Investing In The Future: The Power Of Innovation For Superior Returns With Jane Leung, Strategic Advisor, Hive Wealth

 

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Jane Leung is a strategic advisor at Hive Wealth, an innovative wealth platform that is creating social impact by democratizing the Family Office and providing opportunities for the 99% to build and grow meaningful multi-generational wealth.

In this episode, Zack and Jane discuss:

1. Passive vs. Active Investing: A Tale of Bull And Bear Markets
2. Maximizing Returns With Cutting-Edge Technology
3. Venture Debt is The Hot Topic Among Investors
4. Know Your Investments

Investing In The Future: The Power Of Innovation For Superior Returns With Jane Leung, Strategic Advisor, Hive Wealth

We have Jane Leung, who was the CIO at SVB Private Bank and also the Head of Investment Solutions, with us. With everything that’s gone on with Silicon Valley Bank or SVB, this is a great time to be talking to Jane. She’s no longer there. Jane, we’d love to hear about your background, how you got here, what you were doing at SVB, and some of your views on the markets.

Jane’s Background

Thanks for having me. I’d be happy to share a little bit. About me, I was born in Canada but moved to California when I was very young after a brief stay in Malaysia, where my dad was a professor of physics at the University of Malaysia. I started my career dabbling in investment banking, and then after a few years, in a boutique RIA in Los Angeles. I spent the bulk of my career in institutional asset management at both Barclays Global Investors and also at BlackRock. I spent seven years as an expatriate in Hong Kong, landing in 2008, right before the global financial crisis, and that was an interesting time. We saw crazy market movements, volatility, and risk, which we will probably talk about.

I came back to the US in 2015 and then spent the rest of that time focusing on private markets at Scenic Advisement, which was a boutique investment bank in San Francisco, and then eventually at SVB, as you mentioned, where I joined as Chief Investment Officer. Eventually, I was also the Head of the Modern Family Office, as well as the Head of Investment Solutions. I was leading their Investment Services division, which was our private client broker-dealer platform, and we were building that out to differentiate ourselves within the innovation economy technology founders, investors, PE, and VC. I’m based in Los Angeles. I have a husband, a son, and two cats. That’s a little bit about me.

It’s great that you are here because the timing is perfect, given that everybody wants to know what happened with SVB, but more importantly, where do we go from here? One of the things that’s great about what you were doing there is that you were not on the commercial banking side, which ultimately caused the enterprise’s demise, but you were on the private banking side, working with high-net-worth clients and running the wealth management unit. Talk a little bit about what happened so people understand the different parts of SVB, and then we can get into what you were doing there specifically.

I mentioned that I was the Chief Investment Officer when I joined SVB Private, which is the private banking, advisory, and trust division of the SVB Financial Group, which was the umbrella group. SVB, the commercial bank, was the 40-year commercial bank that had been around servicing the innovation economy, and unfortunately collapsed.

 

 

That was also differentiated from the SVB Capital division, which was our venture arm and fund management division, as well as SVB Securities, which was the investment bank. There were a lot of different divisions, and it was very good to be a part of that organization. Clearly, we had a niche in terms of servicing the innovation economy, and we had a great opportunity to build wealth and help our clients with their needs. We were building family office services, and we were building out quite a lot there. It’s unfortunate what happened, but we look to the future, and it’s a great opportunity to talk about them.

Core Investment Principles

Digging into positive things, what do you think about as the core investment principles that you live by that have served you well over the last couple of decades that you have been successful in the business?

These are great questions, and I think about them often, particularly these days. One of the key investment mantras that I have is to know what you own. This is critical from a risk management perspective. There are too many people who assume they know what they own in their portfolios and assume they know the risk in their portfolios, but they often don’t. When you don’t know what you own in your portfolio, you run a risk of encountering bad situations with unexpected and unanticipated outcomes.

Know what you own. This is really critical from a risk management perspective. Share on X

The second core investment principle that I think about a lot and tell people they need to follow is to ask questions. People, again, don’t ask enough questions and don’t go beyond the surface of what they’re doing in their investment portfolio or what their advisors are doing. If you don’t do these two things, you are never going to have success within your investment portfolio and in working with an advisor as well, too.

Your point about knowing what you own resonates. The way I think about it is to understand at a deep level the risks and opportunities in your portfolio, especially the risks. If you think about the best investors of all time, you think of names like Warren Buffett or Peter Lynch. One thing they all have in common is that they invest in things they know. They don’t chase the hot new thing just because someone said it was great on social media.

Quite frankly, we need a back-to-basics approach to investing. Some of the things I see in the market now boggle my mind in terms of what people are investing in. It’s crazy. They’re not investing, they are speculating. That’s becoming mainstream and accepted for some reason but I’m curious what you think about modern investing and what we have seen in the last couple of years in this bull market.

I do think that what we see in the bull market is that, in some ways, people have been able to have their portfolios rise with the tide. It didn’t matter what you were doing, you could almost throw spaghetti at the window, the wall, and wherever it stuck, it would be fine, and you have performance. What has happened is that market conditions have changed, and a lot of investors and advisors out there haven’t seen difficult cycles and markets.

That leads to an issue because, again, when you don’t know what you own and are in a great market environment, your portfolio will do well no matter what, but when you are in a more challenging market environment, it matters what you have. It matters not only what allocation you have like what percentage of stocks, bonds, or alternatives. It matters like what’s underneath those allocations, going deeper into the weeds of what specific investments you are in.

Take the example of private and public markets. As we all know, there has been a shift over the years into more alternatives and more private market investments but many clients, managers, and advisors out there haven’t evolved in terms of understanding how that risk plays out in their portfolio. They may have held an illiquid position or an alternative investment that was a relatively small portion of their portfolio.

They could assign that risk generically and say, “That’s risky. I will take a barbell approach and have fewer risky assets or T-bills or something on the other side.” That might be a simplistic way to say it but the reality is that they haven’t understood the risk of what they own. They may end up with an outcome in their portfolio that they weren’t expecting. As we see a trend moving into different asset classes and the need to understand more complex portfolio constructions, the old methods of measuring risk and understanding what you own are not going to cut it.

 

I agree and most people have no idea about the risks that are in their portfolio because, to your point, everybody’s only seen up and to the right in terms of performance over the last several years. Even now, when we are projecting and predicting that there’s going to be potentially a deep recession, the markets are still strong. The market is still up. You are mainly led by a couple of outperforming large-cap tech stocks around the AI boom, essentially but we need to go back to basics and say, “In a down market, how is your portfolio going to perform?” Do you have a sense for how it’s going to perform, or have you invested blindly into a bunch of different assets that you don’t understand because they were going up?

In many ways, we have a generation of investors who are going to be completely clueless because they have never experienced a downturn. The last real downturn we had was the GFC, and so if you weren’t managing risk at that point, I don’t care what you have to say. Not to discredit people who weren’t around then but are smart and doing things now, but the reality is everybody made money over the last several years, so I could care less what your thirteen-year track record is.

Show me your track record from 2008 to 2010, and if you lost money, explain why, and if you didn’t lose money, now I want to invest with you. That’s how I feel about it. We are seeing people start to awaken a little bit but it’s going to take a real recession and a big downturn in asset pricing before people start prioritizing risk management first again.

People are already starting to realize that that old 60-40 mix is not working. I’m sure most of us have read about how it’s not performing as it was. Think about it, we are not in the same world as we were when the 60-40 made sense. That was when the 60-40 was a mix that could give you some element of diversification, which is critical in any portfolio construction sense.

The reality is that 60-40 is very correlated now. The correlations between stocks and bonds are higher than they have ever been, and that’s why investors need to think about how to get into less correlated assets and more diversified portfolios but how do they do that? Particularly when they are still saying, “I have been doing this for a while, and it seems to make sense,” but it’s not that allocation I mentioned before.

The traditional assets that you know that make up that 60% large-cap equities or whatever it was may not be the place. Maybe you need to find income from public real estate or infrastructure, high-yield bond investments, venture debt, or alternatives. There are all kinds of things. There is no shortage of investment solutions and products out there, but the challenge for investors is to figure out which ones to put in their portfolio, either on their own or with an advisor and then, do they have the tools or do the advisor have the tools to understand what that portfolio mix is and what those risks are?

There is no shortage of investment solutions and products out there. The challenge for investors is to figure out which ones to put in their portfolio. Share on X

Passive Vs. Active

Taking a half step back, I love your point about correlation in a so-called diversified 60-40 portfolio, because the reality is stocks and bonds are correlated. We saw that in 2022. I don’t think that’s going to change in the near term. The reality is you can’t claim that you are putting your client in a diversified portfolio if it’s only got stocks and bonds because that’s only a small segment of the market. The majority of the market is private alternative assets.

By definition, when someone says, “I’m in a diversified portfolio because my advisor has me in 60-40 stocks and bonds,” I’m snickering because you have no idea what you are talking about. Your advisor doesn’t either because that’s not a diversified portfolio, and it’s not going to withstand a recession because they are going to go down together. That’s a key point you made.

Another thing I wanted to touch on briefly is that there’s been debate about passive investing versus active investing. Passive would be investing in an index or an ETF, and active management would give your money to somebody running a strategy and making day-to-day decisions on how to allocate. A lot of folks have said, “Passive is king, active management is dead,” but that’s because they are looking at the last several years when it was a bull market. In a bull market where there’s an up-and-to-the-right trend, you want to be paying as little as possible for beta exposure.

In other words, you want to be invested broadly across the market, and you don’t want to be paying for it. You want to be in the S&P 500. You want to be in bonds. Not with rates where they were, but generally speaking, you want to be broadly diversified, and you want to pay very little for it. In a down market, that’s when skill matters and that’s when you want to have active managers running your money and not throwing it into an index.

Average performance is great when the market’s up 30%. You do not want average performance when the market is down 40%. That’s what I have been trying to explain to people who say, “I’m good with ETFs.” You were good, but you should be thinking on a forward-looking basis. You are not going to be good, and you are going to be coming back to me crying when you are down 40% because you have got a lot of beta exposure and you are not making active management decisions.

Coming from the index world and having spent most of my career managing index funds and launching ETF businesses, I can attest to the need to have not just one but both dials, both active and passive and to be able to toggle through them depending on the market environment and depending on what exposure you are trying to get again. This is why, as an investor, you need to dig deeper and go beneath the surface. For example, with the 60-40.

You need to understand that for certain environments, as you mentioned, like bull markets or certain exposures like, US large-cap, if you want to be on that side of the fence, you will want to be in an index exposure. On the other hand, if you are looking for precision exposure, you could get that through an index.

You could use a high-yield bond ETF, but you may also want to look for an active manager who has the experience managing in challenging market environments to find those hidden gems and that performance and that alpha, which in challenging markets is harder to do but the way that you will be able to enhance your returns. The reality is, it’s not either/or in terms of index or active. It’s how you blend them. How do you understand what you own and create the exposure and portfolio you need to achieve your goals?

People sometimes misunderstand my philosophy around investing. You need to have a core portfolio of index, essentially, where you have large-cap stocks. You have got broad exposure, and it’s got cheap exposure, essentially. I don’t think, though, that people should be in corporate bonds, and I’ve thought that for years, and you can see why. You’re getting the risk without the returns. Return for your risk is always a joke, but it’s not funny when your bond portfolio is down 25% like it was last time in treasuries and corporates.

Return for your risk, that’s what I want in my portfolio, but I do think you should have a core, and then you have a satellite approach around that, where you’ve got the targeted exposure that gives you diversification, gives you other things you may need like income, for instance. A lot of people value looking at private credit or real estate that can produce income,but with lower correlation to the market and higher risk-adjusted returns. It makes a lot of sense. I want to get back to some of the TD questions. I’ve already touched upon some of these, but in terms of risks that you are thinking about for the industry and for investors in general, what keeps you up at night? What are people missing?

What People Miss

There are a lot of things that keep me up these days. We do live in crazy times. If I have learned anything over the last several years, it’s to expect the unexpected. Some of the risks that we’re facing and what keeps me up at night, in particular, from a wealth management industry perspective and for clients is that, again, as I mentioned before, people don’t question enough, and they don’t understand the true risks of what they are holding.

It’s important to be able to focus on risk management because these are different times, and people need to understand that. I also think that the risk of being afraid of this environment is that some people are all worried about when and where they get back into the markets, in which markets, and in which exposures. It’s a bit of paralysis because, for some, this is uncharted territory.

What keeps me up at night is that people aren’t asking enough questions about what they already own, and, secondly, that they aren’t thinking about the long-term and how they do need to start investing in the markets and figure out where those uncorrelated and diversified sources of return are. How do I find them? How do I get them into that portfolio because no one’s getting any younger?

The key for most people is to build enough wealth for themselves to be able to live off of and to create a comfortable lifestyle for themselves and their immediate family, but also, for many people out there in the world, it’s to create some generational wealth and a legacy to leave for their families and the broader society, in some cases. How do you build that? How do you build that in these crazy times?

Having that challenge ahead is daunting, but it’s an interesting opportunity. It’s an interesting opportunity for the wealth management industry to be able to think differently about how they are doing things and break away from the traditional mold of, “Here’s how we have been doing wealth management, so we will continue doing it the way we have been doing it because it always works, until it doesn’t,” which is the case in these times and going forward.

Thinking about a new approach and how to approach and build wealth is going to be an interesting opportunity for the industry. Certainly, as an investor, it’s a great challenge because there’s so much out there being able to figure out how to build a portfolio that can withstand these types of times is an interesting challenge and opportunity.

 

Big Themes

Speaking of wealth management, what are the big themes that you are seeing there? Technology and AI being one of them. There was an announcement not too long ago about JP Morgan looking to roll out an AI advisor. Everybody is going to follow suit. That’s going to be prevalent. What does that mean? What does the theme of consolidation mean in the RA segment? We are seeing all these RAs getting rolled up, buying each other. Those themes and other things, what are most relevant for you thematically?

Thematically, there is no doubt that there is a huge amount of consolidation going on in the industry because everybody knows that wealth management has been a growing part of the world. We need to get on top of that, particularly for smaller advisors who are trying to differentiate themselves and do something different. However, all that’s out there is the traditional way of doing wealth management, which, from a client perspective, I don’t think serves them. Also, with everything that’s going on with technology and advancements and with all the competition out there, advisors are going to need to do something different.

Consolidation aside, if all you do is focus on consolidation to gain more market share, the question to me would be, who’s minding the assets and being the advisor that the client hired you for? It’s a very interesting thing to consider because the consolidation is going to continue, as people need to figure out how to build scale because this is a scale business as much as it is a relationship business. However, it’s also an advisory and fiduciary business and you have to know what you are doing in order to be successful.

The other theme of technology that you mentioned is a way for firms to accelerate, scale, and provide the best insights. One of the things that I would recommend for people, either managing their assets or for advisors, is to get the best technology. Get the best tools that you can. I have watched that space grow significantly over the last several years in terms of the ways you can use technology to manage risk and to understand what you own in your portfolio.

To the points we talked about before, what keeps me up at night when you use these tools and technologies is that they can help you to have better insights. If you are an advisor for your clients or an actual investor, it can help you understand the risk better in your portfolio. Given where the market is heading, you will need this in terms of the types of investments you will need within your portfolio, whether they are alternatives or illiquid securities and other things that may not have easily been modeled or analyzed previously. Technology is going to help us.

The reality, too, is that, at least at this point, we will see what happens in the future if the computers aren’t running themselves. I say that lightly because that’s still adding. You still need to have the ability to make sense of all the data and everything that the technology brings to you. Being able to take those data points and then turn them into real, actionable pieces for your portfolio and strategies, that’s the key to executing a strategy that’s going to withstand challenging market environments and get you the types of returns and performance you want, either as an investor or, if you are an advisor, for your clients.

 

Alternatives

We have touched upon this. In addition to technology and consolidation, the other big theme is the movement to alternatives. Everybody who’s smart money is moving into alternatives, and that’s an unequivocal, factual statement.

It’s more around the non-institutional investor who is now moving.

To that point, what are the benefits overall for a high-net-worth, non-institutional investor from a portfolio perspective?

The biggest thing is the obvious thing. It’s not even performance; it’s diversification. This goes back to the comments we made before about when you are constructing a portfolio, and this goes for anyone at any wealth level. You need diversification to weather the storm in terms of the different types of market conditions that are out there.

A long time ago, a 60-40 allocation of stocks and bonds was guaranteed to give you some level of diversification, but that’s not the case anymore. We have had to move over because there are higher correlations across stocks and bonds. Institutions have been doing it for many years already, but everyone’s going to have to move over to less correlated investments to have diversification, which you need in any portfolio sense.

For the average retail investor out there, you need to find a way that matches your risk tolerance but allows you to have proper diversification. That’s why having some component of alternatives and again, it depends on your income and risk tolerance levels as to what those alternatives look like, but you need something different than the traditional 60-40 split.

You need to find a way that matches your risk tolerance, but that allows you to have proper diversification. Share on X

In terms of alts, what are the alts that you like best? Given your experience at SVB and in venture debt and your deep understanding of that, I’d love to hear your thoughts on why venture debt makes sense for investors in this part of the cycle.

SVB was one of the largest, if not the largest lender of venture debt. Holding around 60% of the market at one point. Certainly, from a founder’s point of view, venture debt is an attractive complement to venture capital and equity. That’s because there’s less dilution, it’s cheaper, and it’s quicker to get. That’s from the founder side.

From the investor side, there are clear advantages because there are higher yields associated with venture debt. The best thing about it and you alluded to it, is that, on a risk-adjusted basis, it’s lower risk as well. You lower your portfolio risk using venture debt without compromising your overall returns, and you also achieve that diversification, which we talked about, which is truly important.

Venture debt is largely uncorrelated or at least not precisely correlated with a lot of the other types of investments that most people have in their portfolios. It is an interesting investment. It hasn’t been as publicized or as popular as it probably should have been, but it’s getting there. Particularly in the last few years, as the equity and fundraising windows in private markets have halted and the IPO window closed, there has been less appetite for founders to raise equity capital at the risk of triggering a down round or lowered valuation. However, in this time of the pandemic, there is a need for cash. From a founder’s perspective, venture debt creates that runway, a bridge allowing a little more time to continue their business.

This is for already successful businesses that have raised venture capital and equity. These aren’t fly-by-night companies, these are some of the best startups in technology, who understand that very well. I have always felt that venture debt would and will come into its own in the coming months and years because of the risk characteristics and the return profile that it brings. This could apply not only to institutional investors but also to certain sizes and risk tolerances.

Venture Debt

The question I always get is why venture debt isn’t more well-known or popular with institutional investors. A big part of that is that it’s a very small segment of the market. Several years ago, it was too small for institutions to care. Even though some may have recognized the great returns and low risk, it wasn’t big enough to make an impact in their portfolios.

The one trend we have seen is that some of the smartest, largest asset managers are trying to get into this space. Oaktree, for instance, is an investor in the space. Blackstone is now investing some of its capital in the space. BlackRock, your former employer, bought one of the biggest venture lenders in Europe outright. If you read the press release and read between the lines, it’s because they want to provide differentiated access and a diversified option for folks looking for a high-income, low-risk product.

Finally, we are getting that stamp of approval from the big-time managers who are validating it. Whenever I see an acquisition like BlackRock’s, it makes me smile because it means that, “Now all the people who were too scared or didn’t know to look at this have to.” If you’re an advisor and don’t have something to say about venture debt, you don’t have an excuse. It’s funny I talk to a lot of investment consultants who advise pensions and other institutions, and they say, “We looked at venture debt a few years ago,” but have not looked at venture debt in the last few years, despite its exponential growth and incredible risk-adjusted performance, but they haven’t looked at it.

Now they have to, because if they walk into a client and the client says, “Tell me about venture debt. What are your views on SVB? How does that create an immense opportunity in the market,” because the demand for capital is still there but the supply is now diminished. You have great economic opportunities for lenders in the space right now. If you don’t know how to talk about that and you are not educated on that opportunity, why are you in that room?

People will start holding their advisors accountable, both institutional consultants and wealth advisors. You’ve got to have a view. You can’t have the excuse of, “We didn’t look at that because we’re making money in crypto.” You can’t do that. That makes me happy because it brings visibility to a product I’ve been talking about for years and nobody was listening. Now, they are all listening.

What’s not to love? For those who aren’t aware, the loans tend to be short-term. They are floating rates, which is great in this environment. That’s another thing that makes everything more attractive from that perspective, given the rising interest rate environment. To your point, you have to look at it as an advisor or as an investor in a portfolio because you especially have to be looking for different uncorrelated sources and returns that are going to be diversifying in your portfolio.

Venture debt is one of those asset classes that is going to make a difference, in my opinion. There are a number of other things, too, to be looking at within liquid alts, private equity, and private credit real estate. These are the different types of alternatives that investors and advisors are starting to look into. Institutions have been looking at these and investing there for decades. Even if you look at some of the endowment funds, the allocations to alternative sectors and asset classes are high. Yale is probably at the highest and maybe a little bit of an outlier. You have to sometimes follow the smart money, or at least be aware of what they are doing. Even though it may or may not make sense in your portfolio, it behooves you as an investor and advisor to understand where the smart money is.

I send some of these folks that I’m friends with what I call CYA notes. It’s, “Here’s what’s going on. You don’t need to invest, but now when somebody asks you, you are the smartest person in the room and the stupidest.” There’s a whole joke about poker players. If you don’t know who the fish at the table is, it’s you. If you don’t know who the dummy is in the room, it’s you. You’ve got to figure that out pretty quickly.

 

We are about out of time because we went longer than usual because you have got so many good things to say. I wanted to mention one last thought on investing in innovation and venture capital and venture debt, which is, to me, innovation is the asset class because innovation is what creates value at every level of the economy. Small or big, it doesn’t matter. It’s all about innovation.

The question for investors is how they want to access innovation. I have always loved venture debt and transitioned my career to do this because I feel like this is the best way to access innovation as an investor. You get the income, you get the diversification, and most importantly, you get the safety. You don’t have to worry about, to the same degree as equity investors would, a downturn in the economy, because this is not a binary outcome. You are getting your 15% to 18% percent all-in debt coupon plus you are getting equity warrants of the deal. You participate in that site.

That’s how I think about it. It’s investing in innovation in a safer structure. That’s how I think about it. That’s how folks who understand the product think about it for the most part. With that, I wanted to get your parting thoughts on any key themes over the next couple of years. We touched on some of them, but anything you want to leave the audience with in terms of what they should be thinking about as we head into more uncertainty?

The main thing I would say is to keep a level head through all of this, particularly as I talk to clients and investors who have not been through downturns such as this, is that it will pass. These are cycles, and if they are not a theme, it is a comment on how to navigate through challenging times. It’s to know that these are cycles. Use the best information, and get as much information as you can. Have the best tools and advice that you can, and then realize that everything is going to be okay in the end. Somebody said, “It’s not the end.” You keep going. Follow your head and ask those questions.

Innovation will continue to be, and I don’t even know if I have called it a theme, because I think that it is ingrained in where we are for the future. We are not going to be able to be successful if there aren’t innovations in technology, wealth management, how we approach things, and innovations in our thinking. I would say, ask those questions and keep iterating on what the right solution is for your portfolios or how this can be applied.

Jane, I love talking to you. I’m excited to see where you go next. You have tons of great firms that are hot on your trail looking to hire you, and you have a lot of options, but I’m very excited when you determine which one you want to go to. In the meantime, is there any way for people to reach out to you? Is LinkedIn the best way, or are there other ways?

LinkedIn is great. I’m very active on LinkedIn and checking it. I’d love to hear from anyone who’s reading, and it’s always great to make a connection. Thanks so much for having me. It’s been fun.

Thank you so much for coming on. Thanks, everybody, for reading the show. We will see you soon. Take care.

 

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About Jane Leung

As a Managing Director and Investment Specialist at J.P. Morgan Private Bank, I advise some of the firm’s largest and most prominent clients in pursuing opportunities across multiple asset classes and markets. I draw on decades of institutional money management experience to formulate bespoke and actionable portfolio strategies that help optimize performance across complex balance sheets.

I anticipate the breadth of a client’s investment and wealth management needs, and guide them in making informed financial decisions that align with these goals. I offer direct access to alternative vehicles and private markets that are not commonly available to individuals.

Whether partnering with family offices, Asian investors, members of the innovation economy or other highly affluent clients, I bring a relatable style to engage deeply and build long-lasting relationships.