The Pomp Podcast - #1040 Tory Reiss On Providing Everyone Access To Alternative Investments

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Tory Reese is the co-founder of Equi. In this conversation, we talk about public and private markets. We talk about outperformance, and we talk about how many billionaires and family offices go about their day-to-day investing activities and where they are finding unique investment strategies. I really enjoyed this conversation with Tori, and I hope that you enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by FTX US. FTX.US is the safe, regulated way to buy and sell Bitcoin

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Starting point is 00:02:54 not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Torrey Reese from Equiz here. Torrey, how are you? I'm great. How are you doing, Pomp? I'm doing fantastic. I'm very excited to talk to you. For those that don't have context on kind of what you guys are building, maybe let's start there. Just quickly give us an overview because I think it'll be important as we kind of talk through the market. You guys sit in a very unique seat. Your customers are very kind of different than I think most technology entrepreneurs who come on to this show. But explain kind of what you guys are building here. Yeah, it is a bit on the complex side. We're building the equivalent of, you know, I would say the data and technology you would expect in a place like Jane Street or Two Sigma, which these are like very elite multi-strategy hedge funds. but instead we're building it in the context of a consumer fintech experience so we're kind of

Starting point is 00:04:00 bringing a lot of these very advanced alternative investment strategies down market to folks i mean down is a relative term we're taking it from where you might need a few hundred million to implement these types of strategies and add them to your portfolio and making it accessible in the beginning to people that are more in like that 5 to 20 million net worth range and we'll be able to move it down more over time. Like this concept of being the digital family office, that's really what we're gunning towards. So obviously most family offices, they are investing both in public and private markets. What do you all see as maybe like the approach to public markets versus the approach to private markets? Any trends that you see there with the various family offices or

Starting point is 00:04:45 larger investors that you deal with? Yeah. I mean, on the highest level, the reason it's so different is that in public markets, pretty much everyone's come to realize that indexing is better than active investing because the markets are largely, they're very efficient. They're very competitive. Whereas in the private markets, they're much larger in the sense that there's 30,000 plus privately registered funds in the United States. But the way that you outperform in the private markets isn't through buying the market. It's actually through superior manager and security selection. And so that's actually how you outperform. If you're genuinely picking from the top, let's say 5% of managers and understand how to both find them, get access, and then build

Starting point is 00:05:30 portfolios, that's how the best endowments and family offices outperform everybody else. So it's a very different strategy in how you outperform in each market. And what have you all seen over the last six to eight months as asset prices have fallen across markets, what are you seeing either investors do differently? Or what are you seeing as opportunities that now are becoming more obvious than maybe they were when prices were much higher? Yeah, I mean, it's a great question. Because I think what people don't realize is the reason why these large institutions and why the quote unquote, you know, billionaire portfolios outperform. It's not because they're making, you know, better, absolute returns in years like

Starting point is 00:06:12 the past decade when the S&P is crushing and averaging enormous returns. It's because they just don't lose money. When everyone else is losing money, they're much better diversified. And so what you're actually observing is that for the large institutions, they are very well diversified into hedge fund strategies, private equity, private credit, et cetera. And so they're not taking the same hit to their portfolio as most individuals who are all in on crypto or all in on public equities. And so it's interesting to see it all play out because this has been a 30-year trend where the smart money has been moving towards a portfolio that's more predominantly in alternatives. And so the market dynamics are such that it's favoring people who have

Starting point is 00:07:01 a more diversified strategy versus those who are more concentrated, if that makes sense. Yeah. And when you start to look in the public markets, obviously anyone can go buy a stock ticker via various, you know, kind of platforms, but the private market seems to be much more cut off. How do you all think about either giving access or kind of helping people filter through it? And I always joke, you know, if you're sitting in kind of any town USA and you're investing in local entrepreneurs, like your track record is probably not going to be too hot. there are definitely, you know, San Francisco, New York, Miami, maybe in LA or in Austin, but like outside of five or six cities, the density is just, you know, few and far between. So how do you guys think about that? Yeah, no, you're absolutely right. I mean, I think one of the reasons why you can outperform in private markets in a way that you can't in public is the data is just so much more disparate. It's spread out. It's imperfect. It's very hard to get. We've had to invest enormous resources to accumulate the right data sets to actually identify these types

Starting point is 00:08:13 of managers and then source them and then diligence them. And so what I've observed is one of the bigger trends is it is a war for more and better data. Performance in the private markets comes from being very smart with how you think about sourcing. I think the industry traditionally, to your point, it's actually been entirely dependent on relationships. Who do you know? How big is your Rolodex? But that actually, that tide is turning because it's becoming a much more global marketplace. Like there's a lot more competition. As more money has flown into it, the incentives have changed. And so as that's evolved, that's why we think it's actually favoring investors that take a more data and quantitative approach as opposed to those

Starting point is 00:08:56 that just go to the most, you know, dinners and conferences, if that makes sense. Yeah. And so when you start to think about that outperformance, like how much of it is just, hey, don't go invest in what majority of other people are investing in, go to the private markets versus there's actual strategies or kind of things that can be learned by various investors, whether they're family offices or just investors with larger pools of capital that can drive that outperformance? Yeah. I mean, I think it's funny, like there's this myth and there's all these bad associations with hedge funds that like, oh, you can't beat the market. The market's always going to win. I am going to tell you definitively, I have met with and interacted with managers and funds that

Starting point is 00:09:43 drastically outperform the market and do it for decades. And the reality is that while those strategies exist, most of them, they might have a single investor. One of the best funds that I know of in the world is this very secretive multi-billion dollar quantitative hedge fund based in New York. And the COO of this fund happens to be a customer and advisor to Equi. And their returns are incredibly consistent, have very low risk, have overperformed for a very long time, but they're exactly like what I'm describing. You know, they have one billionaire that their entire operation, you know, 30, 40 people is serving a single customer. And so, you know, when we think about this is like, that is not how it always is. There are lots of managers around

Starting point is 00:10:33 the world who have fantastic strategies and for whatever reason, haven't been identified by like large buyers. And so it's really about how do you find those hidden gems? Can you get the data? Can you source and find these individuals, whether they're in Austria or London or New York or Cleveland, Ohio? Everywhere, you'd be surprised. These type of people do exist. And there's a lot more inefficiency in the private markets because of how bad the data is. So I think it is more possible than people realize. It's just not possible for the majority of people. That's what's so hard. And so that's, that's kind of what we want to change, but that's just the reality. Uh, the market is inefficient. So we're talking about private markets and one of the ethos in

Starting point is 00:11:15 the Bitcoin crypto world is this idea of self-sovereignty. Uh, we do a lot of work with ledger, uh, which has all sorts of, uh, self-sovereignty, uh, hardware, which allows you to hold your private keys. Um, and you know, not your keys, not your coin. It's literally all about keep your stuff off the banks, keep your stuff off of, uh, these trading platforms, et etc. When you begin to think in the legacy financial world, how many of these people are investing, self sovereignty, I think is less about like, you're not taking the stock certificates and putting it in, you know, you're safe anymore, right? You're not taking the bonds, or you're not taking kind of possession, the physical possession of this. But there is this

Starting point is 00:11:54 like sovereignty element around doing the research. So the kind of secretive organization you're talking about, there's 30, 40 people. They're not outsourcing. They're not just turning around and giving their money to JP Morgan or Goldman Sachs, you know, no offense to those folks, but like they're saying, no, we can do it better ourselves. And so like, is it true that all of these large investors want to outperform? And then the only way that they think they can do it is by building out their own teams. Or do you see people just say like, Hey, just give me what the market gives me. I'm so rich already that like, that's good enough. And let me go live my life. What do you see there? Yeah. I mean, that's actually the

Starting point is 00:12:30 interesting thing about money. I mean, I'm telling you, I've been teaching financial literacy classes for nine going on 10 years. And I can tell you, it's a complete game of subjectivity. I have close friends. And by the way, this includes you, right? Where I look at certain people where it's like, if they want to have, if they're like crypto is the future, I believe in it. And I believe that I want all my money in crypto. And I'm going to just find the absolute best strategies and funds and coins to include in my portfolio. And that's it. That's what I'm choosing. That's not right or wrong because for that person, it's right. And so I think these are very subjective things. And for a lot of people, they'll say, hey, I know my

Starting point is 00:13:14 financial advisor doesn't actually know how to invest. I don't pay them to beat the market. I pay them just so that I don't have to think about it. And that describes a lot of people. And I can tell you, though, there are a class of people and they're the people that tend to find us. And I fall into this bucket where I'm just this crazy skeptic. I'm trying to optimize everything. I know that I can't trust the traditional financial services industry. I totally agree with your ethos of like self-sovereignty, make your own decisions, do your own research. And for those people who are like, I want the best in the world and I want to actually like, you know, have the best performance, like, and, and, and be able to measure it and feel like, I know I can weather any disaster, any storm, like those, like that's also a class of individual and, and, but there isn't a right or a wrong it's knowing like what is true for you and what are you trying to accomplish?

Starting point is 00:14:00 Money is just a tool to help you kind of accomplish your goals in life. And there's no right or wrong answer to what is your goal? What do you want to accomplish? Right? When you start to think through this, what do you think is driving these individuals? Like, why do they want to continue to do this, right? You all have the technology, kind of all of the products that can help them accomplish their goals, but like, what's driving them to actually have those goals? That's an amazing question. I've spoken at this point with hundreds of customers, many of which we've onboarded either now or they continue to be on our waitlist. And what I can tell you is that the answers are really all across the board.

Starting point is 00:14:45 I found it so fascinating. I mean, for some people, they're in it and they're unabashed. There's no problem with this. They're like, I want to be ridiculously wealthy. And that's just it. I want to be F you rich, where I can just do anything that I want. And I'm totally free. And it's like, great, good for you. I there's also other people where it's like, they come in and they're like, Hey, I want to make sure that it's not just me, but my generation that comes

Starting point is 00:15:09 after me and the generation after that, like, I want to ensure like the financial security and success of like 10 generations of my family. And like, that's what's driving them. Then there's other people that are like, Hey, I want to make the world a better place. I'm driven by like, I want security for my family, but I feel like I've already earned that. So at this point, I want to maximize what I can accomplish in my lifetime and the number of people I can help. And, you know, it's fascinating because what I can tell you is universally, the people that kind of make it to our doors, the ones that I've talked to, whatever their reason is, they are unbelievably driven. I think they are, you know, multiple

Starting point is 00:15:45 standard deviations away from your average person with whatever their reason is, like whatever is fueling them and you just have to be careful though is that fuel burning you up and making you know leading you to be miserable and have a terrible life or is that fuel driving you where you light up and you can't wait to go do whatever it is you do every single day and i can tell you like that is one of the bigger divides there's plenty of different reasons but it's like what's the impact on the individual and the people around them like that's something you can actually see pretty clearly yeah when you guys think about performance is there a way to like measure it like, do you say like, Hey, if, if the market gives us 11%, we are targeting 15% or is there

Starting point is 00:16:21 like some kind of quantitative component to this? Or is it just, no, we want to use the products to help people deliver the best returns possible and we'll let the market and kind of their actions dictate what happens. Yeah. There is a way to measure outperformance. I mean, we think one of the best ways to measure it is how much return are you getting per unit of risk that someone takes. You can measure it using Sharpe ratio or Sortino. But what we see, what we believe are the best investors in the world and the ones that we seek to work with are we want to work with people who they can earn an incredible return while taking very little risk. We want the value at risk at any given time to be as low as humanly possible. So that's a concept that I think is

Starting point is 00:17:09 very measurable, this concept of bar or value at risk. So if you can earn returns that are equal to or better than let's say the S&P 500, but at any given time, you're only putting 5% of the portfolio at risk, like there's no risk of losing half your money. That to me is a measure of outperformance. Yeah. When you kind of start to think about like, I call it billionaire alpha, just people who got money, who have been able to build it, what are some things that stick out to you that are either lessons learned or things that they do that you're like, it'd be so simple if other people just knew the rules of this game, they'd be able to generate, whether it's outperformance, save from a tax standpoint, or get some other advantage in the market.

Starting point is 00:17:53 Yeah. I'd say the two tips I would give anyone who's thinking about these types of things are, there's enormous alpha in tax being smart about how, you know, how your tax, you know, how your assets and are treated, you know, how you take a long term approach and think about, you know, structuring your estate over the long, like long arc of history and of your lifetime. That's huge alpha. The second would be diversification. Until not all diversification is created equal. Like people think when they buy the index, they're diversified. that's not how the wealthiest or the billionaire mindset works. The billionaire mindset is being diversified in terms of the number of return drivers in your portfolio. What are the things

Starting point is 00:18:38 that ultimately drive the performance of your portfolio? And how do you have as diverse a set of return drivers in your portfolio as possible? And those are the ones that consistently will just outperform, take less drawdowns, and over the long term, just consistently compound your capital at an incredible rate. And so those are the two things that I would tell people like would be very thoughtful about is like, how do you introduce more return drivers? And how do you do it efficiently? And so when you then start to think about some of the more unique investment strategy, I know there's a whole kinds of things that you all have been able to identify and work with clients on what are some like the most unique or off the wall ones that people wouldn't know

Starting point is 00:19:15 about? Yeah, that's also an awesome question. Because I'm constantly blown away at the ways that there's so many ways to make money in this world it's it's mind-boggling um i can tell you two of the more interesting ones just very briefly because the rabbit hole goes very deep um we have one manager where there are certain types of uh hedge funds they're called biadical settlement funds and they actually arbitrage life insurance policies so they find inefficiencies in the underwriting structure of like large insurance providers and then they effectively take advantage of that inefficiency to produce a very consistent non-correlated return and you know that's a market where it doesn't matter if this stock market's going up or down it's like their ability to

Starting point is 00:20:08 perform better underwriting on very specific diseases and then offer like a valuable service to those people with those policies and give them like better buyouts, but ultimately produce a return for the LPs in the fund. I mean, these are folks that can have a 20 year track record performing in the mid teens with very little variance and very like taking on very, a lot less risk than you would, let's say in the public markets. There's another example. We have a manager that has a very fascinating strategy where he's literally built a better version of the VIX. The VIX is like a measure of volatility in public markets. Brilliant guy, like, you know, PhD in his teens, like, incredible. When you look at what he does, he effectively arbitrages his version of the volatility mathematical models against what's happening in the public markets. And since his is better, he can basically arbitrage the difference between his model and the public market model and just produce an incredible non-correlated consistent return.

Starting point is 00:21:14 And again, this is like very complex stuff. Like I would not make this investment myself because I didn't understand it. But fortunately, you know, I have a co-founder who is himself a former volatility hedge fund manager and could act and actually speaks, you know, the language of all these different managers. But the more I learn about all these, there's money everywhere. It's like the saying that if anyone watched Arrested Development, it's like there's always money in the banana stand. In this case, it's like there's money in every market, every niche market around the world. There's crazy ways to make money. I mean, you and I know that. When you start to look at many of the products and services that you all have built, what do you find people who first start down this path of kind of building a family office, managing their own capital? What are the things that kind of get them up to speed the quickest or are like the most impactful for them to do first? Yeah, you know, I think educating yourself, understanding that most people out there are going to be trying to sell you hot air. I think that was the hardest thing for me was realizing getting certified to become a financial advisor is fairly easy. so they're not all created equal. I think there are some incredible financial advisors out there

Starting point is 00:22:33 and it's really like their craft and they take it very seriously. And they're constantly looking for ways to learn and improve. And then there are folks out there where that's really not their consideration. I think the best advisors should act as partners, right? Like meaning you should educate yourself and you should partner with whoever it is. And then it's like together you are making the best decisions. And so when I think about when you're getting started on this journey, it's never been easier to educate yourself in whatever realm you're hoping to invest in. And so if this is something you want to spend time on, invest the time, maybe take a year of your life and you can create a very easy curriculum learning about the different asset

Starting point is 00:23:16 classes. But if you're the type of person, you're like, I know I'm not going to do that type. I'm not going to do that work, then the best thing you can do is at least know enough to evaluate the person that you're going to trust, right? Because I know this, it all comes back to trust and to having an ability to discern between someone that's sort of like, what is the value they're actually going to create? If they're honest about it and if they're like, hey, look, I'm here. I'm going to try and keep you in line with the market and make sure that you're budgeting properly and keep you on track. Great. They're being honest. I think that's a healthy relationship. But if you want to find someone, you're like, Hey, I see your job is like helping get me into the best, you know, non-correlated investments in the world. Then you kind of have to know that you do your homework, know, act as that person's partner. And from what I've seen, those are the best partnerships is where both people bring something to the table and they're an extension, you know, they're a team as opposed to, you know, keeping your head in the sand.

Starting point is 00:24:14 So that's my advice is like, uh, educate, make intelligent decisions, find the right partner. The, uh, the last question I have for you is, um, as you continue to build this, uh, you speak with wealthy people all over the world. And that just happens to be a, a proxy of, um, you know, that's who has the money. Uh, what, what are their daily routines? What are their non like investing, uh, behaviors? And, um, you know, we, um, uh, we spent a lot of time with, uh, with eight sleep. And I, I'm constantly talking on this show about eight sleep and how I sleep on every night. I get eight hours of sleep, all this stuff. Uh, what are these other folks doing? Like if, if somebody is like, Hey, I want to be that person, right. What are some of the things

Starting point is 00:24:56 that you've picked up on as you spent more and more time with them that you think can be replicated by others? Yeah. You know, it's something that I've observed and this is a blessing and a curse is, I see this in, I'll say the majority of the folks that we work with, right? There's this level of discontent. Now, what I mean by discontent is, you know, this feeling of like, I can always do better. I can always improve. How can I find that, like, that edge? Like, where is that edge? And how can I push it in whatever realm, whatever they choose? They might choose, hey, at this point in my life, it's going to be fitness. And so then they're, you know, they're pushing the edge on what's possible, they're finding the experts doing the research, improving and working themselves,

Starting point is 00:25:46 or it's maybe it's in business, how do I find the best mentor? How do I like level myself up in this very specific area? Now, I think the fine line is, how can you keep that discontent, so to speak, but be at peace with yourself? Because there's a lot of people where it's like, that discontent is what's driving them, but it also makes them miserable. And so I would say, the most, most, the people who I consider most successful, they maintain that, but they do it from a place of like, Hey, this is just a giant game that we're all playing. This is like, how lucky are we to be playing this game? And yes, I'm going to drive myself. I'm going to push to be the best I can be in whatever it is I'm doing there that, you know, that I want to compete in

Starting point is 00:26:26 this grand game, but they see it for what it is, right. They're not actually making themselves miserable. Um, and that's a really difficult line to walk. Uh, so that's what I would say is like, I definitely noticed that in a pronounced fashion, they're not willing to accept the status quo because that's the distinguishing factor that, that I see most commonly. Where can we send people to find you on the internet or learn more about equity? Um, you can, I'm trying to be more active on Twitter. I don't do a good job because I'm working way, way, way too much. Um, but I'm at the Tori on Twitter. Um, you know, for our main website, you can go to equity.com, uh, and you can apply to learn more. Uh, you know, we apologize.

Starting point is 00:27:07 Our wait list is a few thousand people long at this point. Uh, and so we, you know, it takes time to, to talk to everyone on the wait list. We're doing our best, uh, to expand access to the platform. We will get there with time, but yeah, those are the two best places. I think you can learn more about us. When, uh, when you first told me about this, I remember saying to myself, like, man, this is where the world is going so much so that, uh, obviously I invested, uh, in the business, but it feels like, um, uh, technology really is eating the world, right? Software eating the world. Uh, and so going and eating some of the more bureaucratic kind of, uh, white collar, uh, type roles is, uh, uh, it's already started. And, uh, this is just another

Starting point is 00:27:49 example of kind of how it's accelerating so it's pretty cool to uh to see this yeah yeah i mean it's amazing i've appreciated your support since day one it's wild to think when you invested you know we were three people uh working in a distributed fashion during a pandemic and now we're 25 people you know spread around the country and and we we've got a real you know massive platform a bunch of customers and and it wouldn't be possible without your support so thank you for making that happen. It's real. It's real. That's how it works, my friend. All right. Well, thank you so much for coming on and we'll definitely have to do this again in the future. I think that people just enjoy, you know, learning, Hey folks who are kind of ahead of me in the evolution of

Starting point is 00:28:31 a lot of this how do they think, what do they use, where are they spending their time, energy and kind of, and mind share. So this is the super fun. I learned something and I hope everyone else it as well yeah appreciate it all right see you later buddy thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking to try to transition to get a new job in the bitcoin or crypto industry we've got you covered head over to palmscryptocourse.com we've developed a curriculum with the top teams across the industry it's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com

Starting point is 00:29:11 to learn more, and I'll meet you guys for the next episode.

The Pomp Podcast - #1040 Tory Reiss On Providing Everyone Access To Alternative Investments

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