my ongoing cash flow obligations even in the event of a drawdown. And then you see some surprise events, So it was kind of interesting. We've seen a couple of these events now.
One you know, when people have asked me to compare and contrast today versus two thousand and seven, two thousand and eight, you know, what you hear from a lot of people is, yes, there's some fairly heady valuations and there were some fairly aggressive kind of investment strategies being pursued. But I would say generally there's less leverage in the system. The banks, the large banks at least, are better capitalized. You have fewer hedge funds making long data liquid investments
with three month capital. There's just generally more duration in the liability structure so that people can withstand a storm. And then you see the events of September of last year where the UK pensions, many of the UK pension plans had a very short term liquidity crisis. Because they basically had a mismatch between their assets and their liabilities.
Comparable to Silicon validate.
It was a little different in this case in that they had very long dated obligations or pension liabilities. They couldn't match those liabilities in the investment market, so they bought duration in the swap or the derivative market. And then when you saw a sharp move in UK interest rates based on inflation concerns that came to arise back in September, all of a sudden, these pension vuns were subject to margin calls which they had to rapidly liquidate assets.
Now most of them had pretty much all of them had enough liquid assets to meet those margin calls, but I don't think they'd really kind of prepared for themselves to that kind of like two or three standard deviation event. Similarly, you look at what happened in a few weeks ago with the SVB situation. You had a lot of people who had hundreds of millions of dollars unguaranteed deposited with one bank. They should probably never have been doing that.
They should probably have always had it either in multiple banks or more likely in a money market fund where you have a truly diversified set of risk. So I think it's really not thinking, it's thinking through for each client, what's my base case return for their portfolio, what's the base case return for an individual asset within that portfolio? And based on like large deviations from norms as you saw last year, for example, with both bonds and equities
going down? Can I live to fight another day? Can I live to fight another day? That's the number whenever I think about you know, crises. You know, number one, two and three is liquidity. Can I get to the other side, because if I have enough time, I can dig my way out of a hole.
There was a book I don't remember if it was the thirties or fifties, The Battle for Investment Survival. Maybe that was Gerald Loebe. But it's all about what do I need to do to make sure I could get through this and still be standing after the storm? Receipts yep, dead on. So let's take a look at a day in the life of a CIO responsible for that much capital. Tell us what a typical day is for Julian Salisbury's.
It's hard to say a typical day, but I could tell you over the course of the week generally, how I spend my time. I mean, first of all, you know, one of the one of the most fun parts of it is sitting on the investment committees for our private side activities. So we have our Private Equity committee on a Tuesday, our Growth Committee on a Monday. We also do infrastructure on a Tuesday, We do real estate on
a Wednesday, and credit on a Thursday. So that's that's kind of like a central core part of how I spend my time, really seeing what the teams are bringing through in terms of deals that we're looking at in the early inception of the transaction as well as you know, taking these deals all the way through to final approval.
That's on the private side, and then on the public side, really getting market updates from our various portfolio managers and CIOs across the public side business in terms of what's been happening in those businesses. So that's the kind of more investment side of things. Then there's business reviews going through each of these individual investment units and really looking at their structure, their resource allocation, their talent, their performance.
Is something I spent a lot of time on really dissecting not only what is their performance? But why have they performed the way they've performed, both on an absolute and relative basis, both versus benchmark and versus clients. I spend a lot of time either individually, one on one with people or talking to our different investment teams around talent and cultivating talent and building culture within the businesses.
And then there's clients. I spend a great deal of time with clients either on the road, a lot of time on the road, probably you know, like twenty to thirty percent of the time on the road with clients, and I always find those just incredibly informative meetings, really really deeply understanding the wants and needs of our clients, and that certainly helps inform investment judgment and decisions that
we're making on the asset side. And then I would say the final thing is just you know, kind of them from a strategy perspective, what are the new investment products or investment solutions, whether it's new strategies or different wrappers around existing strategies in order to be able to deliver our investment solutions to a broader range of people.
So so many questions to ask. Let's stay with strategies first, So what trends and practice areas have you most excited looking forward twenty twenty three and beyond.
Well, when I think about our need for talent and the organization, I think of it as three buckets. There's our client business where we're providing solutions and advice to our clients. There's our investment teams, and then there's the operating platform and we'll come back to that last one in a second, because that's a critical area of focus for us. I would say from a client perspective, we
really see growth across all of our client channels. So where as we grow the business, as we expand and the number of clients, and we expand the number of offerings and solutions that we're bringing to those clients, we naturally need more client advisors to help support the growth of that business and maintain the level of service and
advice that our clients expect. So, whether it's our institutional business across pensions and endowments and insurance, whether it's our private wealth advisors where we're adding advisors, or our third party wealth channel, you know, as we scale and grow the business, there's a general need to have more talent to continue to provide the level of advice and service that we would want from an investment perspective. You know, we're continually looking at our teams and continually looking at
performance and looking to refine our teams. But you know, we really find that those investing businesses are quite scalable. So it's really as we expand the size of the platform, we do need to add talent in order to help manage an expanding pool of assets. And then on the infrastructure, I would say there's a you know, continual demand and need to invest in technology and operations in order to deliver a better crime experience and to continue to improve
and enhance our already strong risk management capabilities. But you know, that's an area that we've added quite a bit of talent in the last few years.
I've had a number of people sitting in that exact seat also the same thing. I'm going to throw their questions at you. Finding talent is not only the most important part of their job, it's also the hardest part. YEP. Is that overstating it or is that a fair no?
It's it's absolutely It's absolutely critical, and it's amazing the difference one person can make so we have a pretty well tried and tested campus recruitment approach. So we're going out to schools across across the nation as well as around the world to find, you know, the best and
brighter talent. I would say we've opened up the funnel materially over the last you know, decade or two to try to expand the size of the of the searchable universe, essentially to attract not just the obvious kid who did the finance degree at the obvious finance focused school, but
to attract a broader range of talent. I really find that diversity, and I mean I use that term broadly defined people who come from a variety of different backgrounds, experiences, different college degrees can be very useful to bring that
that that range of people into an investment business. So we have a tried and tested kind of campus recruitment approach, you know, in addition to that you know later or hiring you know, while we well, we certainly endeavor to bring people in at the campus level and and and grow them and help advance them over time to take on more senior positions, so that often when somebody leaves, there's you know, somebody behind them. Ready to take on that job, and in some cases more than one person
willing to take their job. You know, we do attract a lot of lateral talent as well, especially around specific new areas that we're growing in. So it's really broad based and look where it's a constant hiring approach. I mean in a I think I heard some stats the other day that a little over fifty percent of the people at the firm have joined in the last three or four years. And that's that's quite natural and understandable.
That's a combination of natural attrition that you have in any business, growth of the business, some acquisitions that we've made, So integrating all of that talent and integrating ensuring that
there's like a cultural assimilation is really important. But you know, the other thing that's key is as you're whilst you naturally have people joining and some attrition, is making sure you have a strong core of people who are consistent and have been there for a very very long time, especially in the asset management business, because when people give us money to manage, they're giving us money to manage for a very long time. It's not about a transaction
or a trade. So if you look at our core business. You know, we have many hundreds of investment professionals that have been doing this for decades.
You mentioned lateral hires on new business areas. What sort of sectors and trends are you excited about looking out over the next couple of years.
Well, when I think about our need for talent and the organization, I think of it as three buckets. There's our client business where we're providing solutions and advice to our clients. There's our investment teams, and then there's the operating platform and we'll come back to that last one in a second, because that's a critical area of focus for us. I would say from a client perspective, we
really see growth across all of our client channels. So where as we grow the business, as we expand the number of clients and we expand the number of offerings and solutions that we're bringing to those clients, we naturally need more client advisors to help support the growth of that business and maintain the level of service and advice
that that our clients expect. So, whether it's our institutional business across pensions and endowments and insurance, whether it's our private wealth advisors where we're adding advisors or our third party wealth channel. You know, as we scale and grow the business, there's a general need to have more talent to continue to provide the level of advice and service that we would want. From an investment perspective, you know, we're continually looking at our teams and continually looking at
performance and looking to refine our teams. But you know, we really find that those investing businesses are quite scalable, so it's really as we expand the size of the platform, we do need to add talent in order to help
manage an expanding pool of assets. And then on the infrastructure side, I would say there's a you know, continual demand and need to invest in technology and operations in order to deliver a better crime experience and to continue to improve and enhance our already strong risk management capabilities. But you know that's an area that we've added quite a bit of talent in the last few years.
Really quite interesting. So this has been kind of a funky year. Inflation seems to be coming down. We don't know when the Fed's going to be done their rate hiking cycle. How do you look at twenty twenty three from an investment perspective. Do you think, hey, we have to make some wholesale changes, or are you building portfolios where hey, that's what happens the market cycle. Rates go up and down. You have to have robustness in order to encounter these.
I think you have to have some consistency to your process, but also have the humility to realize that you need to make adjustments. And every time there's an event in the market, it should cause you to rethink how you do things, whether it's SVB or the events that we saw in the UK pension system last year. These are these are opportunities to learn and enhance your process. But
I don't think this is a wholesale shift. We're in a higher rate environment obviously for now, and while rates will likely start rolling over, you know, into next year, I think I think we're in an environment where the hurdle rate for making more illiquid investments is higher, so you've got to be really mindful that you're getting paid enough for the on a nominal return basis versus the risk free rate. But I don't think this is a
major shift. I mean, the way we're looking at the market today is the equity markets are fairly fully valued on most metrics that you look at, and therefore, you know, we view rates as most attractive generally, credit as somewhere in the middle, and equities as looking like the most stretched. But I wouldn't make a you know that that causes you to tilt or lean in terms of how you are sure portfolio. But you don't like it's not a radical,
a radical shift in approach. You know, we look at you know, people's long we look at it from a long term investment perspective. What are the long term goals of the client and do they have an asset allocation that's going to help them meet this long term goals. So we start with a strategic ass allocation, but then there could be tilts around that based on the environment.
So you mentioned earlier, twenty twenty two was so unusual. It was one of the few years that we've seen where both stocks and bonds were down double digits. I recall a lot of people declaring ass allocation is dead, sixty forty is dead. Everybody has to start over. I'm going to assume you do. You don't buy into a world of allocation is over.
No, I mean, it was a you know, it was a bad year for sixty forty, that's clear, but you also have to recognize that the speed and nature of that rate hiking is it was pretty unprecedented. By the way, it really demonstrated why diversification in a portfolio is important, because there were other asset classes you could have owned that would have seen better performance. Commodities, for example, had
a particularly good year. One could argue that it was simply you know, the difference between mark to market and non marked to market. But if you'd had a more heavier waiting towards privates in your portfolio, that would have
created a ballast and some consistency to your returns. But I certainly don't think it's I certainly don't think it's it's dead, But I do think people should think about, you know, within the sixty forty, for example, is it all public bonds and public credit or are there other alternative products, private products that can help form that kind
of bedrock of the income portion of my portfolio. And similarly, on the sixty side, it's not just about public equities and being in index, it's are their private equity alternatives that can give me some diversification exposure to types of assets or industries that I couldn't otherwise get exposure to that, you know, a crete on a more consistent and persistent basis over time and don't have quite the you know, the day to day volatility that we see in public markets.
So you mentioned the rate of FED hikes we've seen is has been very rapid, arguably unprecedented. How do you look at FED actions and this rate volatility, How does this affect your outlook going out, you know, beyond just the next month or quarter.
Again, you have to break it down asset class by asset class. There you know, within our macro businesses, wh our public markets businesses, you know plus minus twenty five basis points in terms of peak and the exact month it starts rolling over it. It makes a huge difference, and it's something we focus on. We have, you know, a research based approach. We have an outlook and a set of expectations and if the reality deviates from those expectations,
will refine the approach. We have other asset classes that on the face of it, should be less sensitive to the day to day machinations of the rate market, but when they move as rapidly as they just did, it can have a dramatic effect. So what do I mean by that? You know, I sometimes think, as you know, when you're when you're a micro investor doing private deals, it's like playing a game of chess. If you get the macro wrong, it turns out you were playing chess
on the Titanic. You know you you were. If you could have bought the best piece of real estate, you could have bought the best class B office, you know, twelve months ago and not anticipated the pace of rate hiking that we just saw, and it just repriced the
whole asset class. So I think the approach of the focus on the rate cycle really varies from somewhere, like you know, our money markets business, where differences in duration in how we run that portfolio being plus or minus ten days can make a huge difference in our returns and performance relative to other money market managers. We have other businesses that might hear less rate sensitive or less obviously rate sensitive, but then when you have that magnitude
of move, they really roll over. Another great example of this, I thought it's kind of funny that you know, in the growth equity space that you know, people didn't seem to appreciate the full how much duration risk they were running. And guess what, when you own a bunch of public assets where all the profitability is ten years out, that's a long duration asset. So when you have a rate move like that, it really causes a complete de rating.
Interesting stuff. You've had a pretty busy quarter. You announced three funds, Horizon Environment and Climate Solutions, a private credit fund, and a growth equity fund that all close their rounds, raising more than twenty two billion dollars. Tell us about those funds and what they do and how does each slot into a client solution.
Well, so taking each of these, our growth equity fund really focuses on a couple of different segments enterprise, software, fintech, healthcare, and consumer. Those are kind of like the power allies in terms of industries that they focus on them, typically
making significant but minority investments in fast growing companies. You know, these are companies often with an enterprise value in the area of a couple of hundred million to a billion dollars, sometimes skews higher, but I would say the sweet spot is that area and the reason for that. These are kind of companies that are growing at least you know, we're growing fifty to one hundred percent rates of revenue growth.
Where the potential for takeout isn't exclusively an IPO. They could be sold to a strategic and we're trying to help grow these companies over a three to four year period, prepare them for a public exit or a strategic exit, and we build a portfolio of these of these businesses and we do that globally. That's our growth equity business, and that's a team that's been It's a first time fund, but we've been doing it for thirty years just using our own money. Are our mes fund. This was actually
the eighth in a series of mezzanine funds. We've been doing this private mezzanine credit. We've been doing this for decades and this is really a strong power alley for us. In as much that you know we're tied to the you know, pre eminent investment bank. We have very close relationships with sponsor clients. This means where you know, we're
at the leading edge. Every time an asset is going to trade or refinance, we know about it because of our investment banking business, and we can position ourselves as the preferred provider of the mezzanine capital to facilitate that transaction. And I would say, right now, given what's going on in the world, the rates of return available to us in the private credit markets generally are just unusually attractive.
So that's our that's our mezzanine Credit fund, and then our Horizon Climate Fund is a this is really more of a private equity style control investments, where we're looking to invest in companies that will have a positive impact on the vironment. It's a it's an Article nine fund, and it's it's investing in things like climate, water treatment, recycling,
and these are fast growing companies. But also, you know, so there's a there's absolutely these are these are pools of money that are managed with a profit motive, but they're also investing in companies that are having a positive impact on the environment.
So let me throw a curveball at you. At one point in time, you were a aspiring sports scientist and competitive kayaker. What's that about.
I picked up kayaking when I was you know, eleven or twelve. I started competing when I was fourteen or fifteen. I got quite into it. I took it very seriously. I developed a passion for it, and next thing I know, I'm in the top division in the country and competing at the highest level.
Say, when you say kayaker, we're not talking about the long skulls that we see on the Charles however, we're talking about one or two person kayaks.
It's a one person kayak. You sit down, you have a double bladed paddle and you go down whitewater rapids and you navigating poles in the river. You have gates that you go downstream through and gates that you go up stream through. Most people only know about it because it's in the Olympics every four years and they forget about it. But it's a pretty interesting competitive sport.
Were you ever good enough to think about the Olympics?
I competed at a pretty high level up until the age of nineteen, Up until the age of like around twenty actually twenty twenty one. I was a British University champion for a few years and competed in the top division. But at some point I realized there wasn't a lot of money in that sport, and I didn't like the idea of sleeping in the back of a van chasing you chasing glory around the world for the next five years.
Not a lot of money in kayaking. Whoever would have guessed? I know I only have you for a limited amount of time. Let me jump to my favorite questions that I ask all of my guests, starting with what have you been watching, streaming listening to lately? What's been keeping you entertained?
My two favorite shows at the moment are Tedle Asso and Succession, very different shows. One speaks to my interest in sport and the other one is It's It's it's almost a comedy. It's such a dysfunctional family.
So tell us about your mentors who helped shape your career.
You know, there's a few people along the way. I mean, first of all, I mentioned this earlier, but you know, Goldman Sachs, you're surrounded by great people that you can learn from developing, you know, and that could be technical skills, it could be leadership skills. And the other thing I would say is over the years, when whenever I get asked this question, I think not just about who I've worked for, but the many things that I've learned from
the people who work for me. In some you know, sometimes my level of interact with them is so great. You can learn a lot from an analyst and you could certainly learn a lot from your your peers, partners that work for you, managing directors that work for you. So I whenever I get asked this question, I sometimes feel like I've almost learned more from the people who work for me than the people I work for. But look, there have been some particular strong people along the way.
I remember a guy that I used to work for at KPMG, and one year I said to him, g at the end of the year, and this guy was unreplaceable, and he seemed to be in the middle of every piece of business that we did, and you couldn't imagine how the place would function without him. And I said, you know, at the end of the year, you must be able to ask for whatever you want. And he just looked at me and said, they'd manage. And it was it was really like the humility there and the
realization that everybody's, you know, replaceable. Some are harder to replace than others. But he just kept that grounding and sometimes sometimes people lose sight of that and believe their
own story a little bit too much. That was a great lesson I had when I after a couple of years at Golden Sachs, I was working for a guy in the distress credit business, and his analytical rigor and his relentless questioning and skepticism almost to an unhealthy level, was actually a great learning experience because he it was, you know, in a world where a lot of people like to believe the brochure or the prospectus, he never
it was. Everything had to be founded in analytical rigor and facts, not what management told you or what story you heard or nothing. For granted, it's like, can you prove it in the numbers? I mean, it's back to the comment I made earlier around accounting. We get we get a lot of kids who come through the business who have fancy MBAs, but they don't truly understand the interactions between a P and L, a balance sheet, and
a cashflow statement. And if you don't have all three, and I mean a complete one, not a partial balance sheet with just the liability structure, but everything, you don't really understand the business.
Really very intriguing. Let's talk about books. What are some of your favorites? What are you reading right now?
Whenever I get asked this question, my first response is about twenty five investment memos every single week. Add to that the various other business updates that I get, and the prep for management committee on a Monday detailing all
of the client flows in the business. It doesn't actually leave a lot of time or eyesight left to you know, pick up other books and you know, with the with the with the advent of the of the iPhone, like this constant stream of information from Bloomberg and other news sources means that I'm reading a lot, but not enough time for pleasurable books. But there are a couple. There's
there's the avoidable War. I think the geopolitical situation with China is something that everybody should be very mindful of right now. And that's going to that's going to impact asset prices and and and flow of money, and I think that's something everybody needs to be paying attention to. I've been picked up a book recently looking at it's called The Shallows, which is really looking at how the mind is being rewired by the Internet. The way we
think and the way we operate is fundamentally changing. I mean, you know, everybody's become like everybody's developing kind of attention deficit disorder because of the constant flow of information and Actually, the ability to sit down and absorb a long form book is becoming harder for a lot of people because they're so used to the instant gratification of the Twitter feed or the short term news story.
Yeah, deep work is becoming more and more rare. Yea our final two questions, what sort of advice would you give a recent college grad interested in a career in either investment or finance.
I'd say three things. One, don't be put off, as we talked about earlier, by some of the strange language and the manclature. Become a student of it, study it and break through those barriers, and don't be intimidated by it. Two, I would say, develop an area of expertise early on. And what I mean by that is, in order to start really adding value, you need to prove yourself to be really expert or knowledgeable in a particular area, the go to person on that on that issue. And it
could be relatively narrow. So I'll give you an example. I used to be a high old research analyst. You you know, you learn how to model one cable TV company, and then you do a second and a third, and then you because of the process that you go through you start to develop an ability to assess relative value between those things, and then you do a fifth and the sixth, and then you become the go to person, So become a deep expert in that one area, the
go to person. But then you want to start if you if you unless you want to do that for the rest of your career, you need to start adding some breadth. But it's it's getting the balance right, because you know you can't if you're skipping from one area to another and you never get deep an expert in any one thing, then you become too much of a gens. So it's getting that balance right between specialist skills but
not getting so sucked in that you become siloed. And that's the only thing you ever do.
Really interesting, and our final question, what do you know about the world of investing today? You wish you knew thirty or so years ago when you were first getting started.
Yeah, well, I started out in life really doing as a micro analyst, like covering distress credit situations, and it was always about finding that complicated, weird, interesting deal where you couldn't really lose money and there was interesting convexity to the upside and it was all about the art of maximizing risk adjusted return on that one trade and almost having like a bit of a dismissive view to people who just put money into like mutual funds and
regular equity funds and little you know, fixed income funds, and you know, sometimes you can get lost in the in the wood, you know, uh, looking you can't spot the wood for the trees. And just the power of compounding a diversified portfolio of of decades has proven to
be a highly successful path to wealth maximization. So it's really taken a step back from the not just about maximizing the profit on the individual deal, but how do I maximize return on my overall portfolio of a long period of time?
Micro and macro exactly, really quite fascinating. Julian, thank you for being so generous with your time. We have been speaking with Julian Salisbury. He is the Chief Investment Officer of Asset and Wealth Management at Goldman Sachs, where he helps to oversee over two and a half trillion dollars in assets under supervision. If you enjoy this conversation, well check out any of the previous four hundred and ninety
nine we've done over the past eight years. You can find those at iTunes, YouTube, Spotify, wherever you find your favorite podcasts. For my daily reading list at ridults dot com. Follow me on Twitter at Ridolt's. Check out the fine family of Bloomberg podcasts on Twitter at podcasts. If you'd like to learn more about Julian Salisbury and the work he does at Coleman Sachs, go to LinkedIn and look
up Julian Salisbury. I would be remiss if I did not thank the crack team that helps with these conversations each week. Samantha Danzinger is my audio engineer. A tick of Albrun is my project manager. Sean Russo is my researcher. Pariswold is our producer. I'm Barry Ridholts. You've been listening to Masters in Business on Bloomberg Radio.