December 21, 2020- In this week’s podcast we welcome special guest Rob Van Wielingen.
Rob is the President of Viewpoint Investment Partners and manages Viewpoint’s flagship global multi-asset strategy on behalf of institutions, family offices, and UHNW families across Canada and the United States. In today’s episode we discuss:
- How Viewpoint was created out of a family office
- Asset allocation within a family office and the advantages a family office has over institutional investors
- Risk parity as an investment strategy
- Startup investing
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Transcript:
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.
Julian Klymochko: All right, Rob we’re live. Thank you for coming on The Absolute Return Podcast. Super excited to have you on the show. How are you today?
Rob: I’m excellent, all things considered. Yeah, thanks for having me. I’m really looking forward to it.
Julian Klymochko: Glad to have you on the podcast. Let’s kick things off, getting into a little bit about your background. Tell our listeners what initially got you interested in investing and then how did Viewpoint come about?
Rob: Sure. So, I’m going way back. I was always really good at and interested in math, you know, going back to when I was a kid. And you know, I went to UVic and to be honest, kind of drifting through the first couple of years of University there. Taking general pre-business and not really that engaged, not really knowing what I want them to do. And went traveling as many university kids do. And I remember being on the beach in Australia, and I haven’t told this to that many people, but I read Atlas shrugged.
Julian Klymochko: Oh, yeah.
Rob: And rant, and, you know, she’s a very controversial figure. And so, we don’t have to go down that rabbit hole, but and not to say, you know, agree with everything she says or does, but or did, but yeah, that kind of opened my eyes to a different way of thinking and some, it just lit a spark somehow in me. And so, I realized I really wanted to go into business school. So, I got really serious about that. And when I got in, I just fell in love with finance and I loved the math application. I love the concept and I had a really good professor at UVic, Don Rowlett. And I fell in love, sounds silly, but the time value of money and, you know, it just boggled my mind, how I was learning about that in third year university, that’s such a basic concept in financial markets and the economy. And so, yeah, I fell in love with that and particularly the investment portfolio management piece, which was very, very light in undergrad and business degree and also technology and entrepreneurship. I had an interest in, so after I graduated, I bounced around Vancouver and Victoria for a while in the tech space and you know, I didn’t really love the culture and kind of the creakiness of that space and just ended up doing the CFA program, coming to Calgary and just fell in love with markets and investing from there.
The second part of your question. So, Viewpoint is our family office and it was set up initially by Mac, my dad to manage, you know, back in the early days of ARC Financial and ARC Resources to manage his personal affairs and his portfolio and finance a man in personal needs. And you know, the principal, he’s always had this principle of having the highest standards of stewardship and care and managing private assets throughout his career and public assets. And, and then five years ago, we spun out our portfolio management firm and we can get into that in a little bit, but that’s kind of a background on where I am and what I’ve done.
Julian Klymochko: Interesting. So, you have this family office, which was presumably set up to diversify and get into, you know, various investments out of oil and gas, which is, you know how many entrepreneurs and families kind of earned a substantial wealth over the years, especially in Western Canada. Can you tell us a bit about the asset allocation at Viewpoint from a family office perspective and how you guys kind of view a diversification strategy?
Rob: Yeah, sure. I mean, you hit the nail on the head, Julian, like you know, the skills required to steward great wealth, private and public are very different than the skills required to build it. That’s a cliche, but we see it over and over again that, you know, patriarch or matriarch entrepreneurs who are used to building things have a really hard time with that transition into stewardship. And not really unique in that way, because one of my main roles at the family office coming in was to take us from 95% energy and not just energy, Canadian energy upstream.
Julian Klymochko: Junior oil and gas. Like the riskiest asset class, you could be in possibly.
Rob: One of the riskiest in the world, and, you know, we’ve seen how that’s played out. But you know, my role in large part was simple just to create that diversification and it’s really evolved over the years and it’ll continue to evolve, I’m sure. But initially it just literally put us on a diversification program outside of Canadian energy. So, we started hiring managers in different markets. US markets, Canadian markets, International markets, and that was all fine and good, but we just saw a large number of issues with that kind of a model, namely alignment cost performance. And we just became increasingly frustrated with outsourcing all of this outside of our family. And Mac is an investment expert. And he was chairing sort of, kind of go off topic a little bit. He was the chair of Aimco for a number of years and one of the original directors of Aimco. And so, he was bringing that back in-house and pushing me to kind of take us to the next step. And so, we started managing our own assets internally, increasingly, and really has led us to where we are today, which is a quant global multi-asset off. And so, we think about our asset allocation a little bit differently as a family, we have what we call a stewardship pyramid. So, at the base of the pyramid is core, low-cost, global multi-asset diversification, where we target a spread over the risk-free rate, and it’s liquid. On top of that we have tilts. So, we built that into our models, but whether we want to focus more on capital preservation or return enhancement on top of that global core multi-asset public markets. On top of that, it’s kind of hard without showing a diagram, but on top of that, we have what we would call conventional alternatives. So that would be, you know, more long/short non-correlated SPAC arbitrage, that type of stuff. Now we don’t do a SPAC arbitrary, but I had to throw that in there.
Julian Klymochko: You saw my eyes light, didn’t you?
Rob: Yeah, more not truly non-correlated alternatives. And then at the very top, you have private entrepreneurial type investing. So that what we call our stewardship framework. And every single investment we make, we bucket into one of those, we put into one of those buckets. And as you go up the pyramid, risk and return objectives go up, illiquidity goes up, cost goes up, complexity goes up. Now it doesn’t have to be a pyramid. It could be a reverse pyramid, depending on, you know, that’s our family. We have, you know, 60% of our assets in the core multi-asset base of the pyramid, but every family is different.
And the entrepreneurial at the top, maybe just to elaborate a little bit on that is our energy investing. Our direct energy through our financial and then our venture capital portfolio or angel investing is up there. And then certain types of real estate, either as a passive LP in development or direct real estate that has more higher risk, higher return characteristics would be at the top there as well. So, and then our conventional asset allocation, you know, how much we have in equity markets and geographies and in the multi-asset stuff kind of falls through out of that. And so, we look at those two levels of asset allocation in how we report.
Michael Kesslering: This is obviously a very well thought out investment strategy. And so, you terminatelly your stewardship pyramid. And I mean, that’s something that is very difficult for a lot of institutional investors, as well as other fund managers, to be able to, I guess, replicate over the long-term and really stick to your knitting. So, in your experience, what are some of the advantages that you have as a family office structure compared to a more traditional manager on the institutional side or a traditional mutual fund?
Rob: Yeah, well this is kind of cliche, but time is one of them. I mean, with our family assets, we’re not on a quarter by quarter, month by month reporting cycle. I mean, we are, but, you know, we have the gift of investing for the long-term and again, it’s cliche, but it’s very true, you know, we’re patient. We know that parts are going to underperform in certain kinds of market environments. But we’re very, very long-term. And in that sense and again, that comes from Mac too, and his deep institutional experience, we’re not being benchmarked quarterly and have to report out to stakeholders other than their family. Now with our external assets, we are, it’s very different ball game, as you guys know. And then the other one, and probably, maybe just as important is flexibility. You know, we have the ability to invest in anything we want to, and we can move quickly on deals that we like. We don’t have to go through an arduous compliance process and arduous approval process. And yeah, and so as a private family office investor, those are two keys. We talk about those two as being our competitive advantage, the competitors being the market or other institutional type investors. I guess a third could be the network, you know, the ability to plug into the family office community in Alberta, but more broadly in accessing deals and being a preferred type of investor. Typically, family offices are seen as a preferred type of investor because they’re in it for the long-term, they don’t have to liquidate at a certain point to keep up with the fund cycle. And they’re generally supportive. And so, yeah, those are kind of three key advantages, I would say.
Julian Klymochko: Interesting. So, I’d like to take a deeper dive into the investment strategy that you ran at Viewpoint, specifically, you know, multi-asset type strategy, risk parity. Can you explain in a more intricate level to our listeners, how your investment strategy works in the current environment?
Rob: Sure, risk parity is a very old alternative strategy. It’s probably one of the first, you know, made popular, by of course, Bridgewater and different firms, but really it goes back to modern portfolio theory where the basic premise firstly, is that the portfolios is constructed based on risk contribution, not capital allocation. And so, a typical 60/40 portfolio would be 60% equity, 40% bond portfolio. And a really simplistic example would be dominated by equity market volatility. So, equity, in spite of the fact that it’s only 60% of the allocation of the portfolio, 90% of the volatility or whatever the actual number is in different market environments. 90% of the volatility of the portfolio is driven by equity markets, which is factor loaded on growth, economic growth earnings, multiple expansion contraction, you know, typical equity market things. So, the basic concept of the risk parity portfolio is construct a portfolio that has, well tempt to construct a portfolio that has equal risk contribution from, in this case stocks and bonds. And risk is an interesting, you know, a topic in of itself, but really, it’s volatility. You want your volatility contribution to be more similar between the asset classes you’re invested in with the goal being, you’re not so driven by equity market performance and the factors that drive equity market performance, ultimately being a more robust portfolio through three different types of economic cycles.
Julian Klymochko: Right.
Rob: Now, the second point is, and perhaps more importantly is what we call the diversification premium and harvesting the diversification premium. And there’s a common saying that we’ve all heard that you can’t eat sharpe ratio. Meaning, you know, a high sharpe ratio is fine, but it’s really returned that matters. And we don’t agree with that. And that’s what really planted the seed a number of years ago in terms of us launching this risk parity model. And the best way I can explain it is this way. If you add gold to that 60/40, so you have stocks, your bonds, your gold, whatever else, like more or less equal contribution, equal allocation from each. These asset classes go up and down at different times. So, they have a less than perfect ideally negative correlation to each other, but they go up and down at different times. So, when you compare that to say a hundred percent equity market portfolio, which goes up and down all at the same time, it’s a much more efficient portfolio in that, it’s diversified and stocks might be going up, but bonds are going down and Gold’s going down.
So, your volatility on the portfolio is, I mean, this is basic stuff, it’s basic diversification, but you’re sacrificing return to get there. But in a risk parity portfolio, you can choose the allocation that gives you the most efficient portfolio, or you can attempt to choose the allocation that gives the most efficient portfolio you can and then apply leverage to it. If you want more return, you can lever it up to match equity markets, which is what we do. Or you can lever it up a little bit to try and enhance that return a little bit. So basically, you have the same, hypothetical you have the same underlying multi-asset portfolio, and then you use leverage. And again, this is really a modern port, like the basics of modern portfolio theory or the efficient frontier capital allocation line. But not a lot of people do it. And I don’t know if that explained it very well, but if I was you know, if I had the choice of having a super diversified multi-asset portfolio versus a hundred percent equity with the same risk and return characteristics, I mean, a hundred percent of the time, I’d rather have the more diversified portfolio. When I say diversify. I mean, between asset classes.
Julian Klymochko: Yeah, certainly from a risk management perspective. Like that attitude makes sense and, you know, maximizing where you’re at on the efficient frontier and, you know, levering it up if you choose to try to attain the same amount of return, but if you can do it with a lower risk profile, lower drawdowns, et cetera who wouldn’t want to do that, right? Like it definitely makes sense, but sometimes things get lost in the mix, especially, I mean, I thought of that term. I was thinking about it a lot in the first quarter when they say you can eat sharpe ratio, but, you know, think about all the people who sold out at the lows in March from their equities because of volatility was too great. And the headlines were too spooky. So certainly, in a scenario like that risk management comes into the forefront and it certainly matters at that point, not to mention the risk, if you are say retired and have a fixed amount of assets, if you have an immediate large draw down, then you’re steadily selling assets to, you know, pay the bills, support your lifestyle. If you’re having to sell assets after a big, big drawdown, then you sort of have that extension risk on having your net worth lasts long enough throughout that retirement. So certainly, the more higher diversification provided by this multi-asset approach makes sense. So, you’ve definitely touched on many of the benefits of a risk parity approach. What would be some of the drawbacks?
Rob: Yeah, well, I mean, it’s been around for a long time and the main drawback we constantly hear, and I used to ascribe to you is that you’re overexposed to bonds typically because they have such a low volatility profile. And in fact, Bridgewater came out recently and said, basically, they’re dusting bonds from their portfolio and replacing it with gold and whatever else, Bitcoin, maybe, or something
Julian Klymochko: No, Dalio hasn’t turned on Bitcoin yet, but I think, I think it’ll happen soon.
Rob: Yeah, didn’t he said he was missing something or he might be missing something?
Julian Klymochko: Yeah, I think so, I recently saw Stan Druckenmiller come out and he owns a bunch, but he said he owns far more gold than Bitcoin, but he does trade a lot. So, who knows, perhaps he’s out of one or both of those.
Rob: Well, we haven’t added Bitcoin to our risk parity opportunities set yet. We’re still looking at it. But certainly, it’s attractive, you know, from a quant perspective.
Julian Klymochko: Yeah, the numbers make sense.
Rob: I mean, for me, I care way less about the fundamental narrative than the fact that it’s a non-correlated return stream. It could be anything from quant land you look at it, is it investible? Can you access the market? And does it have a non-correlated return stream? That’s, you know, potentially good enough for us. Now we debate this internally, that’s what we’re debating. But anyway, the biggest criticism is bonds and heel historic lows. And, you know, 45% of our risk parity model is in rates right now. And I get that. I get that. And you see the headlines return free risk is what you’re getting in fixed income right now. And I get that. But the one piece that I think is constantly ignored in all of this is currency. Because people ask, why do you own Japanese government bonds? That’s so ridiculous. And I say, well, we’re forced to own the 10-year bond because everything earlier in the curve is negative, including cash, but we want Yen exposure in our risk parity model because during times of stress, Yen is one of the top performing asset classes in the world. And I haven’t seen in all the criticism on bonds as it relates to risk parity. It just kind of gets ignored like our currency. And especially as Canadian investors with a cyclical currency. You get these, especially involved tile environments where that USD, Japanese Yen, somewhat Euro, Swiss Franc exposure is extremely beneficial to your portfolio in terms of efficiency.
So, but yeah, that’s definitely a drawback, and there’s certain things you can do. You can tinker with the models to address this question, bonds made is certainly one of the drawbacks is that you do have quite a bit of rate exposure.
Julian Klymochko: Right.
Rob: And then also of course, models, aren’t perfect. Risk parity requires inputs and outputs and volatility forecasting, and co-variance matrix forecasting, and a capital markets assumption whether you want to use historical. And so, it’s a model and models aren’t perfect and you’re never going to get perfect risk parity because you’re making assumptions. And so, I think those are probably the two biggest drawbacks. But when I think about, you know, our family and a lot of our investors, and I think about where equity markets are trading right now, in spite of the fact that they keep going up, I think about the next 10 years, you know, I just feel like this type of multi-asset investing is going to produce significantly better results than just increasing your allocation to equity markets to increase returns over the next 10 years.
Michael Kesslering: And hearing you speak, Rob, it really becomes apparent that the way you’re thinking about your investment strategy is truly on the portfolio level. Your comments around Bitcoin, how you view the Yen especially with getting exposure to Japanese bonds. I mean, that is a bit different than many investors would look at it. They just single out a single asset class say such as Bitcoin and say, you know, what, too hard, too difficult and way too volatile, but not really looking at it within the portfolio context. And I think that’s something that’s very interesting about the risk parity strategy in general. But in terms of shifting gears a little bit, when you’re looking at the top of your stewardship pyramid, when you’re looking at VC investing, how are you looking at that space within Calgary right now?
Rob: Yeah, you know, we’ve been involved in the community, we are a part of CDL Rockies. We were part of the initial founder supporter group of CDL. It was a very broad question. I think one of the things I would say is that, you know, there’s been so much talk about diversification and building Calgary into a tech hub. Every city building into a tech hub, you know, the honest examples is the Valley, but Austin and in Canada, you have, you know Montreal and Toronto, Vancouver, you go overseas and you’re talking about London and you’re talking about Tel Aviv. And like we’re competing on a global scale. And I think that’s a bit of a trap. And as much as I want to believe it, it’s a bit of a trap to think that we can become a a truly global leader in our start-up ecosystem. And so, I cringe a little bit when I hear people talking about that, and you look at any major city and they’re saying the exact same thing, they’re doing the exact same thing. So that’s a bit of a cynical view, but it’s something that’s come up for me, but that doesn’t mean we shouldn’t do it and that we shouldn’t support it. We support it the best way for investors to support the local start-up ecosystem is to invest in start-ups. And, you know, I think in Calgary, people have been apprehensive to invest outside of energy historically for good reason, you know, but the number one thing that we can do as investors is to invest in start-ups, get connected to the community. I mean, you can donate to some of these like infrastructure, like Platform Calgary, and that’s something that we’re looking at supporting. And there’s a myriad of organizations that have popped up over the last five years that are trying different strategies to support the start-up community. And you can literally donate to those organizations or invest in those organizations, but it’s getting involved but investing. And the ASC has a paper out. I don’t know, Julian, if you guys have seen this, but looking at tweaking some of the accredited investor status rules to allow.
Julian Klymochko: It’s about time.
Rob: To remove the income test and the dollar tests, you know, and I think that’s really, really a really good step in the right direction, especially for young people and young investors who want to support start-ups. Professionals who don’t have $5 million dollar net worth, yeah.
Julian Klymochko: Yeah, and so for that regulatory change, the securities commission, I believe what allows someone with a certain professional accomplishment, such as say like the CFA designation, or perhaps they’re a CA or a lawyer, it would allow them to invest in so-called risky investments that were previously only for credit and investors meeting an income test or a net worth test, which aren’t necessarily the best way of judging whether or not someone fully understands an investment.
Rob: Yeah, for sure. The thing I would say about something I’ve learned in investing in becoming involved in this ecosystem, which is a little bit controversial is that you need a portfolio of these things. If you want to be an angel investor and support this community, you need to commit to a portfolio because I mean, it depends what stage you’re investing at, but we typically invest the seed stage, which is just after friends and family before a Series A, more or less. But a lot of opportunities can look good and fail, and a lot of opportunities can look bad and succeed. And the reality is even the top VCs are wrong a lot, just like the top stock pickers are wrong a lot. And you need diversification. I mean, there’s a common thread for me here, but you need diversification when you’re investing in that space as well. So, we have a few companies that are doing things really well, a lot of companies that are doing okay, and then a couple that are doing really poorly, but I going into all these, I wouldn’t have been able to pinpoint which is which to be honest. So that that’d be something as well. I wouldn’t grudge.
Julian Klymochko: Certainly, diversification continues to make sense whether you’re investing kind of a top-level global macro multi-asset asset, or kind of on the micro level, start-ups, angel investing, VC type investment opportunities. Rob, I want to put you on the spot here with respect to looking at the current environment, say you had to choose one investment and be locked up for the next 10 years where you cannot touch it. What would that investment be? What are you most comfortable with at this juncture?
Rob: Bitcoin man.
Julian Klymochko: That’s your call?
Rob: That was a joke. You can edit that one out.
Julian Klymochko: Alright.
Rob: Well at the risk of talking, my own book would be, you know, some sort of multi-asset levered portfolio, sometimes I think the best portfolio and like, you know, our risk parity model, we own 30 global asset classes. We have all kinds of complexity going on. Sometimes I think we should just be stocks, bonds, and gold, and an equal weight and lever at three or four times.
Julian Klymochko: Right, interesting.
Rob: The permanent portfolio.
Julian Klymochko: Yeah, there is that permanentthat a permanent portfolio concept, which has withstood the test of time. I mean certainly for North American markets; you have seen certain bonds go to zero. You have seen certain entire equity markets go to zero specifically, you know, Russia, China, et cetera. But you know, if you diversify across these various asset classes, then that really gives you the best chance of you know, maintaining your wealth. And if you take it from the junior oil and gas perspective the people that got wealthy in that business were generally sizeable risk takers, but it requires a completely different attitude to maintain that wealth. And we saw many families who didn’t do it, you guys did. And they continued to bet the ramps, so to speak on junior oil and gas. And that man, that cycle is just absolutely vicious.
And certainly, this one has been a real tough on energy investors. So, it’s great. You just have like phenomenal advice on any ones that are going through that. And it’d be really applicable, I think these days to more so. Tech start-ups, where they have some successful exits and continued to invest in tech, but, you know, certainly makes sense from a family office perspective you know, to diversify outside of your core competency. People like to bet on what they know, but you got to remember these things are cyclical and then certain sectors do well. And you know, it was just 20 years ago when we had tech peaking and then many of them went out of business very, very quickly. And you have the exact same business models, you know, pets.com, which crashed and burned seems like a chewy.com is the next one. So, you know, it’s interesting how history doesn’t repeat, but it rhymes, but I digress. Rob we’ve had new for quite a while. Before we wrap things up, where can investors learn more about you?
Rob: Our website, viewpointinvestment.ca or just Google us.
Julian Klymochko: Okay, cool, viewpointinvestment.ca, so there you have it folks hope. You enjoyed today’s chat on family office, investing multi-asset and risk parity. Rob wants to thank you so much for coming on the podcast. Hopefully you enjoyed it.
Rob: Yeah, its that’s fantastic. Thanks for having me on.
Julian Klymochko: All right. And yeah, to our listeners, I hope you enjoy the podcast and we’ll chat with you soon, cheers.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
