I have approached the title “Money Manager” from a very different starting point. I began as an entrepreneur. Now that I’m here, managing a partnership, I realize just how odd this is. I think 80% of those claiming association with this title have “money” as their focal point. Some 5% have “manager” as their focal point. The remaining 15% are without focus. I see this world differently because I entered it differently.
During formation, I hesitated to use other people’s money. I started Little Engine Ventures because I wanted to replace a private business owner’s performance with a lower risk, higher liquidity alternative to a well run, single private business. I had owned multiple businesses at once for many years and knew what compounding could accomplish. I wanted an enduring structure for myself and ability to share experience with some friends and family. My basic premise was that if I could provide as good or better than they were achieving in their own businesses, then I deserved their attention. But I did not need this attention. I was going to do it regardless. I was, and am, perfectly content on my own. This has essentially been my pitch since day one.
As I began to meet “professional” money managers, I started noticing a disconnect. For those that had wealthy private business owners as “clients”, and were not regulated out of consideration, there came a great majority who simply were/are unwilling to diverge from the crowd. This bothered me greatly. Why would buying a handful of profitable businesses at attractive prices be more risky than a low cost index trading at 24x earnings? If I showed these so called managers a trick that netted >20% returns 80% of the time, and almost 0% chance of permanent loss, why would they pass? The wiggles. That’s why. They were not comfortable looking different and being forced to explain the divergence to their “clients.” More important still, was their nervousness of said clients leaving them. Who is dependent on who in this case?!
I have thus dubbed a segment of those professionals who focus on money alone as “Asset Gatherers.” Their primary aim is not particularly noble. While performance is thought about, and talked about often, it is secondary to size. Their primary aim is to get a big enough wad of AUM on their book to sustain their desired lifestyles. This is true of many retirement planners as well as countless hedge funds. If the firm’s AUM objective trumps performance on any individual client’s nut, then I’m not only a distraction, I am also a massive thorn poking the eye of their otherwise hazy mission.
A great number of people suggest I merge with the herd. I should hang up my blue jeans and sport coat. Tuck away my shorts and boat shoes. Don a suit and quack like a duck. You have to play the game to get the money you want. I disagree.
I have met a few Capital Allocators since I started. These fine people are focused on the management decisions requisite of a true leader. I call them “allocators” because they are making decisions between alternatives. How much of what and when? Where? Why? The vast majority of this group are truly business owners. They are not in it for the AUM. They are in it to use their talents to the best of their ability.They are thinking deeply about what is best for their partners first, themselves second. Many of these partners are employees, close friends and family. They go to church together. They see the whole of their lives close up. No faking here. No passing the buck.
There is a difference between conceding a decision and making the choice. In the first, people somehow believe they have abdicated responsibility. People think “it’s not my fault!” And, somehow find peace of mind with that approach. However, when a person makes a choice they clearly must live with the result. This is true of choosing a particular investment, and in choosing a particular manager.
I make decisions every day. Sometimes the low probability things happen. Sometimes those outcomes are bad. But, sometimes they are very good. When I’m selecting money managers, I look for someone who serves others before themselves. I want someone who by sheer default is rounding in favor of their partners before themselves. I want a steward. I want humility. I want hunger for praise. I want someone that will remain principled in the worst of times because behavior in private is revealed in public later.
Little Engine Ventures is not like other investment firms. It’s a partnership of business owners.