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UTIMCO 20th Anniversary Meeting Notes // March 3-4, 2016

Ray Dalio
- People are drawn together by common values. Meaningful work and meaningful relationships through radical
truth and transparency. Bring uncomfortable things to the surface. Meritocracy find the best answer. Thoughtful
disagreement. It takes deviating from the crowd. Were misunderstood because its a distinctive culture.
- A beautiful deleveraging if growth is higher than interest rates, we pay off debt with the least amount of
dislocation. Productivity determines how we live, how fast it grows is most important. Short-term debt cycle is the
business cycle, 5-8 years. Long-term cycle lowering of interest rates: causes asset prices to rise, makes items
cheaper to buy on credit, and reduces debt service payments. That ends at zero interest rates monetary policy
2: CB makes bond purchases and buys another financial assets, going up in price, lowers future expected returns
- wealth effect. Becomes decreasingly effective. Greater currency vol. This all happened in the 30s.
- Japan hit zero interest rates 20yr ago, shooting for 2% inflation and cant. In Europe, zero interest rates and
economies are depressed. US is less-far along. Economic restructuring and a balance of payments challenge.
Requires a debt restructuring. Its a heart transplant. Pushing on a string not as easy to stimulate. Tools? Range
between coordination between monetary and fiscal policy run a deficit to helicopter money CBs put money
directly into hands of spenders. In 1930s it was veterans. Depends on political environment. Emotional people
choosing emotional leaders is natural happening elsewhere too. China is the least risky politically.
- Everyone is long, everyone is leveraged. You need balance in asset classes. All-weather / risk parity, etc. Tell
me what econ environment well be in, Ill tell you what assets to be in. Balance knowing what we dont know, is
a good thing. Alpha is a zero sum game. A lot of people think they can do it, but a game very few people can play.
The ones that can play are probably closed to new investment.
- We can hold illiquidity risk in an endowment model. Advantages? Look at premiums. Avg return of private equity
manager = to public manager but top quartile much better. Risk premiums have moved around a lot, pay attention
to where theyre moving. Were not in PE / illiquid assets because the ability to change our mind has been more
valuable than those risk premiums. Theyre often not as good as thought to be.
- Inflation / Deflation: put $$ under your pillow, so start looking for alternatives. Other currencies arent popular, gold
isnt popular. With negative interest rates I think you get Japan type situation stagnancy. Wont see inflation
near term. This isnt 2008; its containable.
Ricky Sandler
- Extended period of an experiment. Unprecedented environment, no one was around 70 years ago. We are 6-7
years into in expansion. Uncomfortable situation if things get weak, what are the tools? Not an easy adjustment
process. Business cycle point to late cycle credit markets, M&A, flows into liquid large cap. Yet housing
performing well; difficult for investors to read. Macro driven markets tough time for fundamental stock pickers.
Long-term viewpoint, stable capital, ability to go long and short is essential.
- On coming to activism late-cycle: one should be willing to own a biz all through the cycle.
- My top mistakes not making tough decisions quickly. Allowing mediocrity to exist in a high-performance
organization, selling / not selling. You learn the benefits as you reflect. Force yourself to do things youre naturally
uncomfortable with. Build a portfolio that suits your temperament.
- People in our seats think they get to be an asshole, but the cost of that is high employee turnover, not being a
team, self-focused, all high. Need respect, a healthy debate. Comp system based on a piece of the pie. Critical for
us to get through tough times together.
- Growth of ETFs, quants, etc. that is less micro in nature. You need people willing to understand where perception
is, willing to have a unique perspective about that. No longer good enough to have a quality business and a great
stock and just think its worth more. Biggest skill-sets: desire to win above a desire to be right. Dangerous
investors are those who want to be right more.
Ross Margolies
- People are missing that the world isnt ending, particularly in the US. Companies in general are termed out, even
leveraged one. You have record high margins, people are concerned because of cyclicality. In free-fall, theres no
elasticity to demand cant raise revenues by raising prices. Were looking for industries w/ consolidation where
there is elasticity. Most of expected return is in the risk-premium now. With lower rates, duration has extended - %
move in a stock for a change in assumption is much higher now. 20% isnt that much of a move in context of longduration asset. Some of 20-30yr bonds are down 50% with credit quality not changing much. We have to get used
to that; tweak strategies to capture vol rather than being impacted by it.

After the stocks you have invested in your fund, the next most important thing is who is invested in your fund.
Were funding our investments with our assets. We insisted on lockups. Cant take advantage of opportunities
without it.
Collegial atmosphere. Performance in interviewing, not just stock picking. Dinner at the end of the interview
group setting, get to know them. Ask questions that dont come out in the normal interview.
Hardest things to find in people look past the quarter, see around the corner. Takes up to a year to break some
of the habits from people being told to dump a position because of a bad Q. If someone gets a stock right for the
wrong reasons, not a good thing; cant count on that luck continuing. Develop deep industry knowledge and see
where things will end up. If youre right and got in too soon, build a bigger position rather than getting out.
We look for riskier things harder for smart people to become comfortable with. In commodity industries, we look
when theres blood on the streets and look for the survivors those who wont come to the capital markets. We
look to rule out certain possibilities. The other guys go out of business first, the industry consolidates and the
survivors are stronger.

Jeff Ubben
- Trend of more activism good or bad? It was needed. In 2000, great age of passivity. 2 proxy contests a year from
1996-2001; everyone was asleep. Enron & Sarbanes-Oxley helped. Now with any new innovation everyones
doing it but its cyclical. Companies have become their own activists; GE for example. Dangerous for latecomers; the easy stuff isnt there. So they go to weak companies and then in a downturn they blow up.
- Most of our board work is defense how do we turn a lagging asset into a high-return asset. We dont look for
projects. If a good company could be made better, we ask for a board seat. People look for the house on fire, call
up the CEO and make them fly down; thats the bad stuff.
- On mistakes: Keep it simple. Quality business: low part of cost structure, critical path, high-retention with
customers. Not active in the consumer world because its the hot thing. Dogmatic valuation discipline we want
half the return up front and half via growth 10%. Biggest mistakes when we cant find quality businesses at our
price and we buy the project. Complexity complicates. One company embodies all of these 2004, Axiom in Little
Rock. Ran Citis credit card biz. Profitable data selling biz, but not profitable outsourcing biz I said just separate
them and give the other biz away. Frustrated with CEO and did a proxy contest. The biz was much more
complicated than I thought. Got my 2 board seats, but everything I thought about the biz was wrong. Data biz
being subsidized by outsourcing biz. Went negative, took my 4 years to get the CEO replaced. Said this was
terrible way to do biz.
- Succession planning: generalist approach, focused on business models. Distributed equity in VAC broadly. Good
to eliminate drama within the firm if I could ID successor 10y in advance, Id publicly announce and put on
management committee. Locked in the 10y plan in 2008. Made it clear who would run the biz after Im gone
make it comfortable for him.
- Ill get on a plane with an associate and try to figure out PPGs business model. Build lore. Train your own people,
dont plug holes with outsiders, and have commitment.
- Looking for: an inner calm, find humor in disaster. As a board member, seeing the sausage made isnt pretty. So
much noise coming at you, have to back up and absorb not overreact.
Lee Ainslie
- 120 long, 80 short, 40 net typically. 26 net right now. Dont feel the need to take as much beta risk if the market
rallies 10% and Im 26 vs 40, only miss out on 140bps; dont really care.
- Share a lot of concerns with Burbank. Carnage on the multi-platform hedge funds. Leveraged strategy was good
in a low-vol environment. January was their worst month every, February is worse. 19.1% vol now vs 18.8% longrun; this is normal but were not used to it. High-correlation between stock dispersion and volatility; this is a more
exciting chance to deliver alpha via L/S.
- 108 longs & shorts total, 38 people on the team, ~3 names per person. We havent come across any magic bullet,
just try to think about things more intelligently, be competitive, do our work and stick to the process.
- 6 sector teams, most ideas at that level. Sector head can initiate a new position. We meet weekly for several
hours to debate merits of individual positions. I look at exposures, factor biases, portfolio management, etc.
John Griffin
- Why shorting is important: if you want to believe in any market that price reflects sentiment, by adding shortselling, you add to that. You want to believe that price is based on what people believe. Without shorting, we
would lose the opinion of people who dont want to be long.

In 2008, people lost faith in prices and the crisis got worse because of the ban. Recently, Chinese did the same
thing. My first pitch at Tiger was a short. Pitched at $20, went to $50. Right only because of Tiananmen Square.
I have my worries, but I get the most worried when other people have no worries. Disaster porn is everywhere. Ill
take the opposite side of that. There are companies trading at reasonable valuations that will do well 3 years out.
At 40% net now, right at our long-run average. It worries me when you see L/S funds try to be the snake (do
macro and quant).

John Burbank
- Im bullish on the need to have liquidity.
- Markets are way overrated about discounting the future if the future is different from the past.
- We look at things via: Macro / Bottom-up / Risk-quant view. Crude quant strategy: mean reversion.
- Smart-beta has been legitimized but people dont really know the fundamentals.
- Earnings estimates / ratings on commodities are stale but still used in quant strategies not reflective of reality.
- The future 3-5 years from now will be unrecognizable from today. 1994199920042009 as examples. Were
going into a world with unanticipated consequences. Focus now is lack of liquidity. Liquidity sets the multiples.
- My belief is the dollar will keep going whether fed tightens or not. Happened in the 1990s and broke EM then.
Only differentiator now is human capital clusters in cities. The only thing you want to be long is the formation
and scaling of human capital. Too much debt, too old, policy isnt in place for growth. Obvious solution is fiscal
stimulus but that wont happen until 2017 at least.
- Most equity people arent trained in risk / quant; speaking a different language. Systems show us what were
exposed to. 80% of trading is HFT. Move to passive / ETFs is staggering; the market is getting stupider. Sell-side
getting less interested. Traders dont know whats going on and arent doing work. Fundamental guys are being
tossed around by the snake of HFT / quants etc.
- 2013 was the best year most liquidity. Mean reversion trade into liquidation is happening now. Markets are
rallying now into ECB, China, etc. Thats all theyve got for ideas.
- US needs tremendous infrastructure, but thats 2017. Were going up and down hoping for liquidity, but my fear is
were pricing at the end of this year.
- Machine learning is different than HFT HFT removes liquidity.
Zhang Lei
- China macro situation: transition from fixed asset formation economy to consumer & service economy. Great
leadership is determined to make that transition. Refrained from pure stimulus and focus on reforms. Everyones
calling me for opinions on short RMB positions everyones on the same trade.
- Opportunity set and challenges are different; a lot of companies were high-growth, but now you need to focus on
capital allocators. Today the businesses are trading at higher discounts.
- All we do is quality. Spend quality time with quality people building quality businesses. Nature of quality is
defensive: they behave well in downturns. Air conditioners industry suffered but they took more market share,
input prices (commodities) decreased so much that margins expanded. When they come back, theyre stronger.
They had 7% market share and now have 45% through 2 cycles. 23 bagger. We can buy them at 5x PE and in
the US this biz is 15-20x PE.
- Use shifting sentiment / pessimism to your advantage.
- Build network, like-minded people in China. Its large enough that we can build those long-term sustainable
businesses. Hillhouse isnt about quick flips. If youre building a business, Hillhouse is someone you could talk to.
- Believer in Taoism you believe in the simplicity of business. People are focused solely on analyzing business
models. We believe in a positive sum game we try to help our businesses. I dont believe in the information
game trying to figure out next Q, etc. Computers might be able to do a better job too, but not a lot focus on what
a biz looks like in 5-10 years, is this org built to last, what sort of people are behind this business, etc.
- Idea generation we believe that mobile will be way more important to EM than to developed markets
leapfrogging, WeChat for mobile pay. Will make a huge difference in peoples lives. China: younger, more tech,
less educated, want things for free, etc. so WhatsApp and WeChat are relevant. Be meaningful, relevant,
engaging to your markets and consumers. Closing millennial gap and EM gap. In China, were bigger than
Unilever & P&G combined, built a $1bln brand in 7 years by being close to consumers and relevant. Invested in a
Korean cosmetics company. Global conglomerates are retreating because of activists lever up, cut costs,
buybacks, etc. allowed regional conglomerates to take their place.
- Millennials important in China and globally. They drink coffee, have pets, and wont work long hours. We own
Chinas largest pet food company. Behavior is focused on experience-based consumption. Dish on top of your
roof isnt a status anymore; experiences are status. When we develop proprietary insights and look for ways to

invest. We found the best way to play aging population wasnt healthcare, but pet food. In China, were at the
starting point of Unilever or P&G. Understand entrepreneurship, leverage technology to build brands, add value.
These businesses compound work while Im sleeping. As long-term investors we like to build culture, ecosystem
with the businesses.
Comp: we wont charge any fee on cash we hold in the portfolio.
JD the Amazon of China. We believed in the business model, it was already tested. E-commerce should value
quality, authentic products relevant to consumer needs. Thats the differentiator. We saw the delivery density start
to work, economics turn. Its Amazon + UPS; no UPS in China. Its fully integrated. 99% of Amazons fulfillment
isnt last mile delivery, just warehousing. Were confident that JD builds their system for the long-term. Now doing
450bln RMB. Offline retailers never had a chance to develop supply-chain advantage leapfrogging no WalMart with the supply chain incumbent advantage. 1tln RMB in the next 3 years. We encouraged them: dont look
at short-term operating cash flow via working capital, invest in consumer education. Refocus on core competitive
How has TMT changed? Looking now to pace of innovation, building scale. More and more marginal innovation
now, were not involved there. Public was actually cheaper I wanted to do VC but found Tencent was only
$500mln and publicly traded. Saw valuation discrepancy across public and private markets.
Last few years big influx of capital to TMT in China.
Dont get too busy as an analyst when opportunity knocks you better be home. Dont get stuck on the marginal
ideas. Losing your money is a small thing. Losing time and perspective is much worse. Dont compromise on
quality, dont work on marginal ideas. Building your network will pay off people will know what you stand for.
Education has changed my life. Look at engineers produced by China because govt focused on education. I
benefitted from learning both in US and China. Over 1k students in last 7 years at Hillhouse Academy. One
student came back and donated 20mln RMB. Not only help people change perspective, but build an ecosystem of
your own. There are small things we can change ourselves if we change 1k people, they can go change more
people. Women leadership a lot of capable women we have to help stand up. Maybe in 10-20 years they create
great businesses and were investors, but theyll create value.
Were not focused on macro, but we know how our businesses will behave. Hedging isnt big part of what we do.