In this dynamic episode of the Derivative podcast, Jeff Malec sits down with Kevin Jamali, Senior Vice President at Farther, for an unfiltered dive into the evolving world of wealth management. What begins as a journey through Jamali’s career—from Chicago Board of Trade futures trader to alternative investment strategist—quickly becomes a provocative exploration of how technology and personalized advice are reshaping financial planning.
Jamali and Malec dissect the limitations of traditional investment approaches, challenging the long-held belief that a simple 60/40 portfolio is enough. With wit and insider knowledge, they discuss how Farther is pioneering a new approach that integrates modern technology with deep financial expertise.
The conversation weaves through Jamali’s insights on alternative investments, including private equity and managed futures, revealing how these strategies can provide more robust portfolio protection. His background in trading and Brazilian Jiu-Jitsu emerges as an unexpected lens for understanding investment strategy—where adaptability, strategic thinking, and risk management are key. SEND IT!
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Check out the complete Transcript from this week’s podcast below:
Tech, Trust, and Tactical Investing: A New Era of Wealth Management with Kevin Jamali of Farther
Kevin Jamali 00:07
The importance of our business comes down to trust, meaning, when they come to me, it’s this trust that they have in me that I’m going to do the right things, regardless of what parts of it they understand and they don’t understand.
Jeff Malec 00:21
Welcome to the Derivative by RCM Alternatives. Send it!
Kevin Jamali 00:27
Hi. I’m Kevin Jamali, Senior Vice President at farther, and we’re here to talk about merging modern technology and investment advice on the derivative. I
Jeff Malec 00:48
welcome everybody. Hey, Kevin, how are you doing?
Kevin Jamali 00:49
Good Jeff, thanks for having me on the show. Yeah. Where are you at home? I’m currently at home. Yes,
Jeff Malec 00:57
you missed the city. Kevin and I have known each other for a long time. Used to be a city guy like me, and went to the dark side, as we called it, and moved to the suburbs. But it all been good.
Kevin Jamali 01:07
It’s all been good. I mean, I, you know, I was born and raised in the city, and the thought of moving to the suburbs was like a death sentence to me. Yeah. So, you know, when we my my wife was pregnant with the first child, you know, she had to kind of pull me, and I was kicking and screaming. But to be honest with you, now that I’ve been here, I’ve been sort of domesticated, and now the thought of living in a tiny apartment in the city doesn’t appeal to me as much.
Jeff Malec 01:36
So you can be in a house in the city, but you can be
Kevin Jamali 01:39
in a house in that said, Yes, that is true, but just a peace and quiet. Sometimes I catch myself when I come downtown, like, oh my god, it’s like, so chaotic here, and I have to slap myself. I’m like, What happened to you?
Jeff Malec 01:52
Jeff Eisenberg, who you know in our office, and he moved to Ohio, he comes for meeting sometimes, and he’s standing on the corner. He’s like, there’s more people right here, in my view, than I’ve seen in the last three months in in Sleepy Ohio in my car.
Kevin Jamali 02:07
Yeah, Jeff lives on a farm, so for him, yeah, that is a bit of a stretch.
Jeff Malec 02:14
Well, thanks for coming on. Wanted to get your thoughts. You’ve kind of come at the industry from a different way. We always have these guys who start in the stock world and kind of move into alternatives and correct me if I’m wrong here. But it seems like you kind of started in the alts world, futures especially, and then kind of moved into not the stock world, but sort of the stock world. So kind of want to dig into that. It’s kind of a reverse path that seems interesting. I think the listeners or would like so start us off where you started, here in Chicago, and we’ll go from there,
Kevin Jamali 02:47
sure. So I started my career at the Chicago Board of Trade way back in the day, and my primary focus at the time was trading the yield curve, and then later on, off the floor, I’ll train the basis trade between the cash and futures. But, and actually, without, you know, I’m a bit of a dinosaur of the industry. I think I was one of the first people that started electronic trading, the old project, day, overnight. I don’t know if you remember that, or I do, yeah, yeah. So I was one of the guys that you know, be up all night. And so then eventually, obviously, as we all know what happened, but Were
Jeff Malec 03:24
you ever in a physical pit, or you just went straight into the overnight?
Kevin Jamali 03:28
No, so from so after training project today, I was in a five year pit. Got it. So Initially it started out by, you know, sort of flashing the orders into the 10 year pit or the bond pit, and then it was, like, the headsets. And then towards the end of it, we had the handheld devices where we’re able to, you know, put on the trades. And I remember, like, once again, I was like, one of the first ones with the device, and, yeah, and then it just, you
03:55
know, guys like, What the hell is that thing?
Kevin Jamali 03:57
Yeah, either that or guys like, I want to kill that guy because, you know, he’s gonna right? It was more of that. But my whole thing was, it’s inevitable. So you have two choices. You could either fight it or roll with it, and and it was just a matter of time before everybody realized that, you know, they have to either adopt it or move out of the way.
Jeff Malec 04:17
Yeah, how many? What was the split originally? Like 5050, or not even of people who were gonna fight it or adopt it.
Kevin Jamali 04:25
No, there’s a big push. I mean, initially was like, you know, 99 100% like nobody wanted it, because we sort of knew what that meant. But, you know, once it, people started adopting it, it slowly grew so like, it was like me and maybe a few other people, and then slowly, more and more people just by force, even though they didn’t like it, like, I need to either have this device or not. And in back in the beginning, I mean, it was insane sometimes, like some of these orders were just all over the place, where you could directly get some deep edges on the screen, on. It was a liquid, you know, they’re trying to, I don’t know who the market makers were back then, but yeah, so there were some good opportunities in that sense. And then, you know, you have some really crazy things that happened. I never forget 911 for instance. I mean, I literally went from, like, being blown up, you know, multiple numbers above when my account had to, you know, eventually, and not getting hurt by just his split second decision of covering a position. Because right when all that stuff happened, I remember, like, on this screen, like, let’s say the market was, like, offered at 20, and I saw like in bid for, like, 30 bid, or like, you know, oh, two bit, like, the next price over, which is a huge gap for, you know, those who understand their futures. And we’re done by the five year market. By the way, it wasn’t the bond tick side, yeah. And obviously I clicked on it and sold it. I’m like, this is the, the mother of all edges. But something within me at that second, it was just it, because we had no nobody knew what was going on. And I covered it, even though, like, you know, I covered it like it was a profit, you know, I just lifted all the offers, yeah, and then the next thing I know, Jeff, like, you know, let’s say if I solo twos, a guy jumps up, like, five, bit 10, bit 20, I mean it. And I was, like, literally, physically shaking. And it was in the beginning, so I had to call in the middle of thing, I was calling the help desk for at that time, it wasn’t project a at that time, I feel, whatever it was called, like, you know, the Board
Jeff Malec 06:38
of Trade, like, for the actual tech, like, Hey, Are these real? I
Kevin Jamali 06:41
said, Did I cover? Like, yes, did I, you know, what’s going on? You know, is this trade real? And they’re like, yes. I’m like, Are you sure? Are you sure? And then, oh, and then I bought some of it on the screen too, because it was, like a bit, and then it was like, an offer. So I was just like, you know, making sure that I was flat, and that insanity. So, yeah, there’s some crazy stuff,
Jeff Malec 06:59
which is great. I think people think that 2011 right? Wasn’t that far back. 2001 sorry, nine, 911 and 2001 not that far back. Um, but that was, those were early days, right? I explained to people like, if you had gone on the floor and seen the paper, right? They’re like, six inches of paper on the floor every single day, like, just to save the planet, save all that paper every day. Made electronic make sense. And then you had some hungover kid like me at 6am meeting other hungover kids to figure out the out trades. I’m like, that wasn’t a good system either. So it was begging for electronic it needed
Speaker 2 07:42
- Yeah, right. And, yeah,
Jeff Malec 07:45
it’s sad to me, like, where does that next layer me and use come from that get into the industry via the floor, right? That’s what I think it’s going to be missing in 20 years, right? Absolutely. Um, so then,
Kevin Jamali 07:57
so eventually from that, I transitioned and I was managing a CTA strategy for 10 years where, you know, we were trading. It was a completely different approach. Instead of, like focusing on a few markets, we’re trading roughly 80 markets that’s including the spread markets. It was 100% systematic, quantitatively driven, and it was which was a complete different transition from what I was used to, right? So I did that for 10 years, and then eventually transition into the role I’m in today, which is, you know, I predominantly the focus of my focus within the team is investment management and the use of alternative investments, the proper use of true alternative investments,
Jeff Malec 08:53
expand on the CTA a little bit. Do you miss those days like, let’s put the three career so there’s the futures trader the CTA, right. You’re trading your own money. Or were you just Clark, you’re trading your own money?
Kevin Jamali 09:04
Yeah. So initially I was backed, but then, you know, later on, it was my own money, yes. So
Jeff Malec 09:10
it was like trading your own money futures, trading other people’s money with futures, and now advising others people’s money with all sorts of stuff. But just on those two do you miss the days of the CTA, or was, what were the pros and cons? What were the ups and downs of that life?
Kevin Jamali 09:27
Yeah, so each one came with its own sort of, I’d say, interesting experience, right? Obviously, the floor days, it was the early part of my life where you’re younger and just that whole environment and so on, really appeals to you. Everything about it. So, you know, it was fast paced, and I’m really glad and fortunate I got to experience it right? It’s not something that most people have ever seen or witnessed. The CTA side of it. It was complete. Slightly different. You go from that to it’s more institutional, and the nature of how we’re investing in the decision making process was very different. It took me a while to get used to that notion right where in the floor, it’s all about edge and short term trading. In that world, at least the way our strategy was positioned as more long term trading, and there was no longer that edge, and that, that’s the part that really bothered me for a long time, like, where is the edge? And then, you know, you start realizing that the edge comes through your strategy design and your strategies and the team you have in place and so on. And then this world, especially given where at the stage I’m at in my life. I think it really complements it, because it’s a lot more personable, right? Like in the first part, it was all about me. The second part, it’s very sort of transactional, institutional. Here, a lot of people that I’m sort of working with are people I’ve known as relationships and you covering the entire gamut of their wealth situation, and which is a tremendous amount of responsibility, I don’t take lightly, right? There’s a lot of different facets. I mean, investments is one part of it, but then there’s other parts of it, right there, estate planning, financial planning, and all the things that comes together, and that person is really leaning on you to guide them through this journey. And it’s, it feels really rewarding from that perspective. So, yeah, so they each have their own and I think the way they stacked up, now that I talk about it, I think it really was the right way, like, given the younger years, is this, like, you know, really, like, charged up, you know, testosterone, floor, days to eventually, like this
Jeff Malec 11:40
more is that when you learned your jujitsu, when you had to fight for for some fills on the floor.
Kevin Jamali 11:46
So it was a little bit after that. Yeah, it was shortly. It was towards the end. And part of it where, yes, I got hooked onto jitsu. And I don’t think we want to open up that Pandora’s box, because, yeah, this entire podcast that ends up being like about Brazilian Jiu Jitsu.
Jeff Malec 12:03
So give us the quick you won some medals at like, the what do they call them? The Pan Am Games or something, right?
Kevin Jamali 12:08
Yes, I did when I took second place a couple of times, both in guy and no Gi.
Jeff Malec 12:16
It’s called the silver medal. Let’s give you the silver medal instead of
Kevin Jamali 12:19
second medal. Yeah, I did win the first place at a color belt in the the old man world, which back then, was in Brazil. This is before they they created the World Masters, which is 330 and up. So I did win that in Brazil as a color belt in my weight division. And then here, yeah, I took silver a couple of times at Pan Ams and the world championships at color balance in my age group.
Jeff Malec 12:43
So that’s what I tell my son, like, Hey, you’re getting to that age. You’re going to start getting in fights and bar brawls and stuff. Like, watch out. There’s some guy who knows Jiu Jitsu or something, and just have you on the ground begging for mercy within three seconds. Yeah. So, you know the wrestler, like, could you beat a wrestler? Do you think we’re going off script here? But like, to me, I was always beware the guy with the cauliflower ear, because they’ll, they’ll take you down super quick. So,
Kevin Jamali 13:11
so that debate has been put to rest, right? We that debate was pre 1993 and then the Gracie family is kind of prove it through the original ufcs, the first ufcs that you know, clearly, if someone purely is a specialist in their art, that Brazilian Jiu Jitsu will come on top. Now, this with all the respective wrestlers, and we have a lot of wrestlers, and I really respect the sport of wrestling, but the wrestling is that designed for submission. It’s a sport. It’s not designed to, you know,
Jeff Malec 13:42
yeah, if you’re down, you just you right next point. Yeah, right.
Kevin Jamali 13:46
And the rest of us, once again, phenomenal athletes. They really adapt well to our sport. So yeah, Jujitsu does that, however Interesting enough, I want to, you know, I think there’s and we’re all going way off script. But when you think about fighting and so on. There’s two components that always adds to it, alcohol and ego. And if you really remove that, 99% of the fights wouldn’t happen, right? Yeah, but a lot of it’s also insecurity. So I, you know, before Jiu Jitsu, I was a lot more prone into but, you know, getting into fights or something like that. But the more I did it, and the more better I got at it actually, that desire went away. Because I think once you’re more secure that you know, I have the ability to clearly handle myself, especially against someone who doesn’t know, then you’re like, why would I, yeah,
Jeff Malec 14:33
like, I don’t want to get my shirt dirty. But on the floor, like, right? So what all the fights on the floor were those ego or alcohol.
Kevin Jamali 14:44
I said there’s another third component to it, drugs, right, right, right, which was like, you know it, which was crazy seeing grown men, and it was from from all walks of life, right? People to like Harvard MBAs to all the high school dropouts. But. Behaving the way they did. It was that was,
Jeff Malec 15:02
but that all had that same, like, a little bit of a screw loose, like someone who would be, I’m gonna go compete in Brazil, in Brazilian Jiu Jitsu, right? Like there
Speaker 2 15:10
was those people that, yes, had a screw loose that did that too, yeah.
Jeff Malec 15:14
Um, so getting back to and then I wanted to say, on the CTA world, I was waiting for you to be like, Oh, just the raising money and dealing with the investors was was terrible and a hassle,
Kevin Jamali 15:25
yeah, so the CTA world, the challenge with that was the the time, like, you know, we launched in oh seven and oh eight meta fees were up, I think, about 12 or 14% so that was great. Then what happened was, is we get this rip from 09 that never looked back. So it was a really a tough sell in equities, yeah and yeah inequities, right? So it was a really tough sell of people that you know, that you need this asset class of what it does. And it was a very difficult environment, too. Then you got that with, like, you know, 0% interest rates. I mean, it was like a compounding effect, where the strategy, for the most part, was really having a difficult time raising assets and and so on.
Jeff Malec 16:08
And you’re competing with long, short equity, private equity, then private credit. So when did you What did that look like, where you’re like, Screw this, like I’m stop fighting with these guys and join up, like there’s good stuff here. Yeah.
Kevin Jamali 16:20
Yeah. So back then, so, yes. So there’s two differences. Like now retail has exposure to private equity private credit right back then, they didn’t the wealth management side, but back then, and yes, private equity hedge funds were always around, and it was just competing with, like, just the equities in general, because even, like, the more sophisticated, you know, places were just like, Well, right now, let’s just ride this thing, as long as we can write it right. So at that point, it was like, Okay, there’s clearly something here, but I think could be applied much better and more efficiently on the other side, because of, more importantly, the democratization of alternate investments that’s now available in retail, just in the past five, six years where it wasn’t available back then. So I’m like, okay, you know, there’s clearly a value add. And most importantly is, right now I’m offering only one component of the universe of alts, at least the way I perceive it. I perceive it. I always say there’s like, multiple components, and each one does a different thing. So now, if you go over here, instead of me being a guy fighting with them, let me be the guy to try to pick the best horses for the end client. And that’s that’s kind of where we at today, which is great the minute. I mean, once again, the minimums are much lower. Retail can get in. And now, instead of me being competing on against one component of it, I’m on this side being able to pick from the best of the four or five components, right? Instead
Jeff Malec 17:50
of like, hey, you need managed futures. Now you need some managed futures. You need some of this. You need some of this. Yes,
Speaker 2 17:57
to, you know, provide a different thing. You
Jeff Malec 18:07
take us back. Farther was a tech company then became an RA what? What is farther? What’s the story there? And how’d you get up with them?
Kevin Jamali 18:14
So farther was founded by Brad and Taylor back in 2000 2019 right before COVID, and it’s backed by Vc. And the premise for them was that the industry as a whole, from a technology perspective, is antiquated. It’s outdated. And it’s
Jeff Malec 18:36
the RA industry, or the investment industry,
Kevin Jamali 18:39
just a wealth management issue, the banking side, Ra side. I mean, you know, yeah, came from Goldman. You know, Taylor was at Fidelity at one point. So they’re like, you know, it’s broken, and it’s really ripe for disruption. So, and initially it was sort of, it’s a, it’s a, the parent company was a FinTech company,
Jeff Malec 19:00
but were they trying to be a robo advisor, like a, like a no, no. So they can’t even remember some of their names, that was the biggest thing. Yeah, no. So the robo
Kevin Jamali 19:09
advisory model, it’s that one it, I don’t think it has panned out to be what people thought it would be. And the reason being is because, you know, if you have a very simple financial situation, or if you don’t have that much money, yes, you can just use Robo advisory. But people with complexities, people with, you know, decent amount of wealth, they like the technology component, of course, but they also need that the human interaction, right? They need that expert advice in kind of bringing in the two together. And I think what makes farther really unique is this is sort of like where we integrating, like the modern wealth experience with expert advice, all into one place. And this story has been really amazing, because when they launched in 2019 they launched with $400,000 in AUM, and then when I joined. Uh, just two years ago, we were about 600 million in the UN and today we’re about 8 billion. So there’s been a tremendous, uh, success and growth because a
Jeff Malec 20:13
because of you. You’re like, as soon as you join boom, yes, point 4 billion came in there.
Kevin Jamali 20:18
That’s exactly, I’m glad, I’m glad you get that, Jeff, I don’t know, for some reason, most people don’t, don’t understand that,
Jeff Malec 20:24
but it’s going to come back to me, because we use you for some of our personal stuff. So yeah, if only I had the 7.4 billion. So a few things you said, one interesting to me, you’re saying people want advice, because that whole Robo model was like, hey, which I see with younger people. I don’t want to talk to somebody. I want to do it on an app. I don’t want to have these big conversations. I just want to click, click, click, and get things done. So are you saying at some point that tips over of like, okay, once you need some trust, once you’re putting money offshore, you’re setting up this or that. Like, it just becomes too complex in the tech world to
Kevin Jamali 21:06
Yeah. So think about it this way. Let’s take a dentist, for instance, that’s going through, you know, like, there’s a lot of these roll ups, the DSOs and then private equities coming up. Aspen Dental, yes. So let’s say they want to go, they’re going to go through liquidity event. So right off the bat, you know, because once again, you know, we’re looking at it, and that was the thing that I learned, by the way through the process. I wrote an article on LinkedIn that, you know, I came at this industry purely from an investment perspective, and the investment piece is important, but there’s a lot of other components. When we now, we’re talking about wealth versus purely money management. So through that lens, they want to talk to someone. Okay, you know, what is it my how much is my practice worth? You start from the valuation process, then you start talking about the Exit Planning and then the tax mitigation. It’s like, once I go through an exit, how do I position myself? You know, how does the world of the DSOs and the private equity roll ups work? So this is where the advice part comes in, if your team has those, like, you know, components to it,
Jeff Malec 22:04
what’s a DSO for my friend George,
Kevin Jamali 22:08
the DSO is the dental service organization got it? Yeah, yeah. And so I want
Jeff Malec 22:14
to throw in this, you’re a rabid anti dentite, right?
Kevin Jamali 22:19
So, so when that part, so you go through all those components, then there’s a estate planning and all of that. Then the last part of it then becomes the investment part. Now they’ve they’ve gone through a liquidity event, they’ve had the transaction. You make sure everything has been set up properly on the periphery. Now we’re talking about the investment piece, and then even that part of it, instead of just using robo advisors, where you’re basically at the mercy of the market, writing the market up and down, then we can kind of, you know, start taking a more conscious approach of, you know, obviously, what are your objectives? And then through that, how do we mitigate and manage risk? And then come to the implementation of, you know, different alternative investments. How do you overlay it? You know, what kind of market environment we are, and then these are all the things that, you know, roboradvisor, you just can’t provide Now, if you’re in your 20s, and then you just want to, like, you know, it’s a, you’re a Debbie to employee and trying to sock away some money. Sure that could work in that context.
Jeff Malec 23:19
But it’s weird to me, because there’s maybe we should start a new group of like there the alt should be available in a robo, right? Like you can do there’s ETFs now, there’s all sorts of stuff you could do. It’s just their models, or they’re not willing to stick their neck out and throw the alts in as a big component.
Kevin Jamali 23:35
So yes and no. So there’s a couple issues with that. First of all, when we say alts are available, and you know this stuff better than anybody, not also created equal, right? There’s different types of alts. Each alt does a different thing. Is the first part. The second thing is, the alts that would be, I’m assuming, available in a robo advisor model, will be purely just liquid alts, managed features, which is only one segment, yeah. The other part is sort of like, you know, the the custom notes that, that you know that I do, or the private equity, private credit, infrastructure and all these other components. I doubt it if you could get that through robo advisor, because I go, you know, I know the process of getting into those, as you know,
Jeff Malec 24:17
some like, the right, I think it’s moving that way you can get there’s like, venture capital, replication, ETFs and private credit replica, but then we wade into the whole world of replication versus the real thing. But,
Kevin Jamali 24:30
yeah, there’s replications. They’re they’re not structured the most efficient and effective way. It’s just like, go to market. Let’s just provide this format of it. But you know, Why settle for that when you could get the real thing, especially given this environment that now it’s it’s available to you to act direct access to, you know, the platform of private equity firm and so on.
Jeff Malec 24:52
All right, I’ll stop trying to fix the robo advisor model.
Kevin Jamali 24:57
So he has big stakeholder and the robo advisor. Firm that disclose? Jeff,
Jeff Malec 25:02
no, it just was like, remember, was such a big thing, and now you hear nothing about it anymore, right? And you’d think it’d be like, infinitely more now, with AI and everything that it would be top of mind for everyone, but sort of died out, yeah, but you said something super interesting to me. And this comes back to your days as CTA, like, when you’re selling the CTA, especially into high net worth family offices, and I probably still fall into this trap. You’re trying to sell this track record and this and look at how good the sharp is and the correlations here it’s you’re so myopic on the benefits and the investment benefits that you and that’s like ninth on their list of important things, right? So as you said, they want to talk about their valuation, the tax mitigation. So where do you where do you think that investment performance is? I’ll say at farther and versus, like the whole rest of the world, the investors you’re talking to, where is investment structure on their list? Pretty low.
Kevin Jamali 26:01
Okay, so now you’re really getting into the weeds, and these are very okay. There’s a couple of things. What I’m about to say, it relates to me and my team at farther, like, you know, there’s different advisors. So I to be clear, I’m not speaking on behalf of farther in this sense. So when I think of the investment piece. And you mentioned Sharpe ratio to give you an example. And this is the world we’re operating in, and this is where I really think there’s a value add for what I do. I was on a group thing discussion, and a very successful, I mean, extremely successful advisor. And here success being defined by AUM or revenue generation, right? Yeah, it was mocking me for wanting to know the sharp on my client account. So sharp is like, like, you know, he goes, I’ve been doing this for 20 some years, and no one’s ever asked me. And you know, and you know. So this is the environment that he’s bragging about, you know, clearly he doesn’t know what the sharp is and so on for his client accounts, and saying why you need it. But that’s where I say, that’s where my responsibility comes in, regardless of how important it is for them, like you and I know that those things are important when you’re creating an investment for the client, right? So part of the I think the importance of our business comes down to trust, meaning, when they come to me, it’s this trust that they have in me that I’m going to do the right things, regardless of what parts of it they understand and they don’t understand. So through that lens, it matters of how I view all those metrics, and I take the exact same approach as I did running the CTA and, you know, to go into the extreme lines of Jeff, I like, I spent the first three to six months compiling a data set for the private equity firms, because you just can’t get data on this industry and everything, because everyone looks at the 135, 10 year numbers. Like, what does that mean? You know, like, well, I’m like, no, they’re those I need. That is
Jeff Malec 28:03
the biggest jump from our world to that world is just, I’m used to looking at the monthly table, here’s the years, here’s every month, right? And then all the metrics, and now it’s just like, three, 510, year per from, like, wait, what I want to know. And they push
Kevin Jamali 28:16
back, like, you know, like, we’ve been doing this for 20 years. Like, who are you? I’m like, okay, that’s fine. You’ve been doing it, but this is the way I know how to do it, right? Yeah. So I had to create, and you can’t even get data. It’s like pulling teeth of, you know, obviously, with symbols, you could pull it, you know, I have different platforms here to reach out to, you know, in the private equity, they have all these different vintages this. So it’s, it’s even hard to get a continuous track record. That’s a good story. So to create this data set, to be able to do some modeling and look at all the things that you mentioned, like, you know, what’s been the standard deviation and dialed in. So those are the things that you know. I talk about it, I know, you know, most of the times, a lot of the the end client or investors don’t understand it, but that’s okay for me, as long as you know, I did my job of explaining it, but more importantly, it’s my job to keep an eye on it and make sure it’s it’s being done the appropriate way, whether they appreciate don’t appreciate realizing it, don’t realize it, because that’s the right thing to do. Let’s
Jeff Malec 29:19
go back to the guy who doesn’t care about it, or maybe doesn’t know it. He or know it. He or maybe they intuitively know that when I put these things together, it works out, and they don’t actually know the math, right? It’s kind of to the point of that guy like, well, the investor doesn’t care. Why do we need to worry about I see your point? Like, because I can’t sit there across from the client with a straight face without knowing it to the core, without knowing the math,
Kevin Jamali 29:44
right? So, if so the end. So one, one thing is, look, once again, a big part is education. Yeah, and like I said, at least in this world once a lot of is based on trust and relationship. So even though they don’t get it if I tell them, if you trust. These are the things that are important, and especially because of my background, they all understand it, but like this, from what happened just couple months ago, it was a tremendous opportunity for me to finally showcase why we do all the things that we do. Because for a lot of, like, the portfolios, you know, the drawdown was like, roughly, you know, 30 to 40% of what, like, S and P drew down 19% and a lot of like, you know, average accounts were down anywhere between six to 8% only right. But on the flip side, we’re able to capture, you know, 60 to 75% of the upside. So, and this was actually an extreme example, it turned out really well, because, you know, like, your drawdown could be only 6% but you’re in
30:44
cash. Yeah, you did it and you did it
Kevin Jamali 30:46
so that, yeah, so I’ve had people come to me and say, I didn’t lose any money during this period. I go, Okay, how much have you made? How much did you not participate leading up to it? So you understand. So it’s dialing in the upside, downside, capture of it, and in when that happened, I took that as a tremendous I went to everybody to say, See, I know, I keep poking you guys. You got to sign all those docusigns. But this is the end result. And because, you know, the other problem is, and I’ve still have yet to see in any religious scripture, regardless of your religion, or the atheist book, for that matter, for the novel viewers, where it says the market will and has to be higher five or 10 years from now,
Jeff Malec 31:33
yeah, it is treated as scripture. You’re right.
Kevin Jamali 31:37
And I’m not saying that it’s not I’m saying, I don’t know if it is great, let’s make sure we ride it. But what if it’s not? Let’s have some guardrails and things to sort of mitigate it. If that doesn’t happen. Because, you know, the one thing is, oh, in the long term, because everybody’s been so conditioned, just buy the dip, and eventually we’ll come back. And people tend to forget from, you know, 2000 2013 the market really didn’t go anywhere. Where had you had this conversation at the beginning of 2000 It took almost a 2000 I mean, OA, we made a slightly new high, and then it took, you know, 50% drawdown. And then it took until 2013 where the market went, made a new high. And during that time, we witnessed two 50% peak to trough drawdowns
Jeff Malec 32:25
that can’t happen again. No, it can’t happen again. Especially now, yeah, I want, I can’t let this go. I’m going to try one more time. Like, what do you think the clients get so much benefit out of the tax advice and estate planning and trust setups, all that that they forget about the investment performance like it always still boggles me of why they don’t know care as much as they should, or is it because the industry has created these documents that make it hard to actually know what your own performance is.
Kevin Jamali 32:56
So it’s beyond that. And by the way, everything I’m saying now it’s on my behalf. I don’t want to I’m not representing farther in the things that I’m saying now, but it’s actually the industry’s fault, because most of the, even a lot of the advisors in the industry, don’t even understand that. They’re like, what, you know, like, the markets are going to do, the markets are going to do. And I’ve had advisors talk to me like, say, well, investments is that important? Like, you know, there’s plenty of advisors who’ve done amazing in investments, and I’m like, no what? They failed to realize they haven’t done anything. It’s the market that’s basically, you know, and now I see so many client accounts that from other places and so on that when, when I run analysis, and for the most part, you know, they’ve underperformed on the upside and they’ve pretty much captured the same downside. So this, this actually the client is the last part of it. Actually the client here at that point, since it’s your client and has trust in you, takes your what you’re saying, um, that it’s worth it and it’s important, then like, okay, Kevin, you do what you have to do. I trust you on that. But it’s more of like, so like, going back, I talked to, I think it was like 20 firms before I settled on farther right. And when I would bring up these conversations, I mean, and these are like, you know, like, they just, like, Look at me. Like, are you nuts? Like, what are you talking about? Like, your job as
Jeff Malec 34:18
part of it, like, Don’t upset the golden goose, right? Like this is, and whether they’re lucky or good, they paid everyone’s bills for 30 years. Like, just ride the market. That’s what makes you money. That’s what makes money. Don’t mess with it,
Kevin Jamali 34:31
right? Your job is to gather assets, not to fiddle with these types of things, like, you know, like and, and so I in into father’s credit. They were the only friend when I talked to him about this, even though, you know, they, at the time, were coming at it from a different perspective, the technology end of it, they were like, Hmm, okay, this makes sense. It, you know, we are sort of thinking along those lines, not as like deep as these, you know, the stuff that you’re talking about, you. But, you know, it’s a good fit you come here and and, and they’ve been really open to adopting a lot of these aspects and components and a firm wide and so on and so forth. So, yeah, it’s but it predominantly in, I think, if we when, not if, because, I mean, and I have a chart I show people from 1928 that the consolidation period is the 1920s and then you have the stagflationary period, I think, like in the sometime in the 70s, early 80s, and then, you know, even in the mid 90s. So if we go back to more normal Michael market cycles, where you have consolidation or drawdowns, I think you know, some of these things are going to start resonating. And just as you know, like when I was talking to those firms, like 2022 every time there’s a big drawdown, all of a sudden, everybody’s all ears. Let’s talk about risk management. Let’s talk about all and then market reps are like, Ah, I don’t need that. Just right?
Jeff Malec 35:54
I could. Could you argue that all the trillions in wealth management, and because they’re blind to this, like, that won’t happening. Like, there’s a right? Josh Brown wrote a blog a long time ago, the constant bid, the never ending bid, that’s just all this for 1k money, all this w2 money, just going straight into equities forever. We’ll just keep this constant bid that. But I mean yes, until, right,
36:19
yeah. And here’s the thing, so,
Jeff Malec 36:23
so that’s real quick. That’s my problem with some of the 20s comparisons of like, it was very different, right? There wasn’t auto debit into your investment account and all that stuff. It was like the whole world since then, it’s been built to make you stay in stocks and put more money into stocks,
Kevin Jamali 36:38
right? So that’s a big part of it. And then the other issue is that the the people like the part of the industry that’s now adopting it and understands these things, right, they’re slowly saying, Okay, we do need uncorrelated investments and so on. Because the whole point is, you know, I say you can’t manage your portfolio on a two legged stool of stocks and bonds, you need that third like Rodrigo right now is doing backflips, but especially given the fact that the other two likes in the past couple of years have become even more correlated, right? So it’s even more important to have an uncorrelated investment team. So part of the industry is slowly waking up and understand that. But the problem is that they think the savior now is private equity private credit. Where I really like private equity private credit, but I don’t consider them as true game changers or alts, meaning, if we get get hit with an away type scenario, those asset classes are also going to get hit, maybe not as much, and especially now, another thing that makes me a big concern is it’s like they’ve finally realized, wow, there’s trillions of dollars sitting on wealth size. So they’ve opened up the spigots and they are just courting the retail wealth space, and there’s a lot of money flowing in. So what are the ramifications? So you got to make sure you go with the right managers who know what they’re doing. I was joking around with someone the other day. I said, you know, 1012, years ago, everybody in the grandmother was roasting their own coffee beans. Right then came the micro breweries. Everybody’s like, brewing their own beer. Now everybody’s starting a private credit fund. You know, I can’t tell you how many I know. They’re like, hey, you know, I had private, like, really,
38:21
what? Yeah, yeah.
Kevin Jamali 38:23
So even, like, so even though I go on all these, like, conferences now, and the entire alternate investment conversation is around private equity, private credit and, and I’m like, Okay, well, you guys are getting a part of it. So I call, like, actually private equity efficient beta. To me, it’s more like, you know, it’s more beta, but capturing it in a more efficient manner versus public markets, especially given the ridiculous valuation of where things are today and so on.
Jeff Malec 38:49
Are you seeing which we’ve had couple people on the pod, like, distributions dried up, like the seems like there’s cracks starting to show in the private equity model, in the funds.
Kevin Jamali 39:00
Yeah. So right now, what you’re seeing is, and which was interesting coming into this year, it was supposed to be a great year for for like, you know, private equity. But, you know, given all the uncertainty around the tariffs, and you’re starting to see this huge sort of divergence between the public markets and the private markets. Right now, liquidity is driving. There’s no M A activity. So a lot of these, like vintages, are sort of like, you know, it’s like, year seven and so on. They they have to get out now. They’re stuck. They can’t offload. So within the private equity world, you know, right now, the opportunity is, like, in the secondaries, right? So the secondaries are able to buy these at discount. So there’s nuances in that world. But, yeah, you’re seeing cracks at some of the, you know, the direct buyout growth space where, but then at the same token, that creates opportunities in the secondary market and so on. So even like when you start thinking about creating the private equity sleeve of one’s portfolio. So you have to sort of think about these other nuances within it, not to mention the quality of the manager and so on and so forth.
Jeff Malec 40:07
One more bit on private equity, then we’ll switch. Were you right? We used to always rail against they don’t have to mark to market. Blah, blah, blah. Like do you see that now as a benefit instead of a right? Because it helps smooth out portfolios. It helps everything gets better in the back. Test with the private equity in there.
Kevin Jamali 40:25
Yeah. So it’s interesting. So first of all, there’s been a lot of evolution in that space, meaning the in the old days, it was all the drawdown vehicles, right? Seven year commitment drawdown. You know, that’s a whole different now, there’s a lot of these evergreen structures where they show up on your custodial statements, and you get monthly mark to market, right? Having said that, I think private equity, they always have this notion of they can market wherever they want. So that’s a different story. However, yes, you you picked on something that most people don’t understand is by a function of monthly reporting in itself. That’s one way you reduce volatility, yeah, and that’s why they’re mistaking that, you know, they think it’s a it reduces volatility. It was less correlated. It’s not that, it just from the monthly reporting is one factor of it. The second thing is, and I looked into this, is the private equities really outperform the public markets. And I like this space, as I mentioned. However, it goes back to blending in managed futures into a portfolio. So through the lens of, if you were to compare on like the purely, let’s say, the bottom of just like two years ago, prior to January, you see that private equity lagged the public markets. We’re on a tear. It’s only after when you get drawdowns in the public markets, where private equities draw down is less that allows it to start outperforming and recapturing the high water mark. So these are the subtle nuances which
Jeff Malec 41:50
but I could argue that not real, like the private should have been marked down at the same public market, right? That’s that’s the rub like that. It’s a feature, not a bug, that they’re marking it less. So in the drawdowns on purpose and the pensions, all the endowments know that they’re doing that, but it helps them keep their job. Look at how less volatile we are. So everyone’s in on the on the game. I don’t know if I
Kevin Jamali 42:15
look at it that way, because at the end of the day, wherever they’re marking it, if you want to get up, you know, a lot of them after, like, especially in these structures. I mean, I use mostly, like, these evergreen structures now, like, you know, if you give them, like, a month notice or quarterly redemption, you can’t get out of these marks, regardless of where they’re, you know. So it’s not as I see, what you’re saying, and definitely that that’s a part of it, the fact that what it were, the price discovery really is,
Jeff Malec 42:43
yeah, Clint fastness calls it volatility laundering,
Kevin Jamali 42:45
right, right, but, but to be fair, like, you know, you can get out at those prices, and so they, I think they provide a value add, but not through the way. I think a lot of retail is looking at it as a savior of, yeah, that’s all I need for my alts, and that’s it.
Jeff Malec 43:08
So let’s switch gears so you found Farther, farther found you, then you’re starting to create client portfolios. You said, what it was like three to six months of creating portfolios before you even started talking to clients, what, what did you find? What hit you right away? Of like, Oh, this is way better than I thought when I was just stuck in the futures world. Or this was good. Like you mentioned private equity. What else stuck out to you? And then how do you kind of think of this puzzle? Of like, which, which pieces Did you find attractive, and which pieces are you keeping in portfolios for the clients.
Kevin Jamali 43:42
Yeah. So I think initially I was like, a kitten and candy store. I have access to all these different I was like, wow, this is amazing. Right on the flip side, I think I aged like 30 years just trying to get these things implemented and executed in one client account. Because there’s a lot of, you know, there’s taxable, non taxable, there’s various accounts and so on. That’s a whole different story. The couple of things that was surprising, actually, I was surprised with some of the hedge funds, to be honest with you, I had never really taken a deep look at the hedge funds. And then I come to realize there’s a reason why a millennium is Millennium, you know. And because, you know, the stats are ridiculous. Yeah, yeah. I mean that the numbers are like, you know, there’s a few of them. This was a plug for millennium. But anyhow, there’s a, there’s a couple of them that I use that the numbers are really, really solid, and through different market cycles, kind of, they provide what the Managed futures world does, but a lot more consistent. And the only thing is, you’re not going to get that sort of crisis alpha component of managed futures with within them, right? But some of them. And then another thing I don’t understand why they do this, is a lot of them are running at very low vol strategies. So
Jeff Malec 44:59
- Know why they’re doing so then, so you put more money, more
Kevin Jamali 45:02
money in it, right, right, right. We know why we do this, right? So in what, in one challenge is, like, what I do this, I’m getting a vol crush in my portfolios, right? So my portfolios are running like, you know, eight, nine vol versus. I’m like, Okay, how do I goose this up? So the surprising part was, some of the hedge funds the way they behaved, obviously, I, you know, I started like modeling the private equity behavior. I’m like, is private equity really this alternative investment, you know? And I realized very fast that that’s not the case. But it’s efficient beta, right? So I could kind of shave off part of the beta on that. And then the other component I really like using the notes, like, you know, the structured notes that I do customize notes so that part being able, and the way I view it, by the way, going back to your question, is sort of like, private equity is sort of like the beta part component of the alt sleep. So if we have, like, up markets that’s going to, you know, or manage futures, someone, we’re going to be lagging that’s going to drag it up. Private credit is sort of like the fixed income part of your alt sleeve, but with its own nuances. Meaning, you know, right now you’re getting about eight to 10% steady yield with a steady nav. However, if we get through like a COVID or 2008 you will then nav will take a dip where traditional fixed income might get a bit, you know, flight to quality aspect. So that’s how those pieces
Jeff Malec 46:19
then real sorry, I’ll interrupt you real quick. Like, why do you have a equity in a bond portion of your old sleeve?
Kevin Jamali 46:28
So, right. So is there a traditional Yeah, no. So, two reasons. So the way I think about it is, let’s say, take a simple 6040, I’ll shave off maybe five to 10% of the 60 to redeploy it in private equity, okay? So I’m getting, it’s sort of like I get both feet and part of it is pure beta capture, yeah, the more efficient manner that technically isn’t within my alt sleep, the way that it gets compartmentalized in our space, right? Yeah. So, like, you know, some of the private equity funds that I use, like, you know, they get like, a point five, five correlation, or something like that. So it’s not as as correlated. So that’s why I use it and then. So that’s private equity, private credit. So I use them to manage futures piece, which is a smaller piece of it, for two reasons a since there’s look through people, most people can’t stomach it, the volatility in the drawdowns. But I use that for, like, the
47:21
tail to my earlier point, yeah, right,
Kevin Jamali 47:23
right. I use that for the tail risk hedge. And I say it up front. I say, Listen, you see this, this thing could be down 20% on a dailies, and we’re going to be okay with it. There’s a reason why it’s there. So I actually over exaggerate, like, you know, the horrors of it.
Jeff Malec 47:38
And then you pointed to April May like See I told you,
Kevin Jamali 47:43
right? So I said there’s a reason for it. But you know, I don’t, you can never. I don’t want to complain about individual components, right? You need to see this thing as a combination. And so long as we’re our upside downside capture is far better than a typical 6040, that’s the objective, or 70 to 30 or 8020, whatever we’re targeting gets so managed futures will be sort of like the tail risk part of it. And then hedge funds is kind of like your all weather component within that. And then I love the notes that use it tactically given different environments, and I kind of dial it in, and so on.
Jeff Malec 48:19
And then on the hedge funds. Are you dialing into different strategy types? Like, what does that look like? I’ve just purely off the numbers of the best absolute return. Are you looking for? Oh, I’m missing a distressed debt manager. I’m missing,
Kevin Jamali 48:33
yeah. So I don’t, I don’t go, No, pretty much a lot of them are these multi strategy sort of like macro. They do everything along the sun. And really, when it comes to due diligence, that’s another hard part, right? People are just like generically, so due diligence is very important for me, but I’ve, sort of have made this decision that obviously the numbers, you know, the numbers are numbers. That’s important. But also, I’m going to go with the biggest and most well known names, just from the blow up risk. I’m willing to forego the outsized return of some emerging manager, because I don’t have the time to watch him 24/7 and be on top of them and do the proper due diligence. So I’m going to lean on, you know, multiple layers of like, you know, Mercer, for instance, like a lot of the funds that I use, like, Mercer has done a full due diligence report on him, right? So check the manager. Ideally I wanted to see I’ve been in business prior to, oh wait, you see how they’ve done. Oh wait, check length of track record, and then go with the more, bigger and well established names, and then really use diversification. So a lot of times people like, you know, a lot of clients hate me in the beginning because I have to, you know, get into all these different like, why do I need all, you know, my old advisor, you put me in one private equity and that was our all sleep. I’m like, Well, you know, yeah, that’s not the way to do it.
Jeff Malec 49:51
And then you’re talking to me like, no, we want more, right? Send me more. DocuSign, right? So that, do you view, so that hedge fund bucket? Do you run that separately as correlations? Or each one runs its own correlations and analysis inside the portfolio, like, do you bucket that whole sleeve?
Kevin Jamali 50:09
No, so I run the whole thing. So I run like, you know, and the hedge funds normally is, like, only one or two, because, like, you know, the minimum investment size, and if you want to fit all these pieces, so you run the correlation. Make sure that if you’re using like the two hedge funds or three hedge funds, they’re uncorrelated. Then you take the correlation of that to the broader portfolio, and then with your the rest of your alt sleeves. Another thing that I was very interesting when I was doing all this exercise and I thought the hedge funds would be very highly correlated to managed features, and they’re not. Then that was a good thing. So when I run across correlation across all these different asset classes, they’re all like, truly uncorrelated,
Jeff Malec 50:43
and they weren’t right. My fear would be, they’re more correlated to equities than I would prefer.
Kevin Jamali 50:47
No. So the hedge funds actually know they’re they’re in their own sweet spot, which was interesting. But
Jeff Malec 50:53
do you think that’s because of the ones you’re looking at? Like it was
Kevin Jamali 50:56
that? Yes, of course. Yeah. There’s plenty of hedge funds that could have a much higher Yes. Now you have,
Jeff Malec 50:59
you select that on purpose, the ones that, yes, absolutely, multi strat, non correlated, right, right,
Kevin Jamali 51:05
right. So that’s, that’s what I’m looking for. Yeah, no, there’s a lot of hedge funds. I mean, a lot of hedge funds get clobbered in oh eight as well, as we know. So yeah.
Jeff Malec 51:12
And then do you think, if you hadn’t come from the futures world, that you would still put managed futures in there, or do you think you were biased and had this like, I know how this works. Let me start putting in the like, hard for you to answer, right? But if you didn’t know about them, would you have found them as this non correlated piece,
Kevin Jamali 51:31
I think, with managed futures, you know, obviously living it and having the education of it, understanding it, is very important. One thing I always tell people, Jeff, and this is really important. I’m like, I’m known as, like, the alts guy, or the, you know, you like, Oh, I’m like, no, no, no, no. I’m neither false guy nor I like alts. They’re nothing but a pain in the ass. There’s nothing more I would love to do is to sit there, like a lot people, just click one button, 6040, move on and move on with my business. Instead of spending, you know, a month pulling my whatever is left of, you know,
52:04
following out of your face.
Kevin Jamali 52:05
Yeah, the trade ticket. This, this, I said, the reason I use it is because it’s needed, unless someone shows me otherwise, how I can manage risk, improve risk adjusted returns, uh, not using any alternative investments through stocks and bonds, I’m all for it. Please reach out. But I do it because it’s needed. And then through that lens, I use all these different assets, these categories, which is additional extra work, because I really think each component adds something of value that is needed, not because I like it, or I have a predisposed like, you know, love towards that industry, like we all know you know this, like you know on that from a tail risk protection in a prolonged and capital letters, people prolonged sell offs, managed futures have done well, and they’ll continue to do well, but they’re going to be a drag on a portfolio. As you know the times that we’ve seen now, is that a big part of my portfolio? No, but it has its place along with everything else, and depending on how you construct, it to do what it has to do when we want it to do it
Jeff Malec 53:07
right? I think you’re the problem is you’ll be like, it’s needed in the portfolio, which I agree. Anyone who does the math agrees. But like all those people who don’t or don’t do the math, it’s just like you must be the alt sky, because that’s all you talk about, well, because it’s needed. Well, no, is it needed, right?
Kevin Jamali 53:25
Because, and there’s nothing else to talk about, like, in the equity side, I mean, I’ve seen, you know, and that’s why, for like, the other parts of it, I pretty much use the cheapest ETFs possible, because in through that world, I haven’t, I’ve found very few managers have been able to beat the the broader indices. So why pay fees for something that you could get, like, you know, for eight or nine bips, like, you know, simple ETF so we’re going to allocate the the beta partner portfolio through various ETFs. Now there will be some, like, tactical shifting, like, you know, international versus this or that, or whatever you want to do. And then the rest of it, this part of it is where you really have to be very selective, do your homework, pick the right managers, and so on and so
Jeff Malec 54:06
forth. And then do you do run into clients that are, like, I’ve just wanting a video. That’s all I want. I want all AI, like, how is that or is that not a fit? Like, well, that’s not what I do.
Kevin Jamali 54:15
No, um, yeah, so and so, not everybody’s a fit. But you know, to go, I haven’t ran into any of that. Like, I’ve had some people and they say, I want all Nvidia, I, you know, or, like, not all on video, but like, I want to, like, do this. I want to get into this stock. Like, okay, I say, what is your exit? He’s like, What do you mean? I’m like, Well, what’s your target forever? Because I don’t know. I said, Okay, where’s your risk? What’s your risk management strategy on the stock like, if we stock that you love it, like, where’s your out? He’s like, Well, what do you
Jeff Malec 54:45
mean? Look at, look at the guy who got into Tesla 850 or something. Yeah. Yeah,
Kevin Jamali 54:49
right. So once I go through this exercise, it’s okay, and by the way, so I use a lot of stock programs on the direct indexing side. Now that is something that’s worthwhile, right? Right? Because you’re harvesting losses offsetting capital gains. So for me, if I’m going to deploy a lot of and that, you know, and I have, like, large equity positions in those, but those are being professionally managed and, you know, and there’s a direct indexing side, so it’s serving a purpose, a we’re tracking the indices, because it’s about expectancy of behavior, right? And on top of that, we’re generating losses. But outside of that, sure, and we’ll do individual names with clients, but then we go through the exercise of, what is your risk, what is your objective, you know, and so on. It needs to be a well thought out methodology and process to implementing a security in there,
Jeff Malec 55:37
or like I do personally, I have my Play account right, so there’s that much money in there, and I can take flyers and and have fun and be like, Oh, I was in this small nuclear reactor company that went up 40% and but I know, and I have none of what we just talked about. And being a systematic guy, I know I need it, but it’s like, super small part of my overall portfolio. It’s for fun. It’s to kind of be in the game when I know that that’s not really how to build the wealth. And then the rest of it is systematic in everything you’re talking about and and, you know, that’s how I compartmentalize the team,
Kevin Jamali 56:11
right? And I do, yes, so I always recommend that too. Just have a Play account. But then I say, within that play account, depending How’s the size of your Play account, take half of it and go to Las Vegas, at least you’ll get caught.
56:25
Get some rooms. Hey, that’s a new
Speaker 2 56:27
if they so, if you’re gonna, like, you know, blow your money that way. And at least, let’s get some benefits out of it
Jeff Malec 56:40
before you go, you mentioned the buffered notes. I was a little sad to hear you say that, because I’m like, Oh, he’s really gone to the dark side. Now he’s doing these buffered notes. I’ve gone back and forth on them. I want to really understand how they work. Give me your journey with the buffered notes, how you got there.
Kevin Jamali 56:58
So I personally, in my own accounts, I would go 50, 60% notes. And I know the note thing I’ve talked people. Some people hate it with a passion. They think is the biggest rip off creation of Wall Street. And there’s other side they think it’s a holy grail. And the truth is, obviously, as we know, with most things, it’s somewhere in the middle, right? It all depends on how you use it, and when you use it, and so on and so forth. So the way, and I’ve looked into it, and, like you said, how do they do this? Because initially I was a bit skeptical too, but then when I looked into it, it was two things, a and we can, you know, a different time, get into the weeds of you know how they use derivatives to to do it, but in a lot of times, your your capital is tied in, you’re not getting the dividends on them, and so on and so forth. And then at the end, it came to I and I checked it and double checked and rechecked it. I talked to an attorney, and they said, listen, so long as the bank is still solvent and standing they have to pay you out based on the the terms of the note. So it sort of puts your mind at ease of not trying to drive yourself crazy, of how are they conducting the trade on the back end, meaning, if they say, if the s, p is up, x, we have to pay you X by this date,
Speaker 1 58:15
they have to do it. Yeah, no matter how they got there, whether they got there, so
Kevin Jamali 58:19
long as they’re solvent, right? But even if they but even if they but if they were to go under, and that’s why I only use a handful of banks like JP Morgan, like RBC, like, you know, well, you know, triple A rated and so on and so forth. So regardless of how they got it, they got to pay even if they filed for bankruptcy. By the way, let’s say if we’re, if I’m holding a JP Morgan note and you’re holding JP Morgan stock, I will get paid ahead of you, because it’s considered unsecured debt. And the last scary thing that we saw in that space was Credit Suisse when they went under. But even in that case, all the Credit Suisse notes were made whole by UBS and so on and so forth. And for the most part, I only use it on the indices, and I use it in a lot of times. I use custom notes. I don’t use off the shelf notes. And by the way, you have to be aware of, like, depending on, like, you know, a lot of the wire houses, there’s fees baked into it and so on. So there’s, that’s a whole other game that
Jeff Malec 59:19
you have to be aware Yeah, that’s my brain is like, well, if this seems too good to be true, so someone’s making money off of me. Like, if I could structure it myself, I would make
Kevin Jamali 59:28
this, yeah, some of these things, like, you know, there’s no way, like, it’s, it’s gonna be very difficult for you structure yourself, and then you have to be on top of all aspects of the trading part of it, right? So, yeah, they have these banks have big, sophisticated
Jeff Malec 59:39
debt, and what we talked about before, like, the bank has some other exposure from some other clients that they might be offsetting, so they might not have an economic incentive to do exactly the structure you’re thinking of,
Kevin Jamali 59:50
right? So, like, you know, we’re talking about before, like, right now, there’s like a custom note that, you know, just created that it has, like a look back period, meaning, from. The Trade date, you know, the next six months, wherever the market lowest prices that you’re going to get that entry. And in top of that, you’re getting a 10% hard buffer at maturity, which is five years from now, right? So to me, for a lot of cash coming in, given all this uncertainty, this, you know potential, you know war and everything that’s going on. Um, I’m like, Okay, if someone could, obviously, is okay with the five year time horizon. It’s not all of as part of the beta. Let’s capture the beta, and it’s tied to the S P, and then I, like I said, most of my notes are tied to the S P or the three indices, right? Um, let’s get in this way where, if, once we get in, if the market continues to go higher, fine, we’ll participate in it. But if there’s any big drawdowns in the next six months, and given some of these things, it’s going to work itself out in next, hopefully a couple of months, at least on the geopolitical front, not domestically, then you know, this thing would reset and we get the lowest price. So it’s kind of using it technically versus if, let’s say we were in a 30% drawdown, I’d be looking at structuring it a completely different type of note, where maybe we’re getting a 2x upside exposure. So you could really dial it in, especially the fact that you could use custom notes or create, like, in our case, you could really dial it into different market environments. And then on top of there’s like, yield notes too, right? Especially when the vol spikes. I mean, you could get yield notes even, you know, right now, like around eight, 9%
Jeff Malec 1:01:28
so two things on that. One, my worry is that there was a podcast, or there’s probably exists something back in, oh 706, like, no, it’s just the bank solvency is all that matters, right? And everyone’s like, these mortgage backed securities, as long as the bank’s solvent, you’re going to get paid out. So that’s, yeah, known risk. You’re mentioning that risk, but it’s as they become more popular, as they get much, much bigger of a piece of the market like that is a worry to me. Like, not just solvent, but if they have to pay out all these at the same time, it could get ugly.
Kevin Jamali 1:02:00
Yeah? Yeah. So I’ve looked into this actually, note business, from my understanding, is much bigger in Europe than it is in us, small part that’s growing. And the concern has never been it does this. The other thing, the solvency risk for me, is big. I mean, you’d be surprised how many times an issue people are hesitant getting in, and then when they see its behavior. So we had some notes mature, like, right at, like, in April, where the market was down 19% and they’re getting like, 10% return. Like another thing, hey, put all my money in these notes. Yeah, no, right? I’m like, so, and they’re like, well, if JP Morgan goes under, then we have bigger problems. I’m like, Yes, but just, there’s certain rules I put in place. I’ll limit exposure to X percentage and so on, regardless. And by the way, within that, let’s say, if you know, 10% portfolio is in notes, not all 10% of JP, Morgan, it’s part of his JP, RBC, you know, BNP, and so on and so forth. So we use the same concept of diversified alt sleep. It’s a diversification that grants different time frames, different issuers on the
Jeff Malec 1:03:08
notes, and then, plus having the alts there and the managed future there, right, in some scenario, likely those tail risk things are going to pay out, right? We got
Kevin Jamali 1:03:18
a lot of these notes. So I there was another case with the client who had a, you know, it was a taxable account, and it was complicated, but they couldn’t sell for various reasons, but they had some cash. And then there was, like, the, you know, whether you do an option that she wanted some protection against a falling market, right? So you could create, like, a bearish note where, you know, you get your principal back if the market goes up, but you participate on a downside, stuff like that. Now that you could do that through options. But then this is, this was, like, a easier way, versus, like, you know, she’d have option accessibility at the time we had to launch one. So it’s so it, once again, I think it’s all how you use it, how tactical you are within and how aware you are, and what scenarios we are versus, um, just calling the desk if, if you’re on that model, and say which note pays the highest commission, and load up your clients in that note. So clearly, in that sense, yeah, it’s a disaster. But if use appropriately, consciously, tactically, I think they it’s another just another piece. It’s not the Holy Grail, another important piece of the portfolio that could really have a positive impact.
Jeff Malec 1:04:32
Gonna end here with our little fun bit here by ask you what rabbit hole you’ve been going down, new martial arts, UFC, something like that, anything. What do you
Kevin Jamali 1:04:46
got? As far as rabbit hole, actually, unfortunately, it’s nothing fun like those. You know, I it’s, it’s been all around, really. How do I execute the all the institutions? Different quality type portfolios in this world, and I think I’m driving my firm crazy too. Like, I think engineering hates me, product hates me because I’m constantly now, by the way, one good thing about farther is, like, you know, we have a whole like, which are a can tell you that they have, like, you know, tons of software engineers where you can go to them and say, Hey, can I have this? And if it makes sense, firm, wide, they may work on it and features and so on. So I’m like, I’m at a place that, you know, I have access to that, yes, they hate me, but, and I mean, I jokingly, no, they’re great to work with. But, so the whole thing is, can
Jeff Malec 1:05:36
I your job security for them? What’s that your job security for them?
Kevin Jamali 1:05:40
So how can I really close this gap of finally being able to execute as closely as as the institutional side in this space, and we’re not there yet, because there’s so many factors, right? But, but I feel like I’m getting close, and I think once we we finally bring it all together with, you know, a lot of the ideas that I have, and sort of like, you know, Fodder is really stepping up to the plate and creating some really cool tech. I think that’s something that’s going to be really a huge differentiator, that it’s going to be a beautiful story added to, you know, the rest of the firm’s history.
Jeff Malec 1:06:15
Love it. My rabbit hole has been AI video creation. Yeah, it’s great. I There’s a picture of me just sitting on a panel down in Austin, right? Still picture. I threw it in the AI thing and said, finish this conversation in the Death Star. And it like has me stand up, walk around and then walk into a hallway of Star Wars, Death Star and looks, I walk a little weird. It looks a little unnatural, but the rest of it is, like, what just from one still picture?
Kevin Jamali 1:06:47
Right? Right? No, I mean, yeah, we could talk like, that is going to be, it’s interesting, like, that’s, I’m sure we could talk hours about the AI and what it’s done, and how it’s like, you know, even little things, yeah, I use it all the time, and different functionality and different aspects, even, like, you know, obviously, you know, for me, like my jujitsu and the health part and optimizing that side of it, how you could really implement it into overall, yeah, so it should be interesting time you still do the jujitsu I do. The body is pretty wrecked, so I’ve had to kind of modify it a bit. I mean, I have like, torn labrums and both hips and the shoulder, like, bone on bone, like, so it’s, it’s taking a beating throughout the years, but, but I still could kick a lot of younger guys, but, yeah, way, much younger than me and bigger than me. So as long as I could still do it,
Jeff Malec 1:07:35
we can go in for hip replacements together. Mine’s, mine’s getting there. I got like, one or two more good ski seasons before I need to get the the new hip,
Kevin Jamali 1:07:44
yeah? But no, it’s, and that’s like, part of, like, that’s always gonna be part of me, right? I think you’re gonna have to, even if I was in the wheelchair, I still be rolling myself on the mat, and because of what it does, and going back to the fighting thing, like, initially, when I started, you know, obviously it’s, I’ve been doing it for, I don’t know, like, 20 years. It was different, right? The reasoning now is different. And there’s a, there’s an element of, like, Zen to it. It’s the one time that you’re in a place, like, you’re really, like, you’re not worried about all the things you got to do, you’re not thinking about the past. You’re really in the moment. In the moment because somebody else is trying to take your head off. You don’t have time to, you know, think about it.
Jeff Malec 1:08:27
So your your Zen is grappling with another sweaty man. I’m in my happy but Right, yeah,
Kevin Jamali 1:08:39
yeah, it’s, there’s actually an interesting I’ll send it to you after. I’ll send you a anyhow. But depends.
Jeff Malec 1:08:45
I’ve always thought you could win really easy if you just had the worst body odor, right? And then you’re like, oh, I don’t really want to get in there and do this grip. It’s, it’s too smelly.
Kevin Jamali 1:08:55
So, you know, you know, the funny thing is, and I don’t know if there’s a poor PSA, I’m one of those guys. Like, if I use a public bathroom, I use like, 18 rolls of paper and, like, using elbows. So I’m sort of that, but in that environment, it’s like, all that goes out the window I don’t like, and other guys could be on top of you is, like, his sweat is, like, dripping on your
Jeff Malec 1:09:12
feet, or don’t, yeah, you’re thinking about how to get out, yeah.
Kevin Jamali 1:09:15
So I was like, how is it that, you know, I’m the guy using elbows and like, you know, versus like, and I think that’s just another aspect of it, but, but we should get you on the mat one time,
Jeff Malec 1:09:25
Joe, oh my god, yeah, against a child. The I was on the airplane doing the chess on the back of the seat against Magnuson, whatever the champs in. And I was like, I won one at night, one again. I’m like, Man, I’m good at this. And then I look closer and it’s like, do you want to play again versus Magnus as a third grader, or do you want to play against him as a fourth grader? I’m like, and I think I made it up to fifth grade until he was beating me every time. Like, oh boy, yeah, that would be me on the mat.
Kevin Jamali 1:09:59
Maybe. I saw that 60 Minutes documentary that came out on him those couple years ago. It was fascinating, like he had his back to like, bunch of professional chess players and he was still beating them or something. That was insane. Yeah,
Jeff Malec 1:10:13
unbelievable. All right, we’ll leave it there. Thanks, Kevin, thank you. We’ll talk to you soon. Come downtown. Appreciate it. Bye, bye.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.
