The Research to AUM Pipeline | Warren Pies on Raising $450m in an ETF in Less Than 6 Months
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Hey, everyone. Jack Farley here. What you're about to hear is a new show here on the Monetary Matters Network called Other People's Money. Hosted by my friend and business partner, Max Weethy, Other People's Money is the premier podcast about the business side of the fund management industry. Do us a favor and search for Other People's Money with Max Weethy and subscribe to that podcast. I just want to do a quick disclaimer that nothing we say here is investment advice or marketing for FCTE or any other products from 314.

Welcome to another edition of Other People's Money. Today, I'm joined by Warren Pies. He's the co-founder of 314 Research and the portfolio manager at FCTE, an active ETF that he manages. Warren, thank you so much for being here today. Yeah, absolutely. Thank you for having me. So we've spoken before. It's usually about your research and the commentary that you have on markets and the economy. Today is going to be a very different conversation. We're going to talk about

really the two businesses that you have, the fund management business, the active ETF, and the research business that you've been doing a little bit longer than that, how they work together, how they complement each other. And really, I think, not to bury the lead, FCTE, you launched it this year, you've raised $1

over $450 million. I reached out to Eric Balcones before we did this interview to ask him just how big is that? He covers ETFs for Bloomberg. He didn't give me where it ranks, but he did use the phrase a lot. He said that was a lot of money for an indie active ETF. So congratulations on the success. Active ETFs are just

exploding out there. There's so many ETF launches going on, but many of them sort of languish with subscale AUM. And it's pretty incredible what you have been able to do in this short period of time. What do you most attribute the success of your launch to? I appreciate the intro. And it is a lot. It's more than our expectations for this project.

it surpassed them uh in honestly before i get going i want to make sure everyone knows like there are two businesses that we run and they are separate so the research business is over here and the etf which i'm a portfolio manager of is over is uh is separate um there are there is some intel and some relationships there but they are there they are separate ultimately but um

As far as the ETF and why have we had such a good response from the market, it all goes back to ultimately the other business, to the research business. And I think building relationships and having ultimately a differentiated viewpoint that we've expressed in the markets is

for, uh, you know, almost five years now at three 14 research. And so, you know, the story of the fund is it's like, we, we didn't go into this, this, uh, three, four years. We didn't start it with the instrument to run money necessarily was just, we needed real researchers. I was a researcher. The everyone at three 14 had broken off from my former employer. And that was our world. You know, we didn't, we didn't come from the world of, uh,

well-moneyed hedge funds or family offices. That was, we were researchers. So every path to success we had in every, every bit of success that we've had ultimately comes back to being able to say interesting things and, and put out insights. And so, you know, just the, we can get into it, but the way that the fun came about was that we had clients in our research business who said, we've been watching you run these models. We've watched the performance.

The model that ended up falling into this ETF is called the full cycle trend model. It's a stock selection system. It buys 20 stocks every month out of a high quality universe. It's all our own proprietary work. And, you know, we had clients following it and did well in 2021, did well in 2022, 2023. And after that much time of establishing a track record, they said, you know, we've seen enough. We'd like to invest.

I have a vehicle that can invest in that can minimize the tax costs because we are turning, turning the portfolio over quite a bit. I think like in that model, three and a half times a year, we turn the portfolio over. So that's a lot generating a lot of short-term capital gains if you're doing it in a taxable account. And so the grassroots, there was a grassroots, grassroots uprising from our clients from a handful of clients who said, if you,

go ahead and put this model into an ETF. We will invest and kind of be your seed capital to get this thing off the ground. So that's the basic long and short of it.

And it all, like I said, comes back to having something interesting to say on the research side. You talk about like the track record, obviously there's the model. And then, you know, you had your clients had to follow the model themselves. So many people I talk to, they say, you know, you start a fund, you have friends and family who maybe trust you, but you're really just trying to build a track record and eventually, you know, survive long enough to be able to take on, you

you know, those investors that have been following along with you. I think it's, you know, it's a very capital intensive business. Some people say more so than others to have a fund and to run a fund. But research is is a very different business and the ability to build relationships, showcase your, you know, your ability to to deliver results in a very different business. I mean, you know, I think everybody understands like the margin on like a new customer, you

is pretty high. I know you guys do, you know, you do do client calls and you deal directly with people. So it's that's real time. But, you know, to simplify it, if you're just putting out a PDF or you have an online portal, like what is the what's the marginal cost on adding somebody to the email list? Not particularly high. So can you talk about like what's

why research in itself is a great business. I think we were a little naive maybe with this, the way we ended up establishing a track record through this model. If you see a lot of funds that launched,

they, you know, they'll build a track record, a three-year track record or whatever. And in the background, there might've been like, you know, five different strategies that they're running, all that could take advantage of different market environments. And then whatever one works is the, ultimately the track record you see that you get pitched. If you're, if you're a potential investor, we were a little more naive. I mean, and probably in some ways it probably helped us as like, we're just trying to do

help our clients navigate markets. You know, and our view at the research shop is that, you know, we're always going to be giving our discretionary opinions, but it's data driven. And a big part of that is that we need to have models that we ultimately, um, uh,

tie ourselves to, you know, that this is like our ultimately the best way to control your emotions and get some kind of behavioral edge in the market is through models, um, in, in good meat and potato modeling. So the research business though is, um,

It's a, I think it is, if you can get distribution and you can get, find your niche and understand the marketplace, I think it's a good business. But there, I mean, today with like the sub stack world and all of that, and that was one of the big decisions that I had to make, you know, I was...

I left Ned Davis Research, was ultimately fired from Ned Davis Research back in the middle of the pandemic. And, you know, I had to make a decision on my career. Number one, do I want to keep doing this? Number two, do I, if I do, what's my business look like? How do I want to run things? And

you know, there's a couple different paths you can go. You can do kind of the retail style, which I was always an institutional researcher. So our clients were global hedge funds, mutual funds, asset managers, RIAs, large RIAs. The price point was, you know, tens and tens of thousands of dollars a year, not

you know, 30 bucks a month or whatever at a sub stack. And so, but I had, there was a fork in the road and I had to decide which one do you want to do? You want to have a smaller group of sophisticated clients where your retention rate is really high, or do you want to have this kind of churn and burn retail business? And we made the decision,

And this is a little bit about knowing yourself, but we made the decision to go with the institutional route. So we do institutional research. From time to time, I get retail folks who were like, wow, we'd really like to subscribe, but it's just not within our budget. And my honest feeling is that I wouldn't say like retail newsletter type things are all a scam, but they are feeding off of

bad expectations. So the first thing is I wanted to be dealing with a group of clients who had the appropriate expectations. And so we went with institutional work and continued down the path that I've been doing at Ned Davis Research.

but decided, you know, to do it with our own spin and our own take on the world. And so that was how we did it. It's a good, it's a good business, but it's not like there's a, I don't want to give anyone the false hope. Like there's a lot that goes into it, you know, like to just try writing every week and saying something unique and, and, uh, in value add, it's a, it's a, it's a grind. I see anyone who does it. I have a lot of respect for, you know, there's a lot of, um,

I'd say when you go like on Twitter or whatever, and there's like a hierarchy of respect. There's the respect that if you run money, you get like a certain level of respect that, you know, you're putting, you're actually, you're putting capital at risk. And then below that are the researchers and the writers and,

You know, I'm here saying like there's a lot. It's a tough game. And within that second layer, there's a stratification to for sure. There's a stratification like I see people who do they to to be able to get your thoughts from your brain, take this complicated, chaotic world, synthesize it and then put it on paper.

Uh, that's a process, you know, I challenge, I think it makes you a better investor ultimately to, you know, a lot of people talk about doing trade journals. I've done trade journals and things like that. This, this business is like the ultimate trade journal. I can't run from what I've said to my clients for years now, you know, it's ultimately right there staring me in the face and I have to either adapt, um, or stick my head in the sand. You're not going to be successful if you do that. So, yeah.

Yeah, I guess that's a long winded or circuitous way of saying the research business is good, but there are pitfalls in their sub decisions within that world that you have to decide. And if you're going to do just to finish up the retail thing, if you're going to market, if you're going to do retail stock type of research,

You're way more of a marketer. You know, you're good at getting Twitter followers. You're good at, I'm not denigrating all of them by any means. I'm just saying, this is what you need to know in yourself that you're really good at blasting stuff out, at getting attention, at, you know, doing these things. And I call it the treadmill. Yeah. It's never ending. You are on the treadmill, the content treadmill. And, uh,

some of your worst calls are going to be your most red pieces because you've top ticked whatever hot asset

is out there you or you've you know bottom ticked in if you're bearish or whatever um like and and that's going to generate like the most revenue for you but then all those people are going to be upset about that call whatever it is that that brought them in um and so it's like the irony that like your best calls are often like not they don't produce like the most you know immediate return for your business whereas your worst calls often like generate like the most inbounds

I mean, to me, I don't know. Everybody's different and everyone's path is different. And I've read so many like good, you hear the good stories where they, you put a trade on right around COVID or whatever, and somebody, you know, does just puts on an amazing trade. And I think I had some good calls like that around COVID and yet that kind of volatility, it gives you opportunities. And we definitely took advantage of some back then and on the energy side, uh,

going into and out of that pandemic. But for the most part, your big calls, your best calls in this business, from my perspective is just being a consistent, good process. You run the game over and over and over and you win more than you lose. And that builds on itself over time. You know, it's not a get rich quick scheme. It's a compound wealth over time type of approach. And it just comes from, I think being curious in, you know,

Really wrestling with the data. And so that to me is the, the way we, we compound value for our clients is, is a consistency. Um, not through these, like, you know, splashy calls, like, you know, by, by this, uh,

When you launch the business, when did you start to see success? And I think, put in context, when I said the research business is a great business, I'm more talking about the ability to actually pay yourself and to

to be profitable at a lower scale. Like you really do have to raise a lot of money, whether it's a private fund or an ETF to reach break even where you're actually starting to like make some money off of it. And not that it isn't hard to reach that point in research, but I do think it is easier to pay the bills, you know, sort of in that starting out phase with research, which is what I was trying to get at. Not that it's like, it's easy to have $100 million research business or anything like that. But it's like-

you know, you can get yourself to, to paying a decent salary comparable to what you would make, you know, if you had a great job at a big company or something like that, you know, relatively quickly, if you've got the chops and you've got the distribution, like you mentioned. Um, so, so when you left Ned, like we're dead Davis clients coming over and, you know, that early success in, in gathering research clients, what did it look like? I think as come came down to, uh,

having the right expectations. So much of this is having the right expectations and being able to like be consistent and not, not fall into this, get rich quick kind of mindset and be able to grind a little bit. You know, I think any good business, ultimately you're going to have to grind some for the most part, at least anything that,

you know, that I'm involved with has been a grind. And so for me, I told myself starting now, let's get, we need three trips around the sun. That's why you said tell my partners, we need three trips around the sun to know what we're dealing with. So you gotta have, we gotta go through this cycle where we, we, we find our, we find out how do we reach our new clients? How do we convert our prospects into new clients and how good is our retention rate? You know? And so we, we,

I'd say by year one was better than we expected. And we were all pleasantly surprised. It's not like we were making more money than we were at our corporate jobs at that point. But we were encouraged. We had a nice group of big clients. Like the test was, our stuff was resonating. We were finding our footing. And each year we basically doubled the book of business at that point. And so it just kept doubling and doubling. And our retention rate has been really high.

I know basically what a good retention rate is from being in the industry, and it's been very good. And so I think by year three...

We were all very confident about the future of the business, you know, and then you start seeing doors open up like clients coming to you and saying, okay, is there a way for us to deepen this relationship? Can we have a, can we do some kind of consulting thing? Could we, would you be interested in starting this ETF? And we'll see the ETF. We've had clients, there's some discussions going on right now. We want to do a discretionary hedge fund.

based on 314 calls and what were our research. And so we're in discussion there and they want to basically see that

And so by year three, those things started coming out. And like I said, our our book of business was growing on the research side. And we felt we were we had gone past what we needed to from our old jobs. And then it gets to a place where like, OK, you've now created a job for yourself. Can you create a real business where there could be a capital provider who comes in and in charge?

could, you know, potentially, you know, make an investment. We don't have any outside investors. We bootstrapped this whole thing. But if you wanted to, could you take capital and actually pay some, pay yourselves and then pay a capital provider? And that's around year three where I'd say that started for us. And it wasn't, like I said, like overnight success to me. It wasn't feel like that. It was more being satisfied with incremental progress every day.

you know, and be realistic. And so by year three, though, I knew we had something good. So was it when people came to you, obviously you said you focus on institutional. So these are, you know, a little bit more sophisticated investors. Was it slippage trying to track the models? Was it the tax efficiency of the ETF wrapper? Like-

Obviously, you know, a lot of these people can kind of, you know, DIY it. Why do they feel that there is a need for this product? I think it was mainly the tax efficiency of ETF, you know, and so like because we, you know, we have to get paid in the ETF. I would say to to talk about the ETF business for a second.

I think that the tax efficiency of the ETF wrapper is underutilized in the market right now. And I think you're going to see more. Our fund is pretty innovative in that way. We turn, like I said, we turn the positions over quite a bit. I think the portfolio is going to turn over

three and a half times in a 12 month period. Basically we have 20 stocks and in general, in general, six stocks leave every month. We rebalance every month. That's a lot of trading. There's a lot of gains that we have to basically shelter within that ETF when we do all that trading. And, and so that was, that's a very attractive thing. And when you see active ETFs that are out there on the market right now,

Um, they're active almost in name only. They don't, they, they might rebalance twice a year, you know, and the rebalancing is still amongst the same names. Like we're turning the thing over for better or worse. And we've had pitches to, to institutional clients on this, on the fund in the, the, uh, the, a lot of times they want to know, you know, different things like your tracking error or your, uh,

or your correlation or beta to the market, to the S&P 500 or to other ETFs out on the market who are also in the quality space. We're a quality-based system. And for better or worse, we are not just benchmark huggers. You're going to get an active bet when you invest in our fund.

And so I think that's the way it should be. You know, we're not just and again, it goes back to you need to if you're going to run a research business, you have to have something differentiated. If you're going to break into this very competitive cutthroat ETF world, I think you need to have something differentiated, you know, offer something. You can't just get more S&P beta with like a like a catchy ticker symbol or whatever that, you know, is is to gather assets differentiated.

At least from my perspective in my world, you have to be differentiated. So,

Those were the main drivers was the tax efficiency and the fact that we had a real unique strategy that you don't really see that out there in the ETF world right now. A lot of times as well, it's just like some sort of sector bet or thematic bet on whatever it is, whether it's AI. And not that giving people diversified exposure to that isn't useful. And there's plenty of funds that do that very, very well. But even within that, there are a lot of funds where it's like, okay, you get into it and it's like,

your fourth largest holding of AI is some random large cap tech stock. It's not even really unique to the factor or anything. So yeah, there's a lot of... Despite all of the ETF launches, there's plenty of stuff out there that I have no idea who's buying it. But that's what I want to know. Who is buying it? You said you had some people who are willing to seed it. Like,

I often, when I'm talking to fund managers and they're saying like, oh, we might want to launch like an offshore vehicle. And it's like, okay, well, you know, go tally your soft commitments and divide it by five. And that might be like what you're able to get. Like, what was that like for you with, you know, tallying the commitments for the seed? How much actually came through? So when we started the research business, when I started it, I kind of,

analogized it to throwing a party and wondering if people really show up, you know, because you got like soft commitments or interest or saying, hey, I'd back you on your own firm, you know, stuff like that. And you don't really know. And my experience on the research side was that people got a little bit of cold feet at the very beginning. There was cold feet as far as, all right. And that's not even as, that's not as big of a commitment. It was just more of like, huh, well, do I really want to cut ties from,

let's say your old research shop and go to your new one when I don't know if you're going to be there in a year, you know? And it's like, can I really create a dependency on you when we don't know if we can depend on you yet, which I understand. So that was part of the patient's process of starting, of starting the research business. And it was a learning experience, which I think kind of lowered my expectations for when we did the fund was like, Hey, just because someone says it to you doesn't mean that's going to come through.

Which is, I guess, maybe obvious, but you have to always control your expectations. So that's real. It's a real factor that talk is cheap, basically. But with the fund, it was interesting because it was kind of the opposite. People followed through after saying that they were interested. Some of it was in writing, in writing.

And I was actually very pleasantly surprised with the amount of follow through. And to me, that really spoke to the relationships that we built in the over the course of our research. And it really is rewarding more than anything. Like I've listened to some of your other podcasts and whether it's the last guy you had on, I believe his name is Noel.

Noel. Yeah. Noel Smith. Right. So he, he ran, he was talking about running a hedge fund, going from a, from a prop trader to a hedge fund. And he was saying how important the relationships were. And I think that's, that, that really resonated with me, you know, in our, in our situation was like being able to get people to commit to our, to the fund that they would come from the research business. And we build a resource, a relationship in the research business, and they're willing to give an investment. And those are,

Generally, you know, it started off, you said, who's investing in that? It started off with RIAs who had taxable accounts that they wanted exposure to this model through a more tax advantaged vehicle. But it's gone out towards individuals, high net worth individuals who maybe don't

You know, didn't were wanting to be clients and they couldn't become full clients, but this was it gives them a chance to invest and it's kind of just expanded out. But the core group was basically RIAs. I mean, we did have some folks who were.

you know, like in the Caymans or something like that, family offices. And they were like, well, you know, we don't really have a tax problem. So we're just going to run the model from your service that as clients. And so, which is fine. You know, I want people to do whatever makes sense for them. And so it's not like everybody jumped right over into the fund. Some people kept or just out running the model. So we still have the model on our site and our service. And every month we publish this, the new tickers for those clients. And that's what we were

what we do on the research side. It's just that now there's a, another vehicle over here on the side that, um, really for the tax purposes and for the, the, the slippage and stuff like that, that you mentioned, if you don't want to, if you want to make sure that you get the exact right fills on the back test and everything like that, then you go over there. So, but my, the bottom line is in the research business, I learned that yeah, talk is cheap.

After years of building up relationships though, much better. It was a much better process and seamless going through the fund. You know, it's just, I've found that people want to

our stuff resonated, obviously, in some way people wanted to work with us. Now I want to talk about like breakeven and a little bit of the ETF economics. I've heard like 100 million thrown around. It's kind of like the breakeven point. Obviously, it differs based off of expenses. Like it sounds to me like you don't have a big sales team and a big distribution arm and you're not doing roadshows to different RIAs all over the country to pitch FCTE. And, you know, that can add up to like

hundreds of thousands of millions of dollars. So I know it's different for you, but what is the break even like on an ETF if you're light on distribution? Yeah. I mean, well, our fee's a little on the high side, which is again, to account for the, I acknowledge that, but it's to account for all the stuff that goes in on the actual strategy execution. So you're really getting something for that fee is the way I look at it.

So our ultimate AUM breakeven was lower. Our AUM breakeven was somewhere around 40, 50 million is what I'd say. And probably might even be a little below that. So it's not too bad for the way we structure things. And like you said, though, we run it pretty bare bones. As far as ETFs go, because in the future, we might do other things.

And obviously, we're known for our commodity and oil stuff. And so if you're doing futures and things like that, the underlying cost of the ETF goes up. If you're doing just a straight equity strategy like this, the cost, you can keep the cost pretty low. And so that's the basic hurdle for assets here. And like you said, we've never paid a dollar for marketing before.

since we started 314. Never done. We don't have a public relations firm. We don't have... Honestly, we're pretty naive about this. It's always been, if we write the stuff and it's good enough, we put it on social media. It wasn't for Twitter. We wouldn't have been able to do this business. Period. But you just basically write the stuff. You put a little bit on Twitter. You start a conversation, engage with people. And it's taken off. It takes off from there. We've been able to...

you know, get, get on podcasts, have conversations with folks like yourself, get on television, um,

And all those things over time, they add up. So we're fortunate in that way. The research, I wouldn't even want to call it a lost leaders. We're not losing money on the research. It's just like there is no better marketing and sales than having good thoughts, though, and having good, interesting research is the way I look at it. And it's the straw that stirs the drink for everything. Sometimes I see promoted tweets from other people

uh, research shops on Twitter and I am John X. And, uh, I'm just like, I can't believe that that really works. It's so disingenuous. And, uh, but anyways, that's my, my, our, our philosophy has always been just be real, uh, put out good work, be interesting. If the market, if you're really doing what you think you're doing, the market's going to respond.

And now ultimately that's been a godsend on the ETF side. It's kept our costs low. The original backers of the ETF, they came in on the research side. Are people skipping that stage now and going straight to FCTE? I'm sure, as you said, you have the retail people that you're not priced for retail on the research side. But is it still like people go into the research first, get to know you online?

understand the model. And then, you know, and then we were talking about like meaningful AUM here. Like obviously there are people who are buying, you know, thousands of bucks here and there. And you don't really have a touch point with them, which is one of the things with ETFs. Like if you have a private fund, like you've got to fill out the forms, you know, when the money is coming in, you know exactly who they are and what they are. Like you don't quite have that same understanding

transparency with this? Like, how much do you understand where the money is coming from? At this stage, less than, much less than what you're describing for like a private fund. It's a little bit like mysterious when a, you know, a big block comes through because you have all these conversations. We have, like I said, we have separate entities who have a research

with our own separate emails and conversations there. And then we have the ETF side. If someone wants to talk about the ETF, we put them over on the, into the fund, our email chain and things like that. And in general, those, those conversations, the ones that start cold, they, you, they get started. But I think that to be totally honest with you, there's going to be, I guess the, the, um,

the real theme of this conversation, I don't feel that they, you get them over into the fund as easily. It's just, it goes back to the relationship. I think the real, the appropriate or the best way to raise money in the ETF is to establish a relationship. And ultimately in my world, in our world, the best way to establish a relationship is through

our research ideas, even if the research is totally unrelated to the underlying fund in strategy. You know, we're not writing about that, the FCT model every single week. We're writing about all kinds of things. We did our 2025 outlook, didn't mention this strategy whatsoever. It's, but it's still, if it's good work, it gains credibility. I think it allows folks to see that and be like, okay,

They're seeing something and I want to be invested with them in some way. I want to deepen the relationship in some way. And so to me, that's still the best path to gaining AUM is to building a relationship and the best relationships we've had have come through the research ultimately.

When I'm dealing with people who are coming on the podcast, like obviously you and I, we've done interviews before you've been on TV, like you're, you're kind of old hat at this, but sometimes people come on and you have to kind of remind them. They're like, no, like don't put the full press on your fund pitch, like showcase the insights you have about the industry, showcase these other things. Like it'll become clear that you know what you're talking about. And like, that's a much better, you know, uh, it's,

It's a much better way to showcase yourself and showcase like why your fund may or may not be successful than being like, you know, such a great opportunity in this sector right now. And that's why we're so excited. Like that just it doesn't quite have that that same thing. And, you know, I want to talk about like turning touch points on their head. Like if you are pure ETF and you are.

When you reach out to somebody, it's a sales call. It's a marketing thing. People are not stupid. They know they're being sold to. When you have touch points with people, not that you're, as you said, it's a separate business. You're not actively selling your ETF when people call you and their research clients, but they're calling you.

They're you, they're paying you, you're providing a value add to them. They're calling you up for you to be able to provide insights versus the other way around. So we're a small, small company, obviously still. And I'm,

still, I'd say the primary salesperson for our stuff. You know, in one way or another, if there's someone coming in the door, even if I don't have an interaction with them on the research side before they come in as clients, once they become a client, I'll try to reach out to them and say like, hey, over the next month, let's look at our calendars and get a

a call set up so that we can at least make sure. Cause I, the thing I don't like is, you know, if someone comes on the service, we have so many different things going on in the research side. I want to make sure that whatever they do, and we have all different types of clients, family offices, RAs, you have hedge funds, you have,

asset managers, mutual funds, you know, portfolio managers with a very specific mandate. You have all kinds of people and we're trying to cover like such a broad thing. So I want to talk to them, make sure I understand their business. They understand what we do. Let me figure out some way that we can add value to your process. That's the number one thing. If we can add some value to your process, then it's a win. And I think for the most part, we've proven we can do that. And so that's the, that's, it's very much a, a, you, you need to be

You're constantly touching base. I've never done a cold call though. I've never done a cold call in my life. I'm not wired that way. I don't think I could. I don't want to ever feel like I'm bothering people. Maybe it's a strange positive for this business, but I remember writing when I started out at Ned Davis and I would write long reports infrequently. And sometimes I was a sticking point internally where they'd say, Warren, why don't you write

try to write like twice a week and do short reports. And I was always just very paranoid that if I wrote anything that was less than great,

I would lose the attention of my audience and I didn't want to lose the attention. So I've always said like this attention, you're competing for this attention, this world. There's so many different research firms and sub stacks and tweets and things that can take people's attention. Like if I got that precious attention right now, I need to make sure that I don't fumble it where they don't blow it, you know? And so I've never done a cold call. It's just not how I'm wired. I could never imagine.

I mean, God bless the people who do it. I know it's a hard work. It's hard work, but I've never picked up the phone and just like called somebody randomly or send an email even randomly without having an inbound inquiry to our company. We don't do that. So, yeah.

Yeah, it's totally, it's a totally different world where they're seeking you out versus you're pushing to them. And I think that's the only way we could ever succeeded. You know, it's like, again, that's why I didn't want to be retail. It's not how I'm wired. Like I genuinely not how I'm wired. I can't, I'm never going to have, unless something crazy happens, I can't foresee. I'm never going to have like 500,000 Twitter followers and to be honest,

pivoting into tweeting about politics and things like that so you talked a little bit about like some of the other opportunities that are coming up um obviously the etf is one that's come to fruition you mentioned the private fund potentially where you guys would be making discretionary picks i know you you wouldn't do anything that you didn't think would you know not serve the lps but like

And obviously, like if this works, like, you know, the ETF business is great, but two and 20 is better. Like, and so are these are these people are they interested in like, hey, this is this is something that we think is good enough to justify two and 20. And we want a piece of that. Or is there really a different strategy that.

you know, doesn't quite fit the ETF wrapper that's more suited for a private fund. Yeah, I think it is. That's where you go. To me, I look at the ETF wrapper as a way to create, you're getting your

Good models, but they're rules-based, systematic, totally systematic. And one of our big core philosophies when we started the company is that you're going to need to do more turnover in this world. The world where stocks and bonds are more correlated, you have more inflation, there's asset volatility. To me, this is the secular change that gave rise to our investing approach. And a big part of that is you're going to need to be able to, and I knew this from

you know, trading crude oil is you're going to have to have assets where you take profits more aggressively. You're going to have to be, it's not always just a set it and forget it world here anymore. And so when I look at the ETFs, I see them as we create these models. There's a lot of research behind them. They're, they're, they're systematic and that's the ETF takes that tax efficiency and combines it. We haven't gotten too far down the road on the hedge fund yet. It's more of, again,

um something that has gotten pitched to me for taking our stuff and taking our stuff in uh

bringing it to life in that way. And I would imagine there's a lot more discretion. So we do have, we run a whole set of discretionary trade recommendations and asset allocation. It's just discretionary based on our macro work. And I see them wanting to take that and then, you know, maybe have like a team of analysts that come in as well and drill down farther into how do you, how do you best take advantage of those, of those recommendations?

Again, like you said, we wouldn't do it unless it makes sense for the folks that would be investing. I think that, to be honest, whatever you do, your reputation is number one thing. If you come out with a hedge fund and you don't think it through, you aren't measured in how you execute, then...

you know, you're, you're ultimately you're, you're losing the long game. It's not, the goal isn't just to have a quote unquote hedge fund. The goal is to be successful, whether you're serving your clients through research, whether you're serving your clients through ETFs or whether you're serving your LPs with a hedge fund structure, it's always to be adding value for that end client. Everything else will work itself out and your reputation will be

you know, if you deal honestly and fairly and, you know, that's the kind of, that's, that's the world you should be driving towards versus just get products out the door. And so right now that's what it would, in my mind, that's what it would be is that the, that hedge fund structure would allow us to have more discretion and variability in our strategies than we have in the ETFs right now. But again, that's probably a, I mean, could it be an ETF or is it just like you feel more comfortable with like

a more accredited investor base? If it could be an ETF, then I think it would be an ETF is ultimately. And my honest answer is we don't know yet. It's just, again, it's very, it's very early. There's a,

but there's a specific client who has specific money that he needs to put to work. And that's, that's where that idea is coming from. And so if it's, if someone's like, Hey, I have a $50 million that I want to put to work and I want this structure for X, Y, and Z, I want you to invest it under this mandate. And that's the, and that's kind of the, the world we're in right now, but it's our job to make sure that,

Hey, look, I've had people come to me before. I had a guy who's a client now on the research side who came to me years ago and asked me if the net had done a successful exit from a, um,

a tech business, young guy in was setting up a family office and he wanted me to manage his, his money. And I, I got his, he gave me his expectations and they were just wild, wildly realistic. And I just told him, no, I'm not, I can't do that. I'm just setting myself up for failure. If you, you know, if you, so the bottom line on it is we won't do it unless we think we can be successful.

And there's it's a little bit preliminary right now, but it's just an example of a door that gets opened when you when you write good research, in my mind. And where does the research business go? I mean, you talked about it sort of coming. It's it's approaching the point where it's.

It's less of a job and more of a business. I mean, is it expanding the offerings? Is it bringing on new people to produce that research? Maybe a sales guy for yourself? All those things are possible. I'm kind of a control freak. So the sales guy, we've talked to salespeople. It's like, you know, it's not that we couldn't hire one if we don't want one. I just...

you know, when you bootstrap a business and it's your little, it's your baby, like as honestly for better or worse, so much of your identity gets wrapped up in a small business like this. It's difficult to give that away. And it's difficult to see somebody botch a sales pitch and just like, can't explain the value of what you're doing to different client types. And so we need to find that perfect person for sales. So if you think you can do it, you can reach out to us and it's a high bar, but we would love to have someone like that. But, um,

Yeah, we are expanding. We hired an analyst here recently within the second half of 24, adding to the team. I had a conversation actually this weekend with somebody who's a...

a big anonymous account on Twitter who I've been friends with for a while, who's in the hedge fund industry and would love to have him come over and write strategy for us at some point in the future. So everything we do, I think, has to be very methodical, though. You know, it's not just again, it's not just expanding for the sake of expanding. And the other thing is my partner, Fernando,

He comes from the tech world, and he's very good at creating productive work streams. So we squeeze so much productivity out of each person who's at our firm. It's kind of a nice little lab because we're using a lot of his AI tools and things like that, which I know there is a group of people who think that AI is not actually adding value.

any value and we're, we're using it every day. And we have basically, we have an, he's created like an internal chat bot where you can create our charts. You just by just talking to him, to the, to the, to the chat bot and things like that. And so there's no reason to add things, add people just to add them. So anyone we add is going to be very, we're really confident in it and it adds value for our clients. So yeah.

We will be doing that, but it's going to be a slow methodical process. What about turning some of that tech to be client-facing? Well, we have a portfolio builder. So we created a portfolio builder. We have like our real asset allocation model on the research side. It takes 20 different assets and we're constantly weighting and reweighting them. And then within our clients, there's a tool, which I think is really underutilized in our client base. It's really trend regression, trend line approach, which is our unique kind of trend approach.

And volatility, basically hierarchical risk parity is our optimizer there. We take that overlay and then within the portfolio builder, though, you can assign your own assets from like, I don't forget how many assets we have in that now over 100 that you can select from.

And then you can do your own benchmark weighting and target weighting. And so that tool's out there. To be totally honest, it hasn't been a great seller for us. Maybe we don't know how to market it that well. Again, it goes back to like what we do well, but there are very few people. We offer that as a standalone service. I think it's like 800 bucks a year or something like that. So it's in that retail world. And it hasn't been a very successful standalone product for us, to be honest. So it's not...

I'm not, I'm not crazy about going out and creating more tools. And every time you create a tool, you're competing with people like a Bloomberg and, you know, I, I just find it, you're going into the world of commodities and I'm not sure I want to, I've been in the world of commodities in the oil world and I watched those bulldozers and it's a, it's

It's not the kind of business that I want to necessarily build. Yeah, I mean, speaking about like technology and Bloomberg, like Jack and I went to this conference and it was a central banking conference and Bloomberg hosted it. And so I think that, you know, they gave them 30 minutes or whatever to like talk about their products. And they brought out some guy who was talking about the new econ tools. They were freaking incredible, like all this stuff. They're like, we can get you like Japanese inflation broken down by...

23 different types of fish, like, you know, which, which sushi is like going off. It's causing, causing fish inflation in Japan. Like, you know, and, and you're competing with, you know, this huge, huge, you know, tower full of people who are all building these things. Yeah. The secret is that the Bloomberg chat is still their, their most popular tool. Yeah.

that they have. I don't want to be in the tool business and I don't want to be in the data business either. I know that's like a new hot thing to sell data. And we have hedge funds come to us and say, can we buy just a feed of your data? And I'm not into that. We don't, I don't, we don't do that either. I feel like those funds are, are probably reverse engineering everything. And just, if there is some alpha there, they're just going to mine it right out. And so

And it's just, again, it's a commodity. And ultimately, the data is a commodity. One thing we didn't touch on, which is free content. Like, obviously, you have to put something out there. It's like one of the difficult things about having a paywall. Yeah.

How do you decide what goes out there for free and deal with, obviously, your clients? They're paying you a lot of money for this information. They don't want to see it all out there, but I'm sure a lot of them, you've developed these relationships, they want to see you succeed too. How do you manage...

clients and free content. Yeah, I've never had a client complain about us tweeting something out, but we're very cognizant of not giving away stuff. Number one, I don't usually, I don't think I ever go out. The most I'll do is send a chart out, maybe a thought provoking chart, something interesting. But I really don't explain very much on Twitter in at least when stuff is happening. And it might end up looking a little bit on Twitter like,

You are a Monday morning quarterback where you're only coming in and explaining things after they've gone right. Well, I mean, the reason I do that is because if I go out on Twitter and explain all of my, our thesis in advance, that's, that is giving away what I would say is a very, really important and valuable IP for our clients. And so I don't generally go on Twitter and explain things. Well, we'll show a chart here or there, try and generate interest, show that we are looking at things that are different than everybody else and looking at things in a different way from everybody else.

And you have to do that. I mean, that is our marketing. People will say, why are you on Twitter? It's like, well, number one is to market. Number one is to expand to the footprint of the firm. And number two is to engage with people and have conversations. There are interesting conversations that take place on Twitter. And you can find smart people who give you new things to look at and research and investigate. You can also find people who are kind of like

uh good contra indicators for instance that are you know having a problem or of some kind or seeing the world um different from you so you can you know maybe fade them if you think that uh they're a good representation of somebody on the other side of a trade from you so those are the types of things i like to go on twitter to either um it mostly is to spread the uh

generate interest for our firm, but there is the, I'd say this, the second distant seconds that is to find good dialogue with people. And then the third would be to find people who I,

I think we're on the other side of the trade specifically, whatever we're recommending and make sure that number one, I'm not making a mistake and then I can investigate my counterparties that way. What you said about not explaining like resonates a lot with me. Like you want people to come to you to ask questions. Like the whole point of a lead generation post is to generate leads. And if they get the answer from your tweet, they'll like it and then they'll move on. But if they have questions, like they might come to your website.

and see if there's more information about this thing that you just posted. Yeah. Like for instance, one of the big areas, which I think gives us an edge in what our research right now is in the housing market. We've been, you know, this is an area that we really have, we have a framework. We believe that the housing market leads the rest of the economy and, you know, so on and so forth. So, you know, for instance, like, um,

In our year at Outlook, we had a whole section on housing and the message of housing for 2025 and how we interpret all this stuff. And so one of the charts that I just recently tweeted, which kind of got a good traction, was the amount of stale inventory at D.R. Horton. D.R. Horton, the largest home builder in America. And so D.R. Horton's number of homes for sale on completed inventory, unsold completed inventory, has been on the market for more than six months, is at a multi-year high. And so, you know, of course,

I tweet that out. I just say like, look, this is an interesting chart, right? And it's kind of open-ended. You can have, you have to draw your own conclusions, but then you get a lot of people who come in in the comments and they're like, wait, shouldn't you be adjusting this for the total volume of homes sold by DR? Like they've been ramping volume. And it's like, of course, this is a tweet is not a thesis. It's a tweet. And that's what I use Twitter for is not to do these like

20 tweet mega threads that give my whole view of the world. It's like one or two tweets and they're interesting and provocative. And that's the way I think you should use it.

All right. Well, everybody can follow you on Twitter at Warren Pies. They can follow at 314 research and, um, you know, Warren, thank you so much for coming on and talking a little bit about how, you know, the research business really was the birth of the asset management business that you now have and looking forward to see the evolution and the growth of both of those two businesses. Yeah. Thank you for having me. And, uh,

You know, I appreciate the opportunity just to talk about what we're doing and, you know, it's good to see you again after all these years. So like the first time we spoke on an interview was, uh, I remember it was March 2nd, 2020 in New York. I think we were like the last thing I was on, like one of the last planes out in New York for the lockdowns hit.

You remember that? Yeah, I do. I remember you said that that oil has strong support at zero. Yeah. It was one of your one of your incorrect. You were directionally correct, but not precise. Yeah, I would have scored out at about five and instead it went to negative 38. Come on.

Come on, you got to let it run. You know, think about the greats. They always say let it run. You know, I just don't think any of them ever let it run to negative 38 before. Yeah. So, but it's cool to see what you're doing with your business in life and to catch back up with you. Always, always great to speak with you, Warren. Thank you so much.