March 31, 2025 • 55 mins
In this episode, Joel Palathinkal is joined by Ned Brines to discuss the intricacies of investment strategies and career development. Ned shares insights from his role at Arnell and reflects on his educational background and early career advice. They explore leveraging historical knowledge in investing, persistence in job hunting, and changes in recruitment practices. The conversation covers the importance of accountability, resilience, and work-life balance in investment roles. Ned highlights career progression, lessons from George Argyros, and family office strategies. They delve into asset allocation, manager traits, venture investments, and trends in real assets, concluding with an anecdote about Sam Zell.
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(00:00):
How do you identify value coming out of abusiness?
(00:04):
Where's the cash come from?
What are the value drivers inside of abusiness?
And I think that was just a critical lessonthat has stuck with me my whole career.
Whether we're investing with individualcompanies or managers at the end of the day,
how do you make money?
It's gotta it's gotta translate down in the inthe into that bottom line.
So, I think that that was a kind of a criticallesson there.
(00:26):
I'll pause in case you want to interject or.
So
welcome to The Investor, a podcast where I,Joel Palafinkel, your host, dives deep into the
minds of the world's most influentialinstitutional investors.
In each episode, we sit down with an investorto hear about their journeys and how global
(00:48):
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
Alright.
So really excited today.
I've got a good friend of mine, Ned Brines.
I've known him for a couple of years now.
And, he's just been really, really helpful,just a huge value add person, just a just a
(01:09):
really good person to just get to know over thelast couple of years.
Ned, what I'm gonna do is I'm just gonna give aquick intro to Ned and then Ned's gonna go a
little deeper on his career.
But Ned is the chief of investment strategy.
He's pretty much managing the investmentportfolio for a single family office with
diversified holdings, which include directinvestments, internally in managed portfolios,
(01:33):
public and private, and also just looking atreally interesting managers.
So excited to talk about all things assetmanagement, whether it's on the public side,
the private side, you know, direct investments.
He's at Arnell and affiliates, and, he's beenkind enough to just make some time for me and
the community to kinda talk about his story.
(01:55):
So, Ned, welcome to the show.
Why don't you introduce yourself and unpackyour introduction with a little bit about just
your early education, you know, where you grewup, and and just walk us through kinda the
story of how you got to where you are now.
And I might if it's okay, might interrupt withsome questions or just kinda clarifying things
so the audience can, get to know you better.
(02:15):
Yeah.
Joel, listen.
Pleasure to be here.
I've enjoyed getting to know you over the lastfew years as well.
And love love what you're doing.
Love how you're giving back to the community.
So, thank you for thank you from the communitybecause I appreciate it.
I think it's an invaluable service and I thinkit's helpful.
I was involved with one of your venture cohortsa couple years ago.
I think that was really beneficial.
I spoke to another number of the managersafterwards and they're really, you know,
(02:39):
getting a lot out of it.
So, thank thank you, you know, for making thecommunity better.
Yeah.
My pleasure.
Yeah.
So, where would I start?
You know, I've been here at Arnell.
We're a single family office in Orange County.
I've been here for nine years now.
I run all the investments as you met as youmentioned and we're kind of a we're a we're a
(03:01):
split house.
So, we're half our assets are in real estate,half our assets are in other investments.
The founder, George Arjos, you know, was anunbelievable moneymaker.
You know, he can make money you know, prettymuch doing anything and did.
Was a real estate developer.
We're we're one of the largest apartment ownersin Southern California.
As a result of his his efforts there.
(03:22):
It was involved in private equity.
In those days, we just called investing.
So, there wasn't really a private equitymoniker and he made money in airlines.
You know, he he owned Igloo at one time, mademoney there, made money in, you know, cable
billing companies, little technology companies,you you know, Sterno, the little fire things
(03:44):
that you put under your your food when you'rehaving people over that over the house.
You know, own that business at one time.
So, he just, he made money in all kinds ofcrazy spaces.
At one point, only Seattle Mariners as a soleowner of that team.
You know, as you can imagine, made made somesome pretty decent money with that as well.
So just a fantastic moneymaker, and I'm thefirst outside person to come into this office
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and manage money.
George, unfortunately, has Alzheimer's and andcan can't invest any longer.
So, I I have the the daunting task of steppingin and kind of filling his shoes a little bit.
So, it it's been fantastic.
You know, it's a great family to work for andthey give me a lot of leeway to try and make
(04:30):
money how I feel like I'm best at making moneyas opposed to trying to fit into some other
kind of mold and I think it's worked out well.
Not to not to make this a victory lap but wejust suck out our our one three five year
numbers versus the foundation of down theuniverse for our foundation.
And we're number one across all those periods.
And unless something disastrous happens thisyear, we should also be number one after the
(04:54):
ten year number as well.
And that includes, you know, competing against,you know, Harvard, Yale, and all the big, you
know, endowments.
So, we're pretty proud of those numbers.
Going back like all the way to the beginning.
So, I studied physiology in school.
I started about a semester or two at thecollege thinking I might go to medical school
(05:15):
and realized I was having too much fun andworking too hard at other stuff to really be a
dedicated student to to get the grades to getto med school.
I ended up almost double I I started pursuing adouble major.
I was about three classes short of a seconddegree in finance.
And when I started taking the business classesI just kind of went I thought to myself you
(05:36):
know what?
This is really what I should be doing.
This, I had a natural affinity for it.
I understood it.
It made sense.
I, I mean, I didn't have to study in thosecourses at all.
So, I went to work in investment banking.
You know, and I and you know, that's as youknow, that's a that can be a grind but it's
(05:56):
also a a great learning experience where and Ilearned, you know, listen, hard work and a lot
of it.
The the joke was always, what's a Sunday,right?
Because we didn't, you know, everyone's like aSunday off but we worked hard and learned how
to I think the the formation of my investingreally started there.
How do you identify value coming out of abusiness?
(06:19):
Where's the cash come from?
What are the value drivers inside of abusiness?
And I think that was just a critical lessonthat has stuck with me my whole career.
Whether we're investing with individualcompanies or managers at the end of the day.
How do you make money?
It's gotta trans gotta translate down in the inthe into that bottom line.
So I think that that was a kind of a criticallesson there.
(06:40):
I'll pause in case you wanna interject or So
any advice that you have in terms of, numberone, finding what your pathway is?
I think for you, it came naturally.
For me, you know, studied electricalengineering, and, you know, I had the self
similar self realization.
I don't wanna sit in a lab underground and andwrite code.
(07:01):
I you know, my favorite class in college wasengineering economics, and it's essentially
where you're pitching a business.
So I had two, three other people put togetherdesigns of some circuit that we built, and I
just came in front and pitched it.
So I just you know, think similar to you, Ilove working with people, and just kinda that
(07:22):
self realization came to me.
There's several people that go out and switchcareers three times.
You know, there's some people that change theirmajors three times.
So, you know, are are you recommending just tokinda just enjoy the the journey and figure it
out?
Or what are some frameworks that maybe helpedyou decide that banking was the the path?
Yeah.
(07:42):
Well, I I I'll take a half step back intoeducation because I I think it's important.
I don't think it's as critical unless you'regoing into a technical field.
Mhmm.
I don't think it's as critical what you studyversus building those those learning
capabilities.
Can you take in and we have a ton ofinformation today as you know.
(08:04):
I mean, the the amount of information flow isenormous.
Sure.
Can you take in large amounts of information,filter it to what's relevant, and then make
decisions and I think that's the value ofeducation.
So, whether you're studying philosophy orpsychology or finance or engineering, you know,
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can you boil down the information into anactionable item.
I think that's that's the important skill thatthat you learn there.
I've met investors, you know, other investorswho are history majors And you might say, well,
what's what's the relevance there?
Well, you know what?
A lot of what we do is pattern recognition andlooking back at historical periods and then
(08:48):
looking for the parallels to the current periodand history is fantastic for that.
You know, economic history is great for greatfor that and understanding market cycles and
how things repeat over short cycles and longcycles.
So, I think developing that ability to take inall that data and then consolidated into into
(09:09):
some some thoughts and conclusions that areactionable is the important part of the
education.
So, I don't think it's so much what you'restudying that's as critical.
Going into banking, I don't I don't know thatbanking was necessarily my passion but it was
it was for me, it was almost a bit of a meansto an end in that.
(09:32):
I didn't I wasn't really sure what I wanted todo.
I was graduated and or you get ready tograduate and I called my dad who, you know, he,
my, my dad had been a hallmark cars ultimately.
He was a regional sales director for forHallmark and and you know, he'd been there.
He ended up being there for thirty five years.
(09:52):
So, I called him and thought, hey, you know,what what do you think I should do?
And he said, oh, no, keep in mind, this is Mayof my, you know, my second senior year because
I took five years to graduate college and hesaid, you know, just look at like investment
banks and consulting firms because you're goingto see a lot of businesses over your first
couple years there and you're going to seesomething that you might like and want to go to
(10:12):
work there.
So, that was kind of my thought is I'm going godo this for a couple of years.
I'm going to see an industry I really like andI'm going to jump in and get involved.
I don't think I really anticipate I'd bestaying in the business.
You know, for now for thirty plus years.
That was a little easier said than done sincerecruiting had been finished for about six
months.
So, I had to kind of barge barge my way inthrough through SureForce into a small small
(10:35):
firm in Beverly Hills where I legitimately callthe guy for about five or six straight weeks
every day.
Every day I call.
It it became like a running joke with hisassistant.
He's like, oh, good.
You're a little late this morning.
You know?
I'm like, you know, I was like, I had a latenight night last night.
Alright.
I'll call you tomorrow.
And then one day he picked up the phone andhe's like, what do you want?
And I had to, like, I went from notanticipating I was actually gonna get him on
(10:58):
the phone.
It was kinda had become a game to, wow, I Ineed to pitch this right now hard.
Sure.
And I pitched it hard that listen, you need mein this class and here's why.
And I just started laying out reasons why Ithought I could be a invaluable asset to that
to that analyst class, and he took me.
So
So we're gonna talk about you know, so thatthat's a good point.
(11:19):
Right?
So we we all heard this story.
I don't know if you heard this story with VinodKhosla, like how he got into Stanford.
Right?
I think he just showed up at the admissionsoffice and just begged them every day until
they got tired of probably hearing from him andthey let him in.
That hustle, that grit, you know, was verypresent back in the day before we had LinkedIn,
before we had, you know, even the ability tofind people's emails and stuff, you know, you
(11:42):
would literally just find people's numbers in aphone book.
Even when you're doing fundraising, right, youyou go through the phone book and you're
calling people.
And if you're trying to get a meeting, what doyou do?
You call the landline, and you just show upuntil they're tired of seeing you and until
they give you a chance, right?
So it's brute force.
Do you feel like that's changed now, you know,with the recruiting process?
(12:03):
Do you feel like, do you see that same level ofgrit when people are trying to find a job?
And you know, we're going go through an examplein a few minutes that you allowed me to bring
up.
But I think feel like that's changed a littlebit.
I don't see people doing that as frequently,but I do encourage people to do that or to take
a similar approach.
And and I so I just taught a class this lastfall at Chapman University on family offices.
(12:24):
And and I lecture at all the universitiesaround Southern California, you know, usually
like once or twice a year.
And regardless of what the topic is gonna be,it always devolves into how do you get a job in
this field.
So, I always leave about an hour at the endbecause I know people are going ask questions
and I have some some kind of standard commentsthat I make but I think they hold true and I've
told my my own kids that.
(12:45):
You know, the the same lessons because I thinkthey're important.
One is that if you're going to try and find ajob and let's say you find a company that's
advertising, excuse me.
You find a company that's advertising for aposition.
If I advertise for an analyst position, I'mgoing to get a thousand resumes.
(13:06):
Okay, I have the capability of probablyinterviewing 10 people which is 1% of those
resumes.
So, we're going to filter out nine ninety ofem.
A, you gotta have thick skin.
You can't take that as a criticism or a failureon your own end.
That's just a, that's very arbitrary.
I would say that probably of the 10 we we takein to to interview out of that thousand.
(13:27):
I'm going to speculate that 90 of them couldhave been in the interview process.
Okay?
But it's still it's a low percentage, right?
Sure.
So, we're taking 1% but I will tell you this,if somebody I know brings a resume to me and
says, hey, I hear you're hiring.
I know this candidate.
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You should talk to them.
Here's the resume and I'll take a look at itand if they're qualified, they're gonna go in
the interview pile.
Right?
So, the point being, use your network, buildyour LinkedIn network, build your business
network, however you decide to do it Andinstead of going in the front door through
human resources where you've got, in our case,you're gonna have a 1% chance of getting an
(14:09):
interview.
Right?
Go through somebody who knows me and you'regonna have a if as long as you're qualified,
gonna have virtually 100% chance of getting aninterview.
So, a much higher probabilities.
So, while it's not you're not calling somebodyevery day, you know, for six weeks to to try
and get in the door, you are using, you'releveraging your network in an appropriate
(14:31):
manner to help you get in in front in the door.
If you're not getting the interviews, you'renot going to get the job.
It's, you know, to to go back to sportsanalogy, I've coached sports for a long time.
You know, if you're up to up to the plate andyou don't swing the bat, I can guarantee you're
not going to get a hit.
You may get a walk and get on first base, youmay get hit and get on first base but if you
don't swing that bat, you are not going to hitthe ball and if you're not in the interview,
(14:54):
you're not going to get the job.
So, goal number one is to get yourself intothat interview.
Goal number two, obviously, is to is to deliveron the interview and there's all kinds of, you
know, ways you need to practice and be preparedfor that but going back, it's build your
network, network relentlessly, and leverage it.
(15:17):
You know, if you're, if you see an an openingfor a position that you really want, then, go
to your LinkedIn network and find somebody whoknows somebody who works there and get that
resume hand carried in.
You have a much higher probability of gettingthe the interview.
Now, the last, you know, the last resort wouldbe, you don't know anybody.
(15:37):
Okay, just throw it in and hope you get it butdon't don't anticipate you're probably gonna
get the interview unless you really just jumpout on paper.
Sure.
Absolutely.
Well, would love to have you share that story.
I mean, I think once you get the interview, Ithink part of it, you know, one of my favorite
comments is money loves speed.
So, you have the opportunity in front of you,and now you want to think about it.
(16:00):
You know, you've essentially have everythingsigned, sealed, and delivered.
Now you want to talk to your parents.
Now you want to decide, you know, people aren'twaiting around for you to make a decision.
So, you know, one example we wanted to talkabout was a candidate that were potentially
going to bring on your team.
We're not going to bring any names up, maybeyou could share that story because I think
that's going to really shed light, not only forI feel that sales, dating, fundraising, jobs,
(16:28):
it's all the same thing.
You need leads.
You need to get out there to connect with thatperson and then potentially it turns into
Joe, you froze a little bit there.
Still hear me?
Yeah, you froze for a second.
Okay.
Did you lose the audio?
Yeah, completely froze for a second.
(16:48):
Okay, cool.
Dating and then you broke.
Sorry about that.
I'll fix that later.
But anyways, I was just saying, dating sales,fundraising, getting a job, it's pretty much
the same thing, You need to connect with peoplepotentially skip the line because there's a lot
of prospects, and you have to somehow convert.
(17:08):
And we were going to share an example ofsomeone that potentially had this opportunity.
And then I would say the other piece is youcould have an offer, but then you want to shop
around and then that might just be too late toshop around.
You want to just hopefully just find the offer,make sure it's the right offer and move
forward.
If not, you know, you could lose out on thatoffer.
So, that'd be great to kind of run through thatexample with the potential I've
(17:33):
got a few thoughts on that.
And when you I'll take the the corollary to towhat you said on prospecting and selling.
Mhmm.
In that, if you're looking for a position whereyou're prospecting is or selling something, you
know, say in our world, you know, kind of aninvestor relations role, right?
(17:53):
How you proceed with trying to obtaininterviews and handling your communication and
the the the Emails and the text messages andthe format of those and they may seem pretty
innocuous but that employer is going to belooking at that and thinking to themselves,
this is how this person's going to interactwith my clients.
So, while it may be as simple, hey, thank youfor your time.
(18:15):
My suggestion is don't don't do that littlehalf sentence.
Thank you for your time or appreciate your timetoday.
Really lay out a nice thank you email everysingle time because that's going to reflect to
them how you might treat their clients and howyou're going to function in that role.
So, you know, every communication you have withthat potential employer is important.
(18:37):
To your point on taking a a position and havingan offer in hand, I think by the time you have
the offer in hand, you better be 100% sure youwant that job.
To take it to the point of getting an offerunless it's insufficient for some reason but
assuming you already know what what the numbersare going to be and whatnot.
(18:57):
When you once you once you get to the point ofhaving that offer, you should really be ready
to accept it.
If there's something that's bothering you aboutthe company beforehand, then, you should bring
that up in the process.
Companies because as a somebody who's who'slooking at at for potential employee, I'm
dropping people out of the process all the waythrough.
(19:19):
So, I get to my final candidate.
If my final candidate looks like they're gonnaaccept and then doesn't, that's a real problem
because now I have to go back to somebody Ijust deleted or start my whole process over.
So, it's very expensive.
Many years ago, I had a a young man, verysmart, great, went through 12 interviews with
us.
We had started with the, you know, get about athousand resumes and we filtered all the way
(19:41):
down.
Excuse me.
And ended up with him.
And brought him back in for the final, youknow, meeting.
I handed him his offer letter and said, listen,just sign this.
He was graduating in May.
This was March.
I said, pick your start date.
I don't care if want come in September,October, November, go travel Europe, whatever
you need to do because when you get here,you're going to work your tail off.
(20:03):
So, I want you refreshed and ready to go.
Okay, great and he gets up to leave and I said,wait, you need to sign that before you get out
of here.
He's like, well, I just want to check with myparents first, you know, and have some
conversations with them about this and I satthere for a second and mulled over what he had
said and was wondering how did I miss thiswhole thing with him?
(20:27):
Where he's not comfortable making decisions.
In a world where we make decisions all thetime.
We're buying and selling things and we'resometimes you're upside down $100,000,000 and
you've gotta, you know, figure it out and topull a phrase from a TV show that was on at
that time, I said, you don't get a lifeline.
You can't call your parents for help.
But you were that old TV show where you, youknow, you're, it was kind of like a quiz show
(20:51):
and if you needed help, you would callsomebody.
Phone a friend.
Yeah, phone
a friend.
Yeah, yeah.
So, I I'd like you to I'd like you don't getthe you don't get the call in and and and.
Yeah.
And get help.
And I pulled the offer and said, listen, thisis going to suck but it it could be the best
lesson you ever have.
Yeah.
Because you're not ready for this job and Imade a mistake in assuming that you were and I
(21:13):
didn't really follow the my my my process likeI should have to ensure that you're ready for
this these kind of making these kind ofdecisions and I tore it up and threw it away.
And he left, cried.
I felt bad.
Great and I'm sure he's doing fantastic now.
Like I said, super smart, you know, top school.
He's he's great.
And my boss came in and said, when's hestarting?
(21:34):
And I said, he's not.
He said, what happened?
I said, I told him.
He said, oh my god.
I said, but but think about that.
He's not ready for this role.
So, I'm a believer that if you're going to getto the point of having an offer, you should be
ready to accept that offer.
Unless there's something in there that thatdoesn't make sense but you should have already,
you should already know what the numbers aregoing to be.
(21:55):
Yeah.
You know, within reason.
I mean, and I asked him, I said, listen, arethe numbers different or the terms different?
Is there anything in here that we haven'tdiscussed?
No.
So, it was just he wasn't totally comfortablemaking a decision and I realized I wasn't
comfortable having somebody who can't make adecision in a role where they gotta make
decisions.
Sure.
And I mean, I would say even in the investmentspace, you're gonna make decisions.
(22:17):
I mean, you have the leadership skills to dothat.
And you're also gonna be accountable when youmake bad decisions too, know?
So being able to handle that in tough times,your mommy and daddy aren't gonna be able to
help you, you know?
So being able to navigate through that yourselfand learn from it and find great mentors to get
through it is is really important.
I I
think Joel, think the biggest challenge I II've seen over the last maybe twelve or fifteen
(22:41):
years.
As kids are coming out of college with straightA's in elementary school, middle school, high
school, university, and never had a failure,never been allowed to fail, never been allowed
to make a mistake, always protected, alwayscarried, you know, involved in all the right
(23:03):
activities and not I'm not negating any of thatbecause I think it's fantastic but they don't
know how to fail because they've never beenallowed to fail or put in a position where they
might fail and the problem is in life, youalways have failures and we learn more from our
failures than we do from our successes.
I can guarantee you that because when you'rewhen you're successful, unless you're investing
(23:25):
because it's it's it's it's it's an easiermeasurement.
When you're successful with an investment, thefirst thought is, I'm really good at this or oh
yeah, I knew that was going to work and youdon't realize maybe if you're not discerning
enough and believe me after having my tailkicked in for so many years over my career, the
one thing that I'm I'm thinking pretty good atdoing is looking saying, hey, here's where I
(23:49):
did really good work on this transaction andhere's where I got lucky or here's where I did
really bad work and here's where I got lucky orhere's where I did really good work but I got
unlucky, right?
So, separating out that luck versus skill.
When you get your face ripped off in atransaction and you lose a bunch of money, you
learn a lot more about yourself and yourprocess and that delineation between luck and
(24:12):
skill than when you are successful and ifyou're not allowed to fail and make mistakes
and then live with the ramifications of thosemistakes, what happens is, you know, instead of
that happening when you're 15, you know, you dosomething stupid, you, you know, whatever you
you blow something up or I don't I don't know.
Whatever you do this dumb at 15.
(24:33):
You get a DUI or something.
We are you know, yeah, or you or you dosomething in school that's stupid and you get
and you get suspended for a week, you know.
Okay, take the suspension.
Take your medicine.
That that that's that's what happens, right?
But parents will, parents will want to glossthat over and help their kids and keep them,
you know, they'll complain and they'll get thekid back in school and then what the kid learn?
Oh, nothing, right?
(24:56):
I made a mistake and there's no ramification.
So, now, you know, fast forward and they're 27and they're in that first job and they and they
make a mistake and it's not just, oh, I made amistake.
I I just lost my firm $100,000,000 or orsomething along those lines.
It's worse because now, it's a personal affrontand they don't know how to react personally.
(25:19):
Sure.
And evaluate it, you know, and and say, oh, I II can't make a mistake.
I'm gonna fix this.
I this is my my my evaluation process and Imade a few mistakes here, here, here, you tweak
this and let's move forward and it becomes a amuch bigger situation than it should be than
just, hey, there's a work issue.
I made a mistake and we're going to fix it.
(25:40):
It now becomes a question of their own personalvalue and their own personal abilities and
that's a that's a problem and then it's then itcan even parlay in other things.
You make mistakes in the in your marriage or inyou know, in raising your kids and believe me,
I got three kids.
I've made every mistake possible.
So, you know, we do that on purpose because wewant to practice making mistakes but you may
(26:03):
you make these mistakes and they they just getmagnified.
If you don't have experience recovering fromthem.
So, I think that that's the one thing I'venoticed in the last, you know, dozen or so
years is that kids don't have as muchexperience with mistakes and and and failure
And that sets them up for bigger issues downthe line.
What are some of the bigger issues that you'reseeing with this generation versus the other?
(26:27):
Is it well, what I think you're alluding to iskind of the mental health part of it, right?
Like, people think their life is over if a if adeal blew up where, you know, in in the long
run, everything somehow is figureoutable,right?
I mean, it it corrects itself somehow.
You learn from it.
Maybe you do pay a big cost, but you're stillalive.
You got your two hands.
You got your two legs.
You've got a a support system.
(26:49):
Right?
So do you feel kind of some of the, because ofall that pressure?
Depends on know, there's there's demographicsthat are tied to some of that too.
Right?
People's upbringing, you know, they're they'reraised by tiger parents.
Right?
And they're supposed to adhere to a certainstandard.
But do you so you feel that, you know, in thelast maybe fifteen years, it's just tough for
(27:10):
people to kinda get through that?
And where do you where do you see they landafter that?
Do they just get burned out and do somethingelse?
Yeah.
I I think I think they they they versus maybe,you know, when I was coming out of school, may
may not as much resilience.
Mhmm.
So, when there when there is an issue thatcomes up, a mistake or or whatnot, that yeah
(27:31):
and you mentioned mental health, you know,there's this search for, I need a work life
balance.
Oh, an investment banking.
There was no work life balance.
You worked.
Sure.
Right?
Work work life balance was, hey, you know what?
Sometimes, we're going to give you a Sundayoff, right?
So, there there there's your there's yourbalance.
Go have fun, right?
You know, watch some football games and havebrunch somewhere.
(27:53):
So, if you're if you feel like you need thatbalance early in your career, then I think it's
important to to pursue a career that allows forthat.
Right?
If you want to be involved in these highlycompetitive fields like investments, obviously,
investment banking and consulting whatnot.
(28:15):
These highly competitive fields, you're goingto have to put that a little bit on the back
burner, that balanced part of your life.
It'll come eventually, right?
You're going to, I mean, one of the reasonsinvestment bankers work twice as hard as
everybody else is they get paid twice as much,right?
It's it's not it's not a, you know, it's not a,well, you work twice as hard, you don't get
paid or or the flip side, you're getting paid alot but you don't work as hard.
(28:36):
You gotta, I mean, you gotta work for thatmoney, right?
And that that's a that's a hard field.
So, you do get rewarded from a financialstandpoint but it's it's at an expense, right?
You, there's an expense to your personal lifeand you have to be, you have to be comfortable
with that.
When people tell me they want to pursue theirpassions, I tell them, I think what's more
(28:57):
important is do something that you're reallygood at that you can get paid the most you can
at and then your passions become your hobbies.
You know, I I have three things that I dooutside of work.
Few more than that but effectively three.
I say the three Gs, right?
I golf, I garden, and I play guitar.
Nobody's going to pay me to do any of thosethings.
Sure.
Okay.
So, those are just hobbies and that's fine.
(29:20):
So, I work hard.
So, I have, you know, enough capital that I cango pursue my hobbies when I'm when I'm not
working.
The other mistake and I see this a lot and Ithink this we're talking about the same person
here is that they'll go to work somewhere fortwo years.
They don't like it.
(29:40):
So, then, they switch because they're lookingfor a better culture, better opportunity,
better cash, whatever and then, they switchagain and then, they switch again and it's kind
of these two year runs and so by the timethey're 30, they've been out of school for
eight years.
They've had four jobs and they're trying toconvince me that they've identified that we
have the best culture and that we're the bestfit for them.
When in reality, they haven't been anywherelong enough to understand culture, much less
(30:04):
identify what our culture is.
So, I tell people, unless you're getting, youknow, whipped at work every day, physically
whipped, you you ought to be thinking fiveyears for your first job out of college.
Get that base in.
Learn your learn your craft and learn theculture.
You may hate ultimately hate the culture andthat's okay but be able to understand what it
(30:26):
is you don't like about that culture and whatit you're looking for in the next place.
Otherwise, you're gonna continually go hop,hop, hop, hop, hop and just as a side note,
when we bring in a new employee, we don't welose money on that employee for eighteen to
twenty four months.
Between them not producing anything, what we'repaying on a salary anyway because they're
learning.
The distraction from from the productive peoplewho are who are making the money.
(30:49):
It's it's a distraction from our time.
So, that, you know, that is that's a cost andit's okay because it's an investment for us for
the long term to build.
Sure.
You know, build the firm better but if you'releaving every two years, nobody's making money
from you.
Yeah.
You're losing every employer money for twoyears and then you're not giving anything back
And eventually people are gonna stop hiringyou.
(31:09):
So I I just think that I see that a lot and Ithink I think what we're talking about kinda
dovetails.
That resilience that never have failed and thisconstant hopping of jobs, I think all is kind
of tied together from the same factors.
So it's a good segue to my next question.
So I understand now that you're looking forsomeone that has a little of experience, at
(31:31):
least, I would say three and a half to fiveyears, if were to gauge, having a little bit of
track record, building some type of reputationat a firm and also getting your money back.
You hire them, they've got to stick around forat least eighteen months to twenty four months
to kinda recoup the, the the skills thatthey're supposed to be ramping up on.
(31:53):
What are some other because you guys are amulti asset strategy firm.
Right?
So when you're hiring somebody, what are someof the hard skills and soft skills that you're
looking for?
Yeah.
And I'll I'll go with the soft skills first.
It's interesting that as much as this is aninvesting role, this is just as much a
psychology role.
When people say, what what's your day like?
(32:14):
I spend, you know, 80% of my time investing,20% of my time doing whatever I'm asked to do,
and 100% of my time as a family psychologist.
So, you know, if you did the math, that's 200.
There's a lot of soft skills that goes intogoes into this this kind of role because I'm
not dealing with an institutional investor whounderstands just flat out numbers, right?
(32:37):
And that sometimes we're to lose money in aninvestment.
That's just part of what we do.
You know, if we're not losing moneyperiodically, then, we're probably not doing
our jobs properly.
We're not taking enough risk.
Yet, for a family, they may not understandthat.
So, you have to have those soft skills.
So, soft skills are important and in fact, Iwill say and I've said this at at a number of
universities, if I'm interviewing twocandidates and they're, I've had the question.
(33:01):
I, it's never going to actually be this waywhen they've asked.
What do you do if you have two candidates whoare exactly equal on paper and equal with
skills and whatnot?
And I tell them, listen.
At the end of the day, if it came down if Ireally had that situation, it's gonna be the
one I wanna spend ten hours a day with.
So better have a good personality and be fun tobe fun to work with and have some good
perspective because if if not, I'm not going towant to work with you.
(33:22):
So, that's important.
On a skill set standpoint, if we were bringingsomebody in in that three to five year window
of experience versus say somebody right outundergrad, then, out of undergrad, we're gonna
we're gonna expect them to have some basic,have some good Excel skills, good, you know,
kind of, you know, Tableau, Canva, that kind ofstuff, some understanding of financial
(33:48):
statements, but not they're not gonna be expertat that, and we we wouldn't expect that.
Obviously, ability to communicate and I thinkcommunication is critical in what we do.
You can be the best analyst in the world.
You can't tell anybody what you're doing,nobody cares, right?
You gotta be able to sell the story.
So, in that three to five year window, it's abalancing act.
(34:08):
We want somebody with higher level skills whocan do the analytics, who has good business
judgment, who understands that a model is notan answer, a model just creates questions.
When you look at a business, you know, why aremargins deteriorating?
So, that's a management question.
Why are margins expanding?
You know, hey, this is you say that you saythere's you know, you don't really have any
(34:31):
competition and you have a pricing power yetyet your prices are continuing to decline.
Why?
Right?
So, it's somebody who who can take it to thatnext level and and ask questions that come out
of the analysis but we don't want them tootrained because we want to be able to train
them in our methodology and how we makedecisions.
And sometimes people will come in or will willtalk to people who have they're already
(34:58):
developed a certain process for doing thingsand it's it will become apparent that they
can't switch gears and learn a little bitdifferent because we're we're different like
every family office is different.
There's no family office that that that'sthat's alike that I know of.
Everybody has something different and thedifference that I think for us is that we're
investors first, allocators second, and evenwhen we allocate, we feel like we're investing
(35:24):
because we'll, you know, we don't invest with alot of managers.
We do a couple managers and we do concentratedmanagers because we want concentrated bets
because we believe that if you have convictionand you're going to bet on something on an
investment, then, you better have enoughcapital there to make, then, if it works, you
make a lot of money and it and and thatobviously creates some level of risk and a lot
(35:46):
of people aren't as comfortable with that inthe allocator roles where they're more putting
out a lot of capital to a lot of differentmanagers, a lot of diversification to minimize
any mistakes.
We know we're going have mistakes.
Sure.
We know we're going to have things that godown.
That's just part of it and sometimes it hurtsbut that's kind of our our our objective.
So, we have to make sure somebody's notcompletely so far down the path of their career
(36:10):
that they can't switch and and, you know, adaptto what we're doing here.
Sure.
Yeah.
I'm excited to spend a couple minutes in thefuture about managers.
I wanted to kinda complete the story as wellwith your career.
Right?
So you you grounded out in banking, spent sometime there.
Why don't you tell me kind of the next stepsafter that?
(36:30):
You know, how you, you know, got into the firmat Arnell and, you know, whatever you're
allowed to share, we'd love to learn a littlemore about, you know, the founder because, you
tell me that the founder had just a a magicalknack to kinda just, you know, finding returns
in the investment.
So, we'd love to learn a little more about hischaracter and, you know, some of the things
that, some of the skills that he's developed tokinda find great investment opportunities.
(36:51):
Maybe we can go there and then and we can starttalking about managers and how we think about
allocation.
I I spent I left I left banking.
I went to a restructuring firm.
I did three and a half years with arestructuring firm and I think that the
critical lesson for me there was starting withthe end in mind and I do this with every
(37:11):
investment.
Everybody who pitches you an investment idea isgoing tell you how you make money in it.
What what I'm trying to figure out is how Ilose money.
What are the what are the factors that aregoing to come into play to make me lose money
here?
You know, and that and that's all in, you know,kind of based on spending time doing
restructuring work and looking at really goodbusinesses that were bankruptcy for various
(37:31):
reasons.
You know, and so, I always kind of start withthat in mind.
How do I lose money here?
And if I can't, A, understand how I lose moneyand B, get comfortable with that level of risk,
then, it's, we go to the next one.
There's no FOMO here.
We pass on a lot of stuff.
We'll look at we'll look at three or 400 decksa year and we're going to make one or two
(37:55):
allocations.
So, there, you know, we're we're passing ongood stuff.
We know that and that's okay.
You have to be comfortable letting it go tomake sure that what you get is right.
And so that was the lesson there.
I went back to business school at USC.
I don't know.
I I felt like I wanted to round out myeducation a little bit.
(38:16):
I also kind of wanted to prove to myself thatif I really focused, I could do better in
school than I did in in an undergrad.
I think my undergrad GPA was like two eight ortwo nine.
Sure.
And you know, you know, I would never go toclass.
You know, I just show for exams and not evenstudy for those.
So, you know, it was kind of silly.
(38:37):
So, I got a three nine at USC.
I got one B plus while I was there.
And I was pretty proud of that and so that thatwas kind of a for me, it was a kind of a prove
it thing.
You know, I wanted to prove to myself I coulddo that.
I went to a buy side firm in Pasadena.
We're about 2,000,000,000 when I started.
We grew it to 19,000,000,000 and sold it.
(38:57):
I retired for about a week and was going crazy.
So, I went to work for a competitor in town andworked there till February.
Took left left there.
Pretty fortuitous timing in general.
Spent the rest of the year just kind of writingand I created a blog that that ultimately had
(39:20):
about 4,400 subscribers to it.
And it started out with clients just callingme, former clients call me.
What's going on?
So, I was, I just sent out some charts andinformation and pretty soon, it was taken all
day every day to do it.
So, I started writing a note on Sunday nightsand just people would just Email me, hey, add
these three people.
Add this, add my CFO, add my CEO, you know, addall these people to listen.
(39:42):
It it got to be a little unwieldy but it wasfun.
I went to work for another family in BeverlyHills around that time period.
Basically, doing effectively what I'm doingnow.
And they have had some issues with theirportfolio during the GFC.
So we the team came in and kind of fixed thatand and then I took a little pit stop.
(40:05):
I got a call from a recruiter who caught me ina weak moment and I went to a a regional bank,
business bank to run their wealth managementpractice.
I've never worked in a bank before, a real bankand I thought, oh, this can be fun.
You know, it was a mess.
It had it had a bunch of bunch of operationalissues and compliance issues and we got it
(40:26):
fixed.
You know, got the numbers great.
The numbers were, you know, we had the numbertwo core fund in the country by the time I left
with low turnover, you know, 6% turnover andand really just we I think did a pretty good
job there but it wasn't it wasn't the rightenvironment for me.
This family contacted me because of Georgia'shealth health issues and so I, you know, we
(40:49):
spent about a year talking and I came overhere.
You asked about George and character.
I mean, I think that those things kind of gohand in hand.
George was very instrumental in the RepublicanParty here in Orange County.
When I walked through his offices over here,you know, there's pictures of him with Gerald
Ford, know, Henry Kissinger, Ronald Reagan,both of the Bushes, you know, pretty much every
(41:18):
Republican leader and he was kind of a bighitter in the Republican Party served as the
ambassador to Spain for George W Bush fromFebruary to 02/2004.
And you know, just I mean, a man who put it puthis money where his mouth is.
It was, you know, when he went to Chapman whereI taught last last year.
By the way, his his George Argyros, thebusiness school over there is the Argyros
(41:42):
College of Business and Economics.
Sure.
And when the school was was really strugglingin the early eighties, I believe it was.
George got together local local alums andpeople and they pretty much financially saved
that university and it's now considered a verygood, you know, private university here in
Southern California.
So, he he's was a very charitable guy.
(42:05):
I say was.
He's still here but it was very charitable.
We have a very large foundation.
I think we might be the largest privatefoundation in Orange County.
Certainly one of the one of the most generousin in Orange County during COVID.
His wife Julia we doubled up vast majority ofour contributions to help out these
(42:28):
organizations that were struggling and ready toclose.
So, they they're very generous on that side andGeorge is, you know, George is the utmost
integrity.
I'm going to look back here on my desk becausethere's a book and it, if I can find it, it's a
it's a vial of Georgia.
I I and I I think it's like a a life well livedor something like that.
(42:50):
Oh, wow.
Okay.
So you
can get on Amazon.
Right?
You can get that on Amazon.
Yeah.
And I'll I'll I'll email you the nameafterwards.
I I don't know.
Stare at my my bookshelf for an hour.
Yeah.
So, you know, following that legacy, like Isaid, it was pretty daunting stepping in here,
you know, to step in underneath shoes ofsomebody who is that great of investor.
(43:11):
Sure.
You know, I feel like I'm decent at what what Ido.
Certainly, our numbers would suggest that we'redoing a pretty good job but you know, he did
the hard part.
You know, he he he made all he made all thismoney.
My job now is to is to keep, you know, keep itgrowing.
You know, with without, you know, withouttaking them out of the the Uber rich category.
(43:34):
So that's my job number one.
Just make sure make sure when I leave here,they're still Uber rich.
Yeah.
No.
That's helpful.
So let's double click on that.
I know we got about twelve minutes left.
So I thought it'd be cool to just do rapid fireof a couple couple quick questions to kinda
give the run out.
So when you guys look at asset allocation, howdo you guys think about that across assets?
(43:55):
And then maybe we can just, you know, thinkabout managers and how you look at managers as
well.
Yeah.
From an allocation standpoint, so we don'thave, you know, the kind of the typical four
asset classes.
That never made sense to me.
Sure.
You know, that alternatives bucket, it's toodiverse.
You know, hey, I need to add to my alts bucket.
Okay, are you having to?
I'm adding a long only hedge fund.
(44:15):
I'm adding a venture fund.
I'm adding a you know, emerging markets debtfund.
I mean, there's all these different kind of,you know, investments in there.
So, we look at three assets.
We've broken three asset classes.
We have growth, growth, asset class, adefensive, and a real and so our growth is
basically anything that looks or acts likestocks whether it's public or private.
(44:38):
So, if you've got a positive correlation tostocks, say, north of a 0.5, you're going to
end up in there.
So, that's going to include our venture, ourour buyouts, private equity, obviously, our
stocks.
They're all going to fall in that growthcategory And we define that as that group is
(45:01):
going to work when you have a moderate to fastgrowing economy with controlled inflation.
Okay?
Our defensive bucket are just more bond like.
So, and not complete bond like because but it'snon correlated to stocks.
So, that would include our cash, any bondportfolios that we might have like municipal
(45:22):
bond portfolios for for the family themselves.
Any credit oriented private equity strategies,non correlated hedge funds, which we've used a
pretty pretty extensively in lieu of bonds andso that group is going to typically work.
The non correlated stuff's going to workregardless or should if we're doing a good job
picking the managers but in general, they'regoing to work in low inflationary environments,
(45:47):
right?
Think think bonds and cash and then our realassets are anything that comes out of the
ground.
Real is anything attached to the ground.
You know, real estate, oil, energy,commodities, that kind of stuff.
So, does a little better in higher inflationenvironments.
So, when we want to tilt the portfolios andsay, hey, we want to be more growth, more
defensive, more real.
We can base it off off of kind of economicscenarios of here's our inflation outlook.
(46:12):
Here's our growth outlook.
Ergo, we should be switching here and there.
Now, then, what we do inside there is a littlelittle little different.
If we've identified an idea, we think Egyptiancotton is the greatest investment in the world.
We need to be in Egyptian cotton.
We're going to just go walk down the stack now.
We're not tied to a structure.
We're gonna start with an ETF.
Can we find an ETF that trades a differentcotton because it's cheap, it's liquid, and
(46:36):
it's easy.
Yes or no?
Mutual fund, yes or no?
Separately managed account, yes or no?
Hedge fund, yes or no?
Private equity count, yes or no?
Hey, let's go fly to Egypt and buy some dirt.
You know, I mean, that's the kind of theprocess we go through.
Sure.
And at some point, we sometimes we can't findthe right vehicle.
So that's that's how we kinda think aboutallocation.
Yeah.
I know.
That's really helpful.
I think just looking at it in just kindaverticals that you think strategically makes
(46:58):
sense Just doesn't make sense to me.
So I I I kind of agree with that strategy.
And then when you guys look at managers, whatare some of the traits?
Again, maybe we just make it simple.
Hard skills, soft skills, personality, youknow, as you kind of think about, you know,
classifying them within those three buckets.
Yeah.
I mean, we're pretty we're pretty definitiveabout what we do with with funds.
(47:22):
So we're typically not gonna invest in a buyoutfund that's over $700,000,000.
And two reasons.
One, as they get larger, fees become becomemore profitable and they become by default less
incentivized or less driven by performance orless reliant on performance.
We want to be aligned.
(47:43):
I don't mind paying a two and twenty for a$500,000,000 fund because I know they're barely
running their business on that 2%, right?
I mean, they're going to make their money onthe carry and hey, guess what?
I'm going to make their money.
I'm going to make money.
If they make carry, that means they've they'vemade me money.
Sure.
So, we're partners.
So, it's partially that that smaller funds justtypically tend to outperform but not, you know,
(48:06):
it's not exclusionary and then B, our thesis isthat there's a lot of small businesses that are
underinvested in that need to be improved.
And there's growth opportunities for somebodywho can come in, who understands how to improve
business and put capital back into thesebusinesses.
So, we're focused there.
And I think by keeping that cap on there ataround $700,000,000 it keeps funds from having
(48:29):
from migrating up and having, you know, hey,I'm going buy that $50,000,000 EBITDA company
instead of the $10,000,000.01.
10 million dollars 1 is a lot more work thanthe $50,000,000.01.
This $51,000,000 1 looks great.
That's true.
It should.
Except.
There's less value creation available on the$50,000,000 1 than there is on the 10.
I want you buying the 10, right?
(48:50):
Put the work in.
Roll up your sleeves.
Let's do this.
Let's make this work because private equity is,how do you buy it?
How you sell it?
Sometimes driven by the marketplace, sometimesdriven by some skill but what do you do while
you own it?
How do you create value?
That's repeatable.
So, that's why we're focused there.
So, when we're looking at managers, we'relooking at managers who understand that there's
an opportunity to improve, build, and growbusinesses and that's our main focus.
(49:16):
Sure.
It bleeds over a little bit into our venturestuff.
We also invest invest in seed venture.
We tend to not invest with the larger funds.
We kinda have a we had a a softish cap at ahundred.
We're kinda now maybe one fifty Just becausethat seems to be the fun size that people are
raising 200 and a hundred and 50.
(49:38):
Excuse me.
And we're looking for for people with a uniqueedge.
Something different that we're not seeing inthe rest of the portfolio.
Something different that we're not seeing fromothers.
Hard to hard to grab sometimes.
At the end of the day, we're going do a ton ofwork.
We're going to throw out most of the things welook at and when we get down to those final
(49:58):
few, it comes to, there's a gut feel and that'sthe part I have trouble quantifying and
teaching because it's just a feeling.
It's it's that pattern recognition.
It's the the I've I've seen this before.
I feel this is right.
I somewhere somewhere you know it's right thatyou can't put your finger on why and you make
(50:21):
you make that that's that that's that last lastfive to 10% of the investment decision and
that's the hard part to teach, that intuition.
Sure.
Yeah.
I mean, I going back to relationships.
Right?
I mean, when you finally make the decision,it's kinda how you feel.
And even when you choose your partner, right, Imean, you we talked about this when we got
lunch.
I mean, it's just, you know, the the ability tojust kinda trust your instincts when you choose
(50:42):
because once you choose that partner, you'veyou've chosen them, and there's ramifications
if it doesn't work out.
That's right.
So I think it you know, there's no real scienceor analytics that you can really use at that
point.
Right?
You're you're really just gonna pull thetrigger or not.
Right?
It's a decision.
When you talked about the restructuringexperience, I think about Sam Zell because, I
(51:02):
mean, one one of the things that he talkedabout in his book was, you know, they call him
the grave dancer.
Right?
Focusing on how the company's gonna blow upupfront, and think about how it could go wrong.
And, you know, sometimes that's the ability toface your demons, and some people can't do
that.
So, when you when you think about hard assets,the thing is really interesting because when
you're buying these businesses, the interestingthing about hard assets is, you know, access to
(51:28):
possibly liquidity.
If you could sell some of those assets or sellthem at a higher, you know, price, then you got
some appreciation that goes along with just theactual investable capital that's going into
the, you know, the whatever the vehicle is.
But I thought that's pretty interesting.
And I'm just kind of nerding out here as we aswe kind of wrap up here.
But what are some kind of hard assets or sometrends that you're seeing in the real asset
(51:52):
space?
Yeah.
I I think that I think there's an opportunityevolving in multifamily.
For kind of a and I don't know how you wannaphrase the piece of paper.
Is it a mess piece?
Is it a prep prep equity piece?
Where in 2019, '20, '20 '1, maybe '22.
(52:19):
People are paying, you know, three and a half,four caps cap rates, which is expensive, right,
from evaluation standpoint for for multifamilyassets and getting financing at four, four and
a half, you know, really tight spreads.
Most of that paper is five years.
So, it's starting to starting to roll over.
(52:41):
And if you got a lot of leverage in that onthat property and you're going from, I'll pick
the number.
I'm at five.
I'm going to seven.
I'm I'm I may not, it may not appraise nowbecause I paid a four cap and maybe it's
trading at 5 and a half cap.
I may not be able to get all the all thefinancing to to to take out that mortgage.
So, I'm going to need to attract outsideequity.
(53:03):
I think the opportunity there is, I mean, Idon't know how you price that paper.
Excuse me.
I've seen between 1618% kind of cost on that,you know, mostly and kind of a pick structure
but I think I think that's an interestingopportunity where you're getting stabilized
assets.
Mhmm.
Pretty predictable cash flow streams.
(53:24):
Not a lot of not a like a ton of growth therebut you know.
Yeah.
Pretty pick of what's going on.
Where you can step in and get a pretty goodreturn on this thing and get and ultimately end
up if you really want.
You could probably end up with with control ofof these of these properties at some point.
So, I think that's an interesting opportunityin the heart in the kind of the harder assets
base.
Yeah.
You mentioned Sam Zell and I have to say thisbecause if I don't, I'll be remiss.
(53:47):
So, Sam and George, my boss or, you know, thehead of our family, we're good friends.
Oh, wow.
Okay.
And so, when George was the ambassador ofSpain, the story goes that that somebody from
the front came up and said, hey, ambassadorArjeros, there's a guy outside on his
motorcycle who says he's a friend of yours whowants to say hello.
And it was Sam who had been riding hismotorcycle around Europe and stopped by to say
(54:09):
hello.
So
That's amazing.
Yeah.
I mean, I you know, it's very fortunate tolearn from great people like that.
And then, you know, I think the theresponsibility that you bear is, you know,
carrying that legacy, which, you're doing agreat job doing.
And and it was amazing learning from me.
Had no idea that you had the connection to Sam.
Just, when you started talking about hardassets, was the first person I could think of.
(54:32):
And look, I just wanna say thank you for givingme your time.
All these stories kind of, you know, learningabout, you know, the kind of the hard skills
and soft skills that are needed, I don't thinkare really publicly available as much as they
should be.
And and sometimes it's hard because you gottabe in those ecosystems.
You have to have those relationships.
So, just wanna say thanks again, Ned.
(54:54):
You know?
Thank you.
I I enjoyed it.
Always a pleasure talking to Joel.
I look forward to talking to again soon, andand, hopefully, it was, it was beneficial.
So Yeah.
This is amazing.
Well, thanks a lot, everybody else.
Have a good day, and we'll all catch up soon.
St.
Patrick's Day.
Take care.
Yeah.
Happy St.
Patty's.
That's right.
Alright, guys.
Bye.
How do you identify value coming out of abusiness?
(00:04):
Where's the cash come from?
What are the value drivers inside of abusiness?
And I think that was just a critical lessonthat has stuck with me my whole career.
Whether we're investing with individualcompanies or managers at the end of the day,
how do you make money?
It's gotta it's gotta translate down in the inthe into that bottom line.
So, I think that that was a kind of a criticallesson there.
(00:26):
I'll pause in case you want to interject or.
So
welcome to The Investor, a podcast where I,Joel Palafinkel, your host, dives deep into the
minds of the world's most influentialinstitutional investors.
In each episode, we sit down with an investorto hear about their journeys and how global
(00:48):
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
Alright.
So really excited today.
I've got a good friend of mine, Ned Brines.
I've known him for a couple of years now.
And, he's just been really, really helpful,just a huge value add person, just a just a
(01:09):
really good person to just get to know over thelast couple of years.
Ned, what I'm gonna do is I'm just gonna give aquick intro to Ned and then Ned's gonna go a
little deeper on his career.
But Ned is the chief of investment strategy.
He's pretty much managing the investmentportfolio for a single family office with
diversified holdings, which include directinvestments, internally in managed portfolios,
(01:33):
public and private, and also just looking atreally interesting managers.
So excited to talk about all things assetmanagement, whether it's on the public side,
the private side, you know, direct investments.
He's at Arnell and affiliates, and, he's beenkind enough to just make some time for me and
the community to kinda talk about his story.
(01:55):
So, Ned, welcome to the show.
Why don't you introduce yourself and unpackyour introduction with a little bit about just
your early education, you know, where you grewup, and and just walk us through kinda the
story of how you got to where you are now.
And I might if it's okay, might interrupt withsome questions or just kinda clarifying things
so the audience can, get to know you better.
(02:15):
Yeah.
Joel, listen.
Pleasure to be here.
I've enjoyed getting to know you over the lastfew years as well.
And love love what you're doing.
Love how you're giving back to the community.
So, thank you for thank you from the communitybecause I appreciate it.
I think it's an invaluable service and I thinkit's helpful.
I was involved with one of your venture cohortsa couple years ago.
I think that was really beneficial.
I spoke to another number of the managersafterwards and they're really, you know,
(02:39):
getting a lot out of it.
So, thank thank you, you know, for making thecommunity better.
Yeah.
My pleasure.
Yeah.
So, where would I start?
You know, I've been here at Arnell.
We're a single family office in Orange County.
I've been here for nine years now.
I run all the investments as you met as youmentioned and we're kind of a we're a we're a
(03:01):
split house.
So, we're half our assets are in real estate,half our assets are in other investments.
The founder, George Arjos, you know, was anunbelievable moneymaker.
You know, he can make money you know, prettymuch doing anything and did.
Was a real estate developer.
We're we're one of the largest apartment ownersin Southern California.
As a result of his his efforts there.
(03:22):
It was involved in private equity.
In those days, we just called investing.
So, there wasn't really a private equitymoniker and he made money in airlines.
You know, he he owned Igloo at one time, mademoney there, made money in, you know, cable
billing companies, little technology companies,you you know, Sterno, the little fire things
(03:44):
that you put under your your food when you'rehaving people over that over the house.
You know, own that business at one time.
So, he just, he made money in all kinds ofcrazy spaces.
At one point, only Seattle Mariners as a soleowner of that team.
You know, as you can imagine, made made somesome pretty decent money with that as well.
So just a fantastic moneymaker, and I'm thefirst outside person to come into this office
(04:09):
and manage money.
George, unfortunately, has Alzheimer's and andcan can't invest any longer.
So, I I have the the daunting task of steppingin and kind of filling his shoes a little bit.
So, it it's been fantastic.
You know, it's a great family to work for andthey give me a lot of leeway to try and make
(04:30):
money how I feel like I'm best at making moneyas opposed to trying to fit into some other
kind of mold and I think it's worked out well.
Not to not to make this a victory lap but wejust suck out our our one three five year
numbers versus the foundation of down theuniverse for our foundation.
And we're number one across all those periods.
And unless something disastrous happens thisyear, we should also be number one after the
(04:54):
ten year number as well.
And that includes, you know, competing against,you know, Harvard, Yale, and all the big, you
know, endowments.
So, we're pretty proud of those numbers.
Going back like all the way to the beginning.
So, I studied physiology in school.
I started about a semester or two at thecollege thinking I might go to medical school
(05:15):
and realized I was having too much fun andworking too hard at other stuff to really be a
dedicated student to to get the grades to getto med school.
I ended up almost double I I started pursuing adouble major.
I was about three classes short of a seconddegree in finance.
And when I started taking the business classesI just kind of went I thought to myself you
(05:36):
know what?
This is really what I should be doing.
This, I had a natural affinity for it.
I understood it.
It made sense.
I, I mean, I didn't have to study in thosecourses at all.
So, I went to work in investment banking.
You know, and I and you know, that's as youknow, that's a that can be a grind but it's
(05:56):
also a a great learning experience where and Ilearned, you know, listen, hard work and a lot
of it.
The the joke was always, what's a Sunday,right?
Because we didn't, you know, everyone's like aSunday off but we worked hard and learned how
to I think the the formation of my investingreally started there.
How do you identify value coming out of abusiness?
(06:19):
Where's the cash come from?
What are the value drivers inside of abusiness?
And I think that was just a critical lessonthat has stuck with me my whole career.
Whether we're investing with individualcompanies or managers at the end of the day.
How do you make money?
It's gotta trans gotta translate down in the inthe into that bottom line.
So I think that that was a kind of a criticallesson there.
(06:40):
I'll pause in case you wanna interject or So
any advice that you have in terms of, numberone, finding what your pathway is?
I think for you, it came naturally.
For me, you know, studied electricalengineering, and, you know, I had the self
similar self realization.
I don't wanna sit in a lab underground and andwrite code.
(07:01):
I you know, my favorite class in college wasengineering economics, and it's essentially
where you're pitching a business.
So I had two, three other people put togetherdesigns of some circuit that we built, and I
just came in front and pitched it.
So I just you know, think similar to you, Ilove working with people, and just kinda that
(07:22):
self realization came to me.
There's several people that go out and switchcareers three times.
You know, there's some people that change theirmajors three times.
So, you know, are are you recommending just tokinda just enjoy the the journey and figure it
out?
Or what are some frameworks that maybe helpedyou decide that banking was the the path?
Yeah.
(07:42):
Well, I I I'll take a half step back intoeducation because I I think it's important.
I don't think it's as critical unless you'regoing into a technical field.
Mhmm.
I don't think it's as critical what you studyversus building those those learning
capabilities.
Can you take in and we have a ton ofinformation today as you know.
(08:04):
I mean, the the amount of information flow isenormous.
Sure.
Can you take in large amounts of information,filter it to what's relevant, and then make
decisions and I think that's the value ofeducation.
So, whether you're studying philosophy orpsychology or finance or engineering, you know,
(08:25):
can you boil down the information into anactionable item.
I think that's that's the important skill thatthat you learn there.
I've met investors, you know, other investorswho are history majors And you might say, well,
what's what's the relevance there?
Well, you know what?
A lot of what we do is pattern recognition andlooking back at historical periods and then
(08:48):
looking for the parallels to the current periodand history is fantastic for that.
You know, economic history is great for greatfor that and understanding market cycles and
how things repeat over short cycles and longcycles.
So, I think developing that ability to take inall that data and then consolidated into into
(09:09):
some some thoughts and conclusions that areactionable is the important part of the
education.
So, I don't think it's so much what you'restudying that's as critical.
Going into banking, I don't I don't know thatbanking was necessarily my passion but it was
it was for me, it was almost a bit of a meansto an end in that.
(09:32):
I didn't I wasn't really sure what I wanted todo.
I was graduated and or you get ready tograduate and I called my dad who, you know, he,
my, my dad had been a hallmark cars ultimately.
He was a regional sales director for forHallmark and and you know, he'd been there.
He ended up being there for thirty five years.
(09:52):
So, I called him and thought, hey, you know,what what do you think I should do?
And he said, oh, no, keep in mind, this is Mayof my, you know, my second senior year because
I took five years to graduate college and hesaid, you know, just look at like investment
banks and consulting firms because you're goingto see a lot of businesses over your first
couple years there and you're going to seesomething that you might like and want to go to
(10:12):
work there.
So, that was kind of my thought is I'm going godo this for a couple of years.
I'm going to see an industry I really like andI'm going to jump in and get involved.
I don't think I really anticipate I'd bestaying in the business.
You know, for now for thirty plus years.
That was a little easier said than done sincerecruiting had been finished for about six
months.
So, I had to kind of barge barge my way inthrough through SureForce into a small small
(10:35):
firm in Beverly Hills where I legitimately callthe guy for about five or six straight weeks
every day.
Every day I call.
It it became like a running joke with hisassistant.
He's like, oh, good.
You're a little late this morning.
You know?
I'm like, you know, I was like, I had a latenight night last night.
Alright.
I'll call you tomorrow.
And then one day he picked up the phone andhe's like, what do you want?
And I had to, like, I went from notanticipating I was actually gonna get him on
(10:58):
the phone.
It was kinda had become a game to, wow, I Ineed to pitch this right now hard.
Sure.
And I pitched it hard that listen, you need mein this class and here's why.
And I just started laying out reasons why Ithought I could be a invaluable asset to that
to that analyst class, and he took me.
So
So we're gonna talk about you know, so thatthat's a good point.
(11:19):
Right?
So we we all heard this story.
I don't know if you heard this story with VinodKhosla, like how he got into Stanford.
Right?
I think he just showed up at the admissionsoffice and just begged them every day until
they got tired of probably hearing from him andthey let him in.
That hustle, that grit, you know, was verypresent back in the day before we had LinkedIn,
before we had, you know, even the ability tofind people's emails and stuff, you know, you
(11:42):
would literally just find people's numbers in aphone book.
Even when you're doing fundraising, right, youyou go through the phone book and you're
calling people.
And if you're trying to get a meeting, what doyou do?
You call the landline, and you just show upuntil they're tired of seeing you and until
they give you a chance, right?
So it's brute force.
Do you feel like that's changed now, you know,with the recruiting process?
(12:03):
Do you feel like, do you see that same level ofgrit when people are trying to find a job?
And you know, we're going go through an examplein a few minutes that you allowed me to bring
up.
But I think feel like that's changed a littlebit.
I don't see people doing that as frequently,but I do encourage people to do that or to take
a similar approach.
And and I so I just taught a class this lastfall at Chapman University on family offices.
(12:24):
And and I lecture at all the universitiesaround Southern California, you know, usually
like once or twice a year.
And regardless of what the topic is gonna be,it always devolves into how do you get a job in
this field.
So, I always leave about an hour at the endbecause I know people are going ask questions
and I have some some kind of standard commentsthat I make but I think they hold true and I've
told my my own kids that.
(12:45):
You know, the the same lessons because I thinkthey're important.
One is that if you're going to try and find ajob and let's say you find a company that's
advertising, excuse me.
You find a company that's advertising for aposition.
If I advertise for an analyst position, I'mgoing to get a thousand resumes.
(13:06):
Okay, I have the capability of probablyinterviewing 10 people which is 1% of those
resumes.
So, we're going to filter out nine ninety ofem.
A, you gotta have thick skin.
You can't take that as a criticism or a failureon your own end.
That's just a, that's very arbitrary.
I would say that probably of the 10 we we takein to to interview out of that thousand.
(13:27):
I'm going to speculate that 90 of them couldhave been in the interview process.
Okay?
But it's still it's a low percentage, right?
Sure.
So, we're taking 1% but I will tell you this,if somebody I know brings a resume to me and
says, hey, I hear you're hiring.
I know this candidate.
(13:48):
You should talk to them.
Here's the resume and I'll take a look at itand if they're qualified, they're gonna go in
the interview pile.
Right?
So, the point being, use your network, buildyour LinkedIn network, build your business
network, however you decide to do it Andinstead of going in the front door through
human resources where you've got, in our case,you're gonna have a 1% chance of getting an
(14:09):
interview.
Right?
Go through somebody who knows me and you'regonna have a if as long as you're qualified,
gonna have virtually 100% chance of getting aninterview.
So, a much higher probabilities.
So, while it's not you're not calling somebodyevery day, you know, for six weeks to to try
and get in the door, you are using, you'releveraging your network in an appropriate
(14:31):
manner to help you get in in front in the door.
If you're not getting the interviews, you'renot going to get the job.
It's, you know, to to go back to sportsanalogy, I've coached sports for a long time.
You know, if you're up to up to the plate andyou don't swing the bat, I can guarantee you're
not going to get a hit.
You may get a walk and get on first base, youmay get hit and get on first base but if you
don't swing that bat, you are not going to hitthe ball and if you're not in the interview,
(14:54):
you're not going to get the job.
So, goal number one is to get yourself intothat interview.
Goal number two, obviously, is to is to deliveron the interview and there's all kinds of, you
know, ways you need to practice and be preparedfor that but going back, it's build your
network, network relentlessly, and leverage it.
(15:17):
You know, if you're, if you see an an openingfor a position that you really want, then, go
to your LinkedIn network and find somebody whoknows somebody who works there and get that
resume hand carried in.
You have a much higher probability of gettingthe the interview.
Now, the last, you know, the last resort wouldbe, you don't know anybody.
(15:37):
Okay, just throw it in and hope you get it butdon't don't anticipate you're probably gonna
get the interview unless you really just jumpout on paper.
Sure.
Absolutely.
Well, would love to have you share that story.
I mean, I think once you get the interview, Ithink part of it, you know, one of my favorite
comments is money loves speed.
So, you have the opportunity in front of you,and now you want to think about it.
(16:00):
You know, you've essentially have everythingsigned, sealed, and delivered.
Now you want to talk to your parents.
Now you want to decide, you know, people aren'twaiting around for you to make a decision.
So, you know, one example we wanted to talkabout was a candidate that were potentially
going to bring on your team.
We're not going to bring any names up, maybeyou could share that story because I think
that's going to really shed light, not only forI feel that sales, dating, fundraising, jobs,
(16:28):
it's all the same thing.
You need leads.
You need to get out there to connect with thatperson and then potentially it turns into
Joe, you froze a little bit there.
Still hear me?
Yeah, you froze for a second.
Okay.
Did you lose the audio?
Yeah, completely froze for a second.
(16:48):
Okay, cool.
Dating and then you broke.
Sorry about that.
I'll fix that later.
But anyways, I was just saying, dating sales,fundraising, getting a job, it's pretty much
the same thing, You need to connect with peoplepotentially skip the line because there's a lot
of prospects, and you have to somehow convert.
(17:08):
And we were going to share an example ofsomeone that potentially had this opportunity.
And then I would say the other piece is youcould have an offer, but then you want to shop
around and then that might just be too late toshop around.
You want to just hopefully just find the offer,make sure it's the right offer and move
forward.
If not, you know, you could lose out on thatoffer.
So, that'd be great to kind of run through thatexample with the potential I've
(17:33):
got a few thoughts on that.
And when you I'll take the the corollary to towhat you said on prospecting and selling.
Mhmm.
In that, if you're looking for a position whereyou're prospecting is or selling something, you
know, say in our world, you know, kind of aninvestor relations role, right?
(17:53):
How you proceed with trying to obtaininterviews and handling your communication and
the the the Emails and the text messages andthe format of those and they may seem pretty
innocuous but that employer is going to belooking at that and thinking to themselves,
this is how this person's going to interactwith my clients.
So, while it may be as simple, hey, thank youfor your time.
(18:15):
My suggestion is don't don't do that littlehalf sentence.
Thank you for your time or appreciate your timetoday.
Really lay out a nice thank you email everysingle time because that's going to reflect to
them how you might treat their clients and howyou're going to function in that role.
So, you know, every communication you have withthat potential employer is important.
(18:37):
To your point on taking a a position and havingan offer in hand, I think by the time you have
the offer in hand, you better be 100% sure youwant that job.
To take it to the point of getting an offerunless it's insufficient for some reason but
assuming you already know what what the numbersare going to be and whatnot.
(18:57):
When you once you once you get to the point ofhaving that offer, you should really be ready
to accept it.
If there's something that's bothering you aboutthe company beforehand, then, you should bring
that up in the process.
Companies because as a somebody who's who'slooking at at for potential employee, I'm
dropping people out of the process all the waythrough.
(19:19):
So, I get to my final candidate.
If my final candidate looks like they're gonnaaccept and then doesn't, that's a real problem
because now I have to go back to somebody Ijust deleted or start my whole process over.
So, it's very expensive.
Many years ago, I had a a young man, verysmart, great, went through 12 interviews with
us.
We had started with the, you know, get about athousand resumes and we filtered all the way
(19:41):
down.
Excuse me.
And ended up with him.
And brought him back in for the final, youknow, meeting.
I handed him his offer letter and said, listen,just sign this.
He was graduating in May.
This was March.
I said, pick your start date.
I don't care if want come in September,October, November, go travel Europe, whatever
you need to do because when you get here,you're going to work your tail off.
(20:03):
So, I want you refreshed and ready to go.
Okay, great and he gets up to leave and I said,wait, you need to sign that before you get out
of here.
He's like, well, I just want to check with myparents first, you know, and have some
conversations with them about this and I satthere for a second and mulled over what he had
said and was wondering how did I miss thiswhole thing with him?
(20:27):
Where he's not comfortable making decisions.
In a world where we make decisions all thetime.
We're buying and selling things and we'resometimes you're upside down $100,000,000 and
you've gotta, you know, figure it out and topull a phrase from a TV show that was on at
that time, I said, you don't get a lifeline.
You can't call your parents for help.
But you were that old TV show where you, youknow, you're, it was kind of like a quiz show
(20:51):
and if you needed help, you would callsomebody.
Phone a friend.
Yeah, phone
a friend.
Yeah, yeah.
So, I I'd like you to I'd like you don't getthe you don't get the call in and and and.
Yeah.
And get help.
And I pulled the offer and said, listen, thisis going to suck but it it could be the best
lesson you ever have.
Yeah.
Because you're not ready for this job and Imade a mistake in assuming that you were and I
(21:13):
didn't really follow the my my my process likeI should have to ensure that you're ready for
this these kind of making these kind ofdecisions and I tore it up and threw it away.
And he left, cried.
I felt bad.
Great and I'm sure he's doing fantastic now.
Like I said, super smart, you know, top school.
He's he's great.
And my boss came in and said, when's hestarting?
(21:34):
And I said, he's not.
He said, what happened?
I said, I told him.
He said, oh my god.
I said, but but think about that.
He's not ready for this role.
So, I'm a believer that if you're going to getto the point of having an offer, you should be
ready to accept that offer.
Unless there's something in there that thatdoesn't make sense but you should have already,
you should already know what the numbers aregoing to be.
(21:55):
Yeah.
You know, within reason.
I mean, and I asked him, I said, listen, arethe numbers different or the terms different?
Is there anything in here that we haven'tdiscussed?
No.
So, it was just he wasn't totally comfortablemaking a decision and I realized I wasn't
comfortable having somebody who can't make adecision in a role where they gotta make
decisions.
Sure.
And I mean, I would say even in the investmentspace, you're gonna make decisions.
(22:17):
I mean, you have the leadership skills to dothat.
And you're also gonna be accountable when youmake bad decisions too, know?
So being able to handle that in tough times,your mommy and daddy aren't gonna be able to
help you, you know?
So being able to navigate through that yourselfand learn from it and find great mentors to get
through it is is really important.
I I
think Joel, think the biggest challenge I II've seen over the last maybe twelve or fifteen
(22:41):
years.
As kids are coming out of college with straightA's in elementary school, middle school, high
school, university, and never had a failure,never been allowed to fail, never been allowed
to make a mistake, always protected, alwayscarried, you know, involved in all the right
(23:03):
activities and not I'm not negating any of thatbecause I think it's fantastic but they don't
know how to fail because they've never beenallowed to fail or put in a position where they
might fail and the problem is in life, youalways have failures and we learn more from our
failures than we do from our successes.
I can guarantee you that because when you'rewhen you're successful, unless you're investing
(23:25):
because it's it's it's it's it's an easiermeasurement.
When you're successful with an investment, thefirst thought is, I'm really good at this or oh
yeah, I knew that was going to work and youdon't realize maybe if you're not discerning
enough and believe me after having my tailkicked in for so many years over my career, the
one thing that I'm I'm thinking pretty good atdoing is looking saying, hey, here's where I
(23:49):
did really good work on this transaction andhere's where I got lucky or here's where I did
really bad work and here's where I got lucky orhere's where I did really good work but I got
unlucky, right?
So, separating out that luck versus skill.
When you get your face ripped off in atransaction and you lose a bunch of money, you
learn a lot more about yourself and yourprocess and that delineation between luck and
(24:12):
skill than when you are successful and ifyou're not allowed to fail and make mistakes
and then live with the ramifications of thosemistakes, what happens is, you know, instead of
that happening when you're 15, you know, you dosomething stupid, you, you know, whatever you
you blow something up or I don't I don't know.
Whatever you do this dumb at 15.
(24:33):
You get a DUI or something.
We are you know, yeah, or you or you dosomething in school that's stupid and you get
and you get suspended for a week, you know.
Okay, take the suspension.
Take your medicine.
That that that's that's what happens, right?
But parents will, parents will want to glossthat over and help their kids and keep them,
you know, they'll complain and they'll get thekid back in school and then what the kid learn?
Oh, nothing, right?
(24:56):
I made a mistake and there's no ramification.
So, now, you know, fast forward and they're 27and they're in that first job and they and they
make a mistake and it's not just, oh, I made amistake.
I I just lost my firm $100,000,000 or orsomething along those lines.
It's worse because now, it's a personal affrontand they don't know how to react personally.
(25:19):
Sure.
And evaluate it, you know, and and say, oh, I II can't make a mistake.
I'm gonna fix this.
I this is my my my evaluation process and Imade a few mistakes here, here, here, you tweak
this and let's move forward and it becomes a amuch bigger situation than it should be than
just, hey, there's a work issue.
I made a mistake and we're going to fix it.
(25:40):
It now becomes a question of their own personalvalue and their own personal abilities and
that's a that's a problem and then it's then itcan even parlay in other things.
You make mistakes in the in your marriage or inyou know, in raising your kids and believe me,
I got three kids.
I've made every mistake possible.
So, you know, we do that on purpose because wewant to practice making mistakes but you may
(26:03):
you make these mistakes and they they just getmagnified.
If you don't have experience recovering fromthem.
So, I think that that's the one thing I'venoticed in the last, you know, dozen or so
years is that kids don't have as muchexperience with mistakes and and and failure
And that sets them up for bigger issues downthe line.
What are some of the bigger issues that you'reseeing with this generation versus the other?
(26:27):
Is it well, what I think you're alluding to iskind of the mental health part of it, right?
Like, people think their life is over if a if adeal blew up where, you know, in in the long
run, everything somehow is figureoutable,right?
I mean, it it corrects itself somehow.
You learn from it.
Maybe you do pay a big cost, but you're stillalive.
You got your two hands.
You got your two legs.
You've got a a support system.
(26:49):
Right?
So do you feel kind of some of the, because ofall that pressure?
Depends on know, there's there's demographicsthat are tied to some of that too.
Right?
People's upbringing, you know, they're they'reraised by tiger parents.
Right?
And they're supposed to adhere to a certainstandard.
But do you so you feel that, you know, in thelast maybe fifteen years, it's just tough for
(27:10):
people to kinda get through that?
And where do you where do you see they landafter that?
Do they just get burned out and do somethingelse?
Yeah.
I I think I think they they they versus maybe,you know, when I was coming out of school, may
may not as much resilience.
Mhmm.
So, when there when there is an issue thatcomes up, a mistake or or whatnot, that yeah
(27:31):
and you mentioned mental health, you know,there's this search for, I need a work life
balance.
Oh, an investment banking.
There was no work life balance.
You worked.
Sure.
Right?
Work work life balance was, hey, you know what?
Sometimes, we're going to give you a Sundayoff, right?
So, there there there's your there's yourbalance.
Go have fun, right?
You know, watch some football games and havebrunch somewhere.
(27:53):
So, if you're if you feel like you need thatbalance early in your career, then I think it's
important to to pursue a career that allows forthat.
Right?
If you want to be involved in these highlycompetitive fields like investments, obviously,
investment banking and consulting whatnot.
(28:15):
These highly competitive fields, you're goingto have to put that a little bit on the back
burner, that balanced part of your life.
It'll come eventually, right?
You're going to, I mean, one of the reasonsinvestment bankers work twice as hard as
everybody else is they get paid twice as much,right?
It's it's not it's not a, you know, it's not a,well, you work twice as hard, you don't get
paid or or the flip side, you're getting paid alot but you don't work as hard.
(28:36):
You gotta, I mean, you gotta work for thatmoney, right?
And that that's a that's a hard field.
So, you do get rewarded from a financialstandpoint but it's it's at an expense, right?
You, there's an expense to your personal lifeand you have to be, you have to be comfortable
with that.
When people tell me they want to pursue theirpassions, I tell them, I think what's more
(28:57):
important is do something that you're reallygood at that you can get paid the most you can
at and then your passions become your hobbies.
You know, I I have three things that I dooutside of work.
Few more than that but effectively three.
I say the three Gs, right?
I golf, I garden, and I play guitar.
Nobody's going to pay me to do any of thosethings.
Sure.
Okay.
So, those are just hobbies and that's fine.
(29:20):
So, I work hard.
So, I have, you know, enough capital that I cango pursue my hobbies when I'm when I'm not
working.
The other mistake and I see this a lot and Ithink this we're talking about the same person
here is that they'll go to work somewhere fortwo years.
They don't like it.
(29:40):
So, then, they switch because they're lookingfor a better culture, better opportunity,
better cash, whatever and then, they switchagain and then, they switch again and it's kind
of these two year runs and so by the timethey're 30, they've been out of school for
eight years.
They've had four jobs and they're trying toconvince me that they've identified that we
have the best culture and that we're the bestfit for them.
When in reality, they haven't been anywherelong enough to understand culture, much less
(30:04):
identify what our culture is.
So, I tell people, unless you're getting, youknow, whipped at work every day, physically
whipped, you you ought to be thinking fiveyears for your first job out of college.
Get that base in.
Learn your learn your craft and learn theculture.
You may hate ultimately hate the culture andthat's okay but be able to understand what it
(30:26):
is you don't like about that culture and whatit you're looking for in the next place.
Otherwise, you're gonna continually go hop,hop, hop, hop, hop and just as a side note,
when we bring in a new employee, we don't welose money on that employee for eighteen to
twenty four months.
Between them not producing anything, what we'repaying on a salary anyway because they're
learning.
The distraction from from the productive peoplewho are who are making the money.
(30:49):
It's it's a distraction from our time.
So, that, you know, that is that's a cost andit's okay because it's an investment for us for
the long term to build.
Sure.
You know, build the firm better but if you'releaving every two years, nobody's making money
from you.
Yeah.
You're losing every employer money for twoyears and then you're not giving anything back
And eventually people are gonna stop hiringyou.
(31:09):
So I I just think that I see that a lot and Ithink I think what we're talking about kinda
dovetails.
That resilience that never have failed and thisconstant hopping of jobs, I think all is kind
of tied together from the same factors.
So it's a good segue to my next question.
So I understand now that you're looking forsomeone that has a little of experience, at
(31:31):
least, I would say three and a half to fiveyears, if were to gauge, having a little bit of
track record, building some type of reputationat a firm and also getting your money back.
You hire them, they've got to stick around forat least eighteen months to twenty four months
to kinda recoup the, the the skills thatthey're supposed to be ramping up on.
(31:53):
What are some other because you guys are amulti asset strategy firm.
Right?
So when you're hiring somebody, what are someof the hard skills and soft skills that you're
looking for?
Yeah.
And I'll I'll go with the soft skills first.
It's interesting that as much as this is aninvesting role, this is just as much a
psychology role.
When people say, what what's your day like?
(32:14):
I spend, you know, 80% of my time investing,20% of my time doing whatever I'm asked to do,
and 100% of my time as a family psychologist.
So, you know, if you did the math, that's 200.
There's a lot of soft skills that goes intogoes into this this kind of role because I'm
not dealing with an institutional investor whounderstands just flat out numbers, right?
(32:37):
And that sometimes we're to lose money in aninvestment.
That's just part of what we do.
You know, if we're not losing moneyperiodically, then, we're probably not doing
our jobs properly.
We're not taking enough risk.
Yet, for a family, they may not understandthat.
So, you have to have those soft skills.
So, soft skills are important and in fact, Iwill say and I've said this at at a number of
universities, if I'm interviewing twocandidates and they're, I've had the question.
(33:01):
I, it's never going to actually be this waywhen they've asked.
What do you do if you have two candidates whoare exactly equal on paper and equal with
skills and whatnot?
And I tell them, listen.
At the end of the day, if it came down if Ireally had that situation, it's gonna be the
one I wanna spend ten hours a day with.
So better have a good personality and be fun tobe fun to work with and have some good
perspective because if if not, I'm not going towant to work with you.
(33:22):
So, that's important.
On a skill set standpoint, if we were bringingsomebody in in that three to five year window
of experience versus say somebody right outundergrad, then, out of undergrad, we're gonna
we're gonna expect them to have some basic,have some good Excel skills, good, you know,
kind of, you know, Tableau, Canva, that kind ofstuff, some understanding of financial
(33:48):
statements, but not they're not gonna be expertat that, and we we wouldn't expect that.
Obviously, ability to communicate and I thinkcommunication is critical in what we do.
You can be the best analyst in the world.
You can't tell anybody what you're doing,nobody cares, right?
You gotta be able to sell the story.
So, in that three to five year window, it's abalancing act.
(34:08):
We want somebody with higher level skills whocan do the analytics, who has good business
judgment, who understands that a model is notan answer, a model just creates questions.
When you look at a business, you know, why aremargins deteriorating?
So, that's a management question.
Why are margins expanding?
You know, hey, this is you say that you saythere's you know, you don't really have any
(34:31):
competition and you have a pricing power yetyet your prices are continuing to decline.
Why?
Right?
So, it's somebody who who can take it to thatnext level and and ask questions that come out
of the analysis but we don't want them tootrained because we want to be able to train
them in our methodology and how we makedecisions.
And sometimes people will come in or will willtalk to people who have they're already
(34:58):
developed a certain process for doing thingsand it's it will become apparent that they
can't switch gears and learn a little bitdifferent because we're we're different like
every family office is different.
There's no family office that that that'sthat's alike that I know of.
Everybody has something different and thedifference that I think for us is that we're
investors first, allocators second, and evenwhen we allocate, we feel like we're investing
(35:24):
because we'll, you know, we don't invest with alot of managers.
We do a couple managers and we do concentratedmanagers because we want concentrated bets
because we believe that if you have convictionand you're going to bet on something on an
investment, then, you better have enoughcapital there to make, then, if it works, you
make a lot of money and it and and thatobviously creates some level of risk and a lot
(35:46):
of people aren't as comfortable with that inthe allocator roles where they're more putting
out a lot of capital to a lot of differentmanagers, a lot of diversification to minimize
any mistakes.
We know we're going have mistakes.
Sure.
We know we're going to have things that godown.
That's just part of it and sometimes it hurtsbut that's kind of our our our objective.
So, we have to make sure somebody's notcompletely so far down the path of their career
(36:10):
that they can't switch and and, you know, adaptto what we're doing here.
Sure.
Yeah.
I'm excited to spend a couple minutes in thefuture about managers.
I wanted to kinda complete the story as wellwith your career.
Right?
So you you grounded out in banking, spent sometime there.
Why don't you tell me kind of the next stepsafter that?
(36:30):
You know, how you, you know, got into the firmat Arnell and, you know, whatever you're
allowed to share, we'd love to learn a littlemore about, you know, the founder because, you
tell me that the founder had just a a magicalknack to kinda just, you know, finding returns
in the investment.
So, we'd love to learn a little more about hischaracter and, you know, some of the things
that, some of the skills that he's developed tokinda find great investment opportunities.
(36:51):
Maybe we can go there and then and we can starttalking about managers and how we think about
allocation.
I I spent I left I left banking.
I went to a restructuring firm.
I did three and a half years with arestructuring firm and I think that the
critical lesson for me there was starting withthe end in mind and I do this with every
(37:11):
investment.
Everybody who pitches you an investment idea isgoing tell you how you make money in it.
What what I'm trying to figure out is how Ilose money.
What are the what are the factors that aregoing to come into play to make me lose money
here?
You know, and that and that's all in, you know,kind of based on spending time doing
restructuring work and looking at really goodbusinesses that were bankruptcy for various
(37:31):
reasons.
You know, and so, I always kind of start withthat in mind.
How do I lose money here?
And if I can't, A, understand how I lose moneyand B, get comfortable with that level of risk,
then, it's, we go to the next one.
There's no FOMO here.
We pass on a lot of stuff.
We'll look at we'll look at three or 400 decksa year and we're going to make one or two
(37:55):
allocations.
So, there, you know, we're we're passing ongood stuff.
We know that and that's okay.
You have to be comfortable letting it go tomake sure that what you get is right.
And so that was the lesson there.
I went back to business school at USC.
I don't know.
I I felt like I wanted to round out myeducation a little bit.
(38:16):
I also kind of wanted to prove to myself thatif I really focused, I could do better in
school than I did in in an undergrad.
I think my undergrad GPA was like two eight ortwo nine.
Sure.
And you know, you know, I would never go toclass.
You know, I just show for exams and not evenstudy for those.
So, you know, it was kind of silly.
(38:37):
So, I got a three nine at USC.
I got one B plus while I was there.
And I was pretty proud of that and so that thatwas kind of a for me, it was a kind of a prove
it thing.
You know, I wanted to prove to myself I coulddo that.
I went to a buy side firm in Pasadena.
We're about 2,000,000,000 when I started.
We grew it to 19,000,000,000 and sold it.
(38:57):
I retired for about a week and was going crazy.
So, I went to work for a competitor in town andworked there till February.
Took left left there.
Pretty fortuitous timing in general.
Spent the rest of the year just kind of writingand I created a blog that that ultimately had
(39:20):
about 4,400 subscribers to it.
And it started out with clients just callingme, former clients call me.
What's going on?
So, I was, I just sent out some charts andinformation and pretty soon, it was taken all
day every day to do it.
So, I started writing a note on Sunday nightsand just people would just Email me, hey, add
these three people.
Add this, add my CFO, add my CEO, you know, addall these people to listen.
(39:42):
It it got to be a little unwieldy but it wasfun.
I went to work for another family in BeverlyHills around that time period.
Basically, doing effectively what I'm doingnow.
And they have had some issues with theirportfolio during the GFC.
So we the team came in and kind of fixed thatand and then I took a little pit stop.
(40:05):
I got a call from a recruiter who caught me ina weak moment and I went to a a regional bank,
business bank to run their wealth managementpractice.
I've never worked in a bank before, a real bankand I thought, oh, this can be fun.
You know, it was a mess.
It had it had a bunch of bunch of operationalissues and compliance issues and we got it
(40:26):
fixed.
You know, got the numbers great.
The numbers were, you know, we had the numbertwo core fund in the country by the time I left
with low turnover, you know, 6% turnover andand really just we I think did a pretty good
job there but it wasn't it wasn't the rightenvironment for me.
This family contacted me because of Georgia'shealth health issues and so I, you know, we
(40:49):
spent about a year talking and I came overhere.
You asked about George and character.
I mean, I think that those things kind of gohand in hand.
George was very instrumental in the RepublicanParty here in Orange County.
When I walked through his offices over here,you know, there's pictures of him with Gerald
Ford, know, Henry Kissinger, Ronald Reagan,both of the Bushes, you know, pretty much every
(41:18):
Republican leader and he was kind of a bighitter in the Republican Party served as the
ambassador to Spain for George W Bush fromFebruary to 02/2004.
And you know, just I mean, a man who put it puthis money where his mouth is.
It was, you know, when he went to Chapman whereI taught last last year.
By the way, his his George Argyros, thebusiness school over there is the Argyros
(41:42):
College of Business and Economics.
Sure.
And when the school was was really strugglingin the early eighties, I believe it was.
George got together local local alums andpeople and they pretty much financially saved
that university and it's now considered a verygood, you know, private university here in
Southern California.
So, he he's was a very charitable guy.
(42:05):
I say was.
He's still here but it was very charitable.
We have a very large foundation.
I think we might be the largest privatefoundation in Orange County.
Certainly one of the one of the most generousin in Orange County during COVID.
His wife Julia we doubled up vast majority ofour contributions to help out these
(42:28):
organizations that were struggling and ready toclose.
So, they they're very generous on that side andGeorge is, you know, George is the utmost
integrity.
I'm going to look back here on my desk becausethere's a book and it, if I can find it, it's a
it's a vial of Georgia.
I I and I I think it's like a a life well livedor something like that.
(42:50):
Oh, wow.
Okay.
So you
can get on Amazon.
Right?
You can get that on Amazon.
Yeah.
And I'll I'll I'll email you the nameafterwards.
I I don't know.
Stare at my my bookshelf for an hour.
Yeah.
So, you know, following that legacy, like Isaid, it was pretty daunting stepping in here,
you know, to step in underneath shoes ofsomebody who is that great of investor.
(43:11):
Sure.
You know, I feel like I'm decent at what what Ido.
Certainly, our numbers would suggest that we'redoing a pretty good job but you know, he did
the hard part.
You know, he he he made all he made all thismoney.
My job now is to is to keep, you know, keep itgrowing.
You know, with without, you know, withouttaking them out of the the Uber rich category.
(43:34):
So that's my job number one.
Just make sure make sure when I leave here,they're still Uber rich.
Yeah.
No.
That's helpful.
So let's double click on that.
I know we got about twelve minutes left.
So I thought it'd be cool to just do rapid fireof a couple couple quick questions to kinda
give the run out.
So when you guys look at asset allocation, howdo you guys think about that across assets?
(43:55):
And then maybe we can just, you know, thinkabout managers and how you look at managers as
well.
Yeah.
From an allocation standpoint, so we don'thave, you know, the kind of the typical four
asset classes.
That never made sense to me.
Sure.
You know, that alternatives bucket, it's toodiverse.
You know, hey, I need to add to my alts bucket.
Okay, are you having to?
I'm adding a long only hedge fund.
(44:15):
I'm adding a venture fund.
I'm adding a you know, emerging markets debtfund.
I mean, there's all these different kind of,you know, investments in there.
So, we look at three assets.
We've broken three asset classes.
We have growth, growth, asset class, adefensive, and a real and so our growth is
basically anything that looks or acts likestocks whether it's public or private.
(44:38):
So, if you've got a positive correlation tostocks, say, north of a 0.5, you're going to
end up in there.
So, that's going to include our venture, ourour buyouts, private equity, obviously, our
stocks.
They're all going to fall in that growthcategory And we define that as that group is
(45:01):
going to work when you have a moderate to fastgrowing economy with controlled inflation.
Okay?
Our defensive bucket are just more bond like.
So, and not complete bond like because but it'snon correlated to stocks.
So, that would include our cash, any bondportfolios that we might have like municipal
(45:22):
bond portfolios for for the family themselves.
Any credit oriented private equity strategies,non correlated hedge funds, which we've used a
pretty pretty extensively in lieu of bonds andso that group is going to typically work.
The non correlated stuff's going to workregardless or should if we're doing a good job
picking the managers but in general, they'regoing to work in low inflationary environments,
(45:47):
right?
Think think bonds and cash and then our realassets are anything that comes out of the
ground.
Real is anything attached to the ground.
You know, real estate, oil, energy,commodities, that kind of stuff.
So, does a little better in higher inflationenvironments.
So, when we want to tilt the portfolios andsay, hey, we want to be more growth, more
defensive, more real.
We can base it off off of kind of economicscenarios of here's our inflation outlook.
(46:12):
Here's our growth outlook.
Ergo, we should be switching here and there.
Now, then, what we do inside there is a littlelittle little different.
If we've identified an idea, we think Egyptiancotton is the greatest investment in the world.
We need to be in Egyptian cotton.
We're going to just go walk down the stack now.
We're not tied to a structure.
We're gonna start with an ETF.
Can we find an ETF that trades a differentcotton because it's cheap, it's liquid, and
(46:36):
it's easy.
Yes or no?
Mutual fund, yes or no?
Separately managed account, yes or no?
Hedge fund, yes or no?
Private equity count, yes or no?
Hey, let's go fly to Egypt and buy some dirt.
You know, I mean, that's the kind of theprocess we go through.
Sure.
And at some point, we sometimes we can't findthe right vehicle.
So that's that's how we kinda think aboutallocation.
Yeah.
I know.
That's really helpful.
I think just looking at it in just kindaverticals that you think strategically makes
(46:58):
sense Just doesn't make sense to me.
So I I I kind of agree with that strategy.
And then when you guys look at managers, whatare some of the traits?
Again, maybe we just make it simple.
Hard skills, soft skills, personality, youknow, as you kind of think about, you know,
classifying them within those three buckets.
Yeah.
I mean, we're pretty we're pretty definitiveabout what we do with with funds.
(47:22):
So we're typically not gonna invest in a buyoutfund that's over $700,000,000.
And two reasons.
One, as they get larger, fees become becomemore profitable and they become by default less
incentivized or less driven by performance orless reliant on performance.
We want to be aligned.
(47:43):
I don't mind paying a two and twenty for a$500,000,000 fund because I know they're barely
running their business on that 2%, right?
I mean, they're going to make their money onthe carry and hey, guess what?
I'm going to make their money.
I'm going to make money.
If they make carry, that means they've they'vemade me money.
Sure.
So, we're partners.
So, it's partially that that smaller funds justtypically tend to outperform but not, you know,
(48:06):
it's not exclusionary and then B, our thesis isthat there's a lot of small businesses that are
underinvested in that need to be improved.
And there's growth opportunities for somebodywho can come in, who understands how to improve
business and put capital back into thesebusinesses.
So, we're focused there.
And I think by keeping that cap on there ataround $700,000,000 it keeps funds from having
(48:29):
from migrating up and having, you know, hey,I'm going buy that $50,000,000 EBITDA company
instead of the $10,000,000.01.
10 million dollars 1 is a lot more work thanthe $50,000,000.01.
This $51,000,000 1 looks great.
That's true.
It should.
Except.
There's less value creation available on the$50,000,000 1 than there is on the 10.
I want you buying the 10, right?
(48:50):
Put the work in.
Roll up your sleeves.
Let's do this.
Let's make this work because private equity is,how do you buy it?
How you sell it?
Sometimes driven by the marketplace, sometimesdriven by some skill but what do you do while
you own it?
How do you create value?
That's repeatable.
So, that's why we're focused there.
So, when we're looking at managers, we'relooking at managers who understand that there's
an opportunity to improve, build, and growbusinesses and that's our main focus.
(49:16):
Sure.
It bleeds over a little bit into our venturestuff.
We also invest invest in seed venture.
We tend to not invest with the larger funds.
We kinda have a we had a a softish cap at ahundred.
We're kinda now maybe one fifty Just becausethat seems to be the fun size that people are
raising 200 and a hundred and 50.
(49:38):
Excuse me.
And we're looking for for people with a uniqueedge.
Something different that we're not seeing inthe rest of the portfolio.
Something different that we're not seeing fromothers.
Hard to hard to grab sometimes.
At the end of the day, we're going do a ton ofwork.
We're going to throw out most of the things welook at and when we get down to those final
(49:58):
few, it comes to, there's a gut feel and that'sthe part I have trouble quantifying and
teaching because it's just a feeling.
It's it's that pattern recognition.
It's the the I've I've seen this before.
I feel this is right.
I somewhere somewhere you know it's right thatyou can't put your finger on why and you make
(50:21):
you make that that's that that's that last lastfive to 10% of the investment decision and
that's the hard part to teach, that intuition.
Sure.
Yeah.
I mean, I going back to relationships.
Right?
I mean, when you finally make the decision,it's kinda how you feel.
And even when you choose your partner, right, Imean, you we talked about this when we got
lunch.
I mean, it's just, you know, the the ability tojust kinda trust your instincts when you choose
(50:42):
because once you choose that partner, you'veyou've chosen them, and there's ramifications
if it doesn't work out.
That's right.
So I think it you know, there's no real scienceor analytics that you can really use at that
point.
Right?
You're you're really just gonna pull thetrigger or not.
Right?
It's a decision.
When you talked about the restructuringexperience, I think about Sam Zell because, I
(51:02):
mean, one one of the things that he talkedabout in his book was, you know, they call him
the grave dancer.
Right?
Focusing on how the company's gonna blow upupfront, and think about how it could go wrong.
And, you know, sometimes that's the ability toface your demons, and some people can't do
that.
So, when you when you think about hard assets,the thing is really interesting because when
you're buying these businesses, the interestingthing about hard assets is, you know, access to
(51:28):
possibly liquidity.
If you could sell some of those assets or sellthem at a higher, you know, price, then you got
some appreciation that goes along with just theactual investable capital that's going into
the, you know, the whatever the vehicle is.
But I thought that's pretty interesting.
And I'm just kind of nerding out here as we aswe kind of wrap up here.
But what are some kind of hard assets or sometrends that you're seeing in the real asset
(51:52):
space?
Yeah.
I I think that I think there's an opportunityevolving in multifamily.
For kind of a and I don't know how you wannaphrase the piece of paper.
Is it a mess piece?
Is it a prep prep equity piece?
Where in 2019, '20, '20 '1, maybe '22.
(52:19):
People are paying, you know, three and a half,four caps cap rates, which is expensive, right,
from evaluation standpoint for for multifamilyassets and getting financing at four, four and
a half, you know, really tight spreads.
Most of that paper is five years.
So, it's starting to starting to roll over.
(52:41):
And if you got a lot of leverage in that onthat property and you're going from, I'll pick
the number.
I'm at five.
I'm going to seven.
I'm I'm I may not, it may not appraise nowbecause I paid a four cap and maybe it's
trading at 5 and a half cap.
I may not be able to get all the all thefinancing to to to take out that mortgage.
So, I'm going to need to attract outsideequity.
(53:03):
I think the opportunity there is, I mean, Idon't know how you price that paper.
Excuse me.
I've seen between 1618% kind of cost on that,you know, mostly and kind of a pick structure
but I think I think that's an interestingopportunity where you're getting stabilized
assets.
Mhmm.
Pretty predictable cash flow streams.
(53:24):
Not a lot of not a like a ton of growth therebut you know.
Yeah.
Pretty pick of what's going on.
Where you can step in and get a pretty goodreturn on this thing and get and ultimately end
up if you really want.
You could probably end up with with control ofof these of these properties at some point.
So, I think that's an interesting opportunityin the heart in the kind of the harder assets
base.
Yeah.
You mentioned Sam Zell and I have to say thisbecause if I don't, I'll be remiss.
(53:47):
So, Sam and George, my boss or, you know, thehead of our family, we're good friends.
Oh, wow.
Okay.
And so, when George was the ambassador ofSpain, the story goes that that somebody from
the front came up and said, hey, ambassadorArjeros, there's a guy outside on his
motorcycle who says he's a friend of yours whowants to say hello.
And it was Sam who had been riding hismotorcycle around Europe and stopped by to say
(54:09):
hello.
So
That's amazing.
Yeah.
I mean, I you know, it's very fortunate tolearn from great people like that.
And then, you know, I think the theresponsibility that you bear is, you know,
carrying that legacy, which, you're doing agreat job doing.
And and it was amazing learning from me.
Had no idea that you had the connection to Sam.
Just, when you started talking about hardassets, was the first person I could think of.
(54:32):
And look, I just wanna say thank you for givingme your time.
All these stories kind of, you know, learningabout, you know, the kind of the hard skills
and soft skills that are needed, I don't thinkare really publicly available as much as they
should be.
And and sometimes it's hard because you gottabe in those ecosystems.
You have to have those relationships.
So, just wanna say thanks again, Ned.
(54:54):
You know?
Thank you.
I I enjoyed it.
Always a pleasure talking to Joel.
I look forward to talking to again soon, andand, hopefully, it was, it was beneficial.
So Yeah.
This is amazing.
Well, thanks a lot, everybody else.
Have a good day, and we'll all catch up soon.
St.
Patrick's Day.
Take care.
Yeah.
Happy St.
Patty's.
That's right.
Alright, guys.
Bye.
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