2016 Forty Under Forty

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Ari PaulPortfolio Manager,University of Chicago
(Chicago, IL) 31
Ari Paul
(Art by Lauren Tamaki)

“Ari is hungry, smart, and always thinking of solutions that, frankly, others don’t even see.”

Name the most noticeable generational divide in investment style between sub-40-year-old investors and baby boomers.

Sub-40-year-old investors are more actively exploring new investment frameworks like hedge fund replication and smart beta, and are more open to disintermediation in general.

Your least favorite part of being an asset owner is...?

Sitting through sales pitches based on backtests. Have you ever seen a bad backtest?

The manager you don’t currently work with whose brain you’d most like to pick for an hour is...?

James Chanos, the founder of Kynikos Associates. Short selling is one of the hardest things to do well in the investment world and I’m sure Chanos has some great war stories.

... and where would that meeting take place?

At one of Chicago’s many great steakhouses.

Describe the weirdest interaction you’ve had with an asset manager.

A volatility manager claimed with a straight face that every penny of premium he collected from selling options was alpha.

What asset class or investment troubles you most right now—and why?

Sovereign debt. It’s thought of as a ‘safe-haven’ asset, but there’s a risk of large mark-to-market losses from current levels. Also, correlations between fixed income and equity were positive for most of the last century and could quickly become positive again.

Name your favorite food and drink.

Pho and Scotch.

What’s the wildest institutional portfolio you’ve seen?

I mostly look at large US endowment and foundation portfolios, and I wouldn’t call any of them ‘wild’ today. After the 2008 crisis though, one of the largest US endowments was left with 65% of its assets stuck in illiquid private investments.

Name a cultural aspect of asset management that gets under your skin.

The difficulty of aligning incentives between asset owners and asset managers.

Donald Trump is ________.

The former host of Celebrity Apprentice.

Name your four-member investment dream team for your own family office.

Seth Klarman (Baupost) as CIO and managing credit, Marc Andreessen (Andreessen Horowitz) running venture capital, Andreas Halvorsen (Viking Global Investors) managing developed equity, and Zhang Lei (Hillhouse) running emerging markets. But I’d wager that investing supergroups would suffer a similar fate to most rock band supergroups: Too many brilliant egos for a stable partnership.

What’s the biggest investment or career misstep you’ve made?

I didn’t think the US had the political will for quantitative easing rounds two and three, so I was underinvested from 2012 to 2014.

What should be an investment trend, but isn’t (yet)?

Using derivative overlays to shape the portfolio’s potential payout. It has to be done carefully and in a fee-conscious way. But done right, it can help a portfolio better serve its beneficiaries.