Solving Inequality And Driving Economic Efficiency With Aoifinn Devitt, Chief Investment Officer, Moneta Group

 

Listen to the podcast here

 

Aoifinn Devitt takes us on her journey from corporate lawyer to accomplished CIO, sharing her insights on ESG investing, portfolio management, and driving economic efficiency.

In this episode, Zack Ellison and Aoifinn Devitt discuss:

1. Differentiating ESG Investments
2. Balancing Risk and Resilience
3. Democratization of Alternatives
4. The Appeal of Venture Debt

—

Solving Inequality And Driving Economic Efficiency With Aoifinn Devitt, Chief Investment Officer, Moneta Group

Portfolio Management

I have with me Aoifinn Devitt, who’s the CIO at Moneta Group, one of the largest RIAs in the country. Each week, we bring you the best CIOs in the country, and Aoifinn is certainly one of the very best, who’s been doing this successfully for many years. She also has a great podcast that just released its 200th episode, which is a big deal, with many of the best guests in the space coming to talk to her each week. Aoifinn, before we dive into the investing questions, let’s talk a little bit about your background and how you got here.

Thank you, Zack, for that great introduction. Very generous of you. I actually started as a corporate lawyer. That was back in my early 20s. I had the privilege of going to a large US firm. I worked in New York and then Hong Kong. I very much worked in the weeds of corporate transactions, including many private equity fundraisers, and I really enjoyed that. It was a real baptism by fire. I became intrigued by the finance side, the investment numbers, the ratios, the rationale, and the mystique of what all of the clients I was working with were working on.

I went to Hong Kong, worked in Indonesia, worked in some fairly volatile backdrops in terms of capital raising, and just really was bitten by the bug of finance and investing. That drove me to move to France to do an MBA at INSEAD, thinking that that would open the door to investment banking. It was somewhat challenging to move from a lawyer to investment banking or investing. They would tend to put me into counsel roles or legal roles, where I wanted to get my hands into the financial side. A one-year MBA was the ticket I needed, and I moved from there to investment banking, on to investment consulting, and ultimately to a CIO role, first at an institution and now at an RIA.

Moneta Group is one of the biggest in the country. Does that affect the way that you’re thinking about things now in terms of the opportunity set out there? Because you’ve got many clients, you’ve got a diverse base of clients. How do you think about the portfolio management context in general?

Definitely. We have over 6,000 clients and over $30 billion in assets under management. For that reason, we can really think right along the spectrum, from the smaller clients of $1 to $3 million in assets under management, who may not necessarily be pursuing a portfolio that would look like an institutional portfolio. At the higher end of the spectrum, we can start thinking and behaving like institutions would. That was where I was cutting my teeth, I suppose, on the institutional side. I’m used to getting the access that institutions get, paying the fees they’d pay, having the entire smorgasbord of investment opportunities available.

That’s what I expect. Coming to the RIA world, we expect to have the same kind of variety and opportunities. It’s great to see that the industry is changing and that RIAs have a lot more to choose from. I’d say what’s on our mind as one of the largest is that we obviously want to be at the cutting edge when it comes to financial planning and the investment piece. We want to be ahead of the curve, writing our own original research, getting our ideas out there, scoping the opportunity set, and educating our clients. Long before they’ve asked us for information on a topic, we want to be preempting that. I think we want to be known as thought leaders, and that’s what I’m doing with my seventeen-person team.

Current Market Opportunities

What are you thinking about that you think the rest of the market’s missing?

Having had my roots in investing in Europe, I come with a lens whereby ESG and sustainable investing are very much core parts of the investing principles in Europe, and that’s probably extending to Australia and Asia as well. We think holistically about a portfolio. I really think of it as a systems-thinking approach that we bring to a portfolio. It’s a bit like the old outcome-based investing.

Instead of looking at asset classes, are you looking at the outcome of what it can achieve? Are you looking to generate income, diversification, some inflation hedging, or some deflation hedging? That’s where this mission-based investing comes in. If part of your objective is to have a portfolio that is resilient towards climate change or resilient to some of the other risks that are facing all portfolios, then you have to build that in at the portfolio construction stage. That means looking at ESG risks as we would look at any risk. It doesn’t mean necessarily focusing on green funds or on funds that are so-called climate change resilient or maybe aligned to the Paris Agreement.

It means that we look at that as an additional risk management lens when we’re building our portfolio. Of course, there will be some clients who want to tailor their portfolio more directly around a mission that they have or around a closely held belief. If it’s an institution or a family, maybe poverty alleviation or a particular area of impact, perhaps carbon capture, water funds, or renewable energy, any of those could be standalone objectives. What we would see is that we can offer broad-based exposure to those types of dynamics and just the way the world is moving, or we can offer targeted exposure. I’d say that’s something that we’re thinking about behind the scenes. Having started my life as a lawyer, I’ve always reasoned by analogy.

That has been core to my approach throughout my academic life. I think that reasoning by analogy, really taking circumstances, structures, formats, or rubrics from different areas, even say tech, I mentioned systems thinking before, and bringing that into the world of investing, using it to inform how we structure things, how we label things, how we integrate them together, that, I think, is an edge that I bring to investing. First of all, I love what I do. I love this area. I can’t get enough of thinking about different ways to look at it, but also really trying to bring it to the next frontier, generate fresh content, not rehashing old stuff, and really engage clients on the issues that matter to them.

I have a follow-up question on ESG. We’ve seen a lot of folks pushing back on ESG in certain states in particular in the US. I think there’s a belief that maybe there’s an economic trade-off when applying ESG principles to an investment or a portfolio. I think a lot of people disagree with that. What are your thoughts on that? What would you say to people who think ESG comes with that return trade-off?

Not all ESG investing is painted equal, or cannot be painted with the same brush, or is created equal. Certainly, some investments will involve an economic trade-off. Some will just on their face not be economically attractive. Some could even be akin to net negative in terms of their expected return. Those are not investments that we would ever recommend. We cannot tolerate any investment that would involve a return sacrifice because that would be going against what we believe to be our fiduciary duty.

Not all ESG investing is painted with the same brush. Some investments will involve an economic trade-off, while others may not be economically attractive. Share on X

In many cases, just say I’m working with a pension fund on their investment committee. My fiduciary duty would be to ensure that they achieve the best possible return. We cannot compromise that fiduciary duty. What we can do is integrate a mission into an investment policy and ensure that the same investment objective is met, but that we can also achieve other objectives contemporaneously with that. I’d say that that is one of the fallacies out there, that ESG investing always involves a return sacrifice. Some will, some will not, and we only focus on those that do not because we know that that would not be palatable to the larger body of investors out there.

I think about it a lot because within the space that I’m in, in the venture capital space, specifically venture debt, very little financing goes to women, people of color, and other underrepresented groups, including military veterans, for instance. In fact, the stats are mind-blowing. Less than 2% of funding in the startup ecosystem goes to women founders, which is just crazy to think about. Essentially, you’ve got 70% of the US population that’s getting about 3% of the funding in total.

When I think about that, I think, wow, not only is that incredibly inequitable, but it’s also economically inefficient, meaning I think we can generate better returns by targeting underserved markets. It’s like any part of the market, wherever there’s inefficiency, that’s where there’s alpha potential. We see that a lot in the startup ecosystem in that there’s huge segments of the population that are underserved. It’s not just women or minorities. It’s also regions that are very underserved because most of the funding is happening in the Bay Area and, to a lesser extent, New York and Boston. There’s also sectors that are underserved because most of the money is going to software, enterprise software, and SaaS companies.

It’s going to AI, chasing digital assets the last couple of years, but there are great businesses that are leveraging technology that are generating a ton of value that just don’t have easy access to capital. Founders are spending a lot of their time trying to raise capital rather inefficiently, whereby they could be adding a lot more value just by building their business. My thinking is that if we’re able to create more access to funding for underrepresented founders, underrepresented regions, and underrepresented sectors, we will not only solve part of this inequality problem, but we’ll also solve this big economic inefficiency.

Quite frankly, we’ll probably be able to outperform folks who are chasing the same deals. The same deals get chased by the same people year after year. I went to the University of Chicago for my MBA, did another master’s at NYU Stern, and I’m getting a doctorate at the University of Florida. They’re some of the most talented people in the world at those schools, and they’re not even really getting that much funding.

Most of the funding is disproportionately going to Stanford, Berkeley, Harvard, and a couple of other schools. To me, that makes no sense because I know that there are plenty of other people who are just as talented, but they’re just not getting that access. I just wanted to add that as a key add-on to what you’re saying in that I don’t think there’s a trade-off in our space, in the startup ecosystem, when it comes to funding those that are typically underrepresented.

You could probably dedicate a whole podcast series to the many issues of underrepresented founders in the startup ecosystem. I agree with you. I think that there are certain barriers to entry, however, that mean that the smaller the entity, the more challenging it can be to get to that critical mass. Unfortunately, that underfunding that you mentioned is a bit of a vicious spiral.

One of the things that hurts founders who aren’t what I call the traditional founders that get the VC funding is that there’s actually a lower probability that they’re going to get funded in later rounds because they don’t have that natural network connectivity. When you’re a VC, you’re basically betting on not only the company, but you’re betting on other investors believing in that company at a later date. If you invest in a Series A or Series B round, that’s not going to make you any money unless somebody comes in in later rounds. Eventually, that company either goes public or gets bought and is somehow monetized. You’re not only making a bet on the company, you’re really making a bet on what other investors think of the company.

You’re really weighing that probably more so than other factors as an equity VC. Ultimately, folks that have the networks are therefore going to get more money early on because people think that they’re going to have more access to money later on. It becomes a self-fulfilling cycle, both positively and negatively, depending on what group you’re in. That’s something that we’re trying to break at ARI in the sense that we’re typically going to be focused on funding Series B and later, companies that are generating $10, $20, $30 million a year in revenue at a minimum.

Core Investment Principles

There are not that many companies in that bucket that are led by women and minorities because they haven’t gotten to that stage. We’re putting a lot of emphasis on educating and connecting earlier-stage founders with the resources so that they can make it to the later stage. With that, I want to turn to core investment principles that you live by, stuff that every investor should know. Principles and processes that have made you successful and that everybody should be applying on a day-to-day basis.

My core investment beliefs go right back to my Cambridge Associates days. I started out investment consulting there around about 2006. I think it is one of those things I’ve often said. You can take the girl out of Cambridge Associates, but you can’t take Cambridge Associates out of the girl. I definitely learned most of what I needed to learn there. That was around the core importance of diversification, rebalancing, having a long-term time horizon, and knowledge being power. Being knowledgeable in an in-depth way, not outsourcing due diligence, and not having somebody else take the fall for the research and due diligence that you should have done.

Having a very open mind as to alternatives, hedge funds, private equity, private credit, commodities, and real estate. Looking across the spectrum of liquidity to see how a need could be served, I’d say I developed a healthy skepticism around complex strategies there, as well as strategies employing leverage and strategies that were overly complicated. A lot of macro and CTA strategies didn’t get much over the transom at that stage. I also had the privilege of working with an extraordinary number of highly qualified investment committees that were very well represented by thought leaders in the space. We got to work with some excellent clients, clients with endowments and foundations that were really making an impact.

They had thoughtful approaches to their asset allocation. That really has served me well ever since. Anywhere, one of the first things I do is I draft a set of investment beliefs, a charter that we all agree on as a team. It’s not set in stone, it will evolve, but it does set down things around risk management, diversification, not too much churn, not too much focus on transaction costs, being assiduous as to manage your research and risk management, and also as to fees.

We ensure that we’re getting the best price for the product that we’re buying, and around monitoring, ongoing, underwriting, those types of initiatives. We also speak about the role of privates in that portfolio, as well as the role of ESG risk management. I’d say having that charter is a good touchstone to remind us what drives us, and where our mission is centered, and we can come back to that as a touchstone during volatile times.

Risk Management Metrics

On the risk management side, what are the key metrics that you look at when you think about risk and how to reduce it, especially heading into this part of the cycle where things could get pretty ugly?

Our goal is always to build all-weather portfolios, portfolios that are resilient in any market environment. That doesn’t necessarily mean absolute return, but it does mean that we’d like to have something that is exposed to an inflationary environment, a deflationary environment, to growth, and some defensive characteristics. We’ll always build that in. In terms of risk management, a great risk is that there could be a liquidity crisis at a client, more likely an institution, but what does that mean in real terms? It means ultimately running out of cash.

There has to be a focus on the cash flow needs at that institution at all times. You don’t want to be a forced seller because you haven’t had the cash to make payroll and benefit payments for one month and haven’t been monitoring your cash outgoing needs. I’d say that that focus on the outcome, i.e., income, not just total return, that is a key risk management metric. Clearly, we have a tolerance for things like headline risk, things like losing a certain amount of capital, but I’m not mentioning some of the more typical risk metric tools, such as VAR, as if it’s a pension fund, funding level at risk.

Some of these more esoteric and technical definitions, I think, have very little meaning when it comes to running an institutional pot of money or running any pot of money. In fact, we need to look at the tolerance for risk and loss and what that means to the individual and the client, and make sure they have enough money to pay the bills, pay the outgoings, and ensure that the portfolio is resilient. That’s how we measure risk.

We need to look at the tolerance for risk and loss and what that means to the individual and the client. Share on X

Everybody measures risk differently. I think some of the risk metrics actually really aren’t that informative in the sense that everybody uses volatility as a metric, maybe their key metric for risk, but for me, the key risk metric is really risk of loss. If I’m not losing money, I’m pretty happy. When there’s a down market, if you can preserve your capital, you’re going to ultimately be well ahead of the competition. People always forget about the mathematics of loss, where if you lose 50% of the value of your portfolio, you need to then gain 100% just to get back to break even.

In the average recession over the last 100 years, I think the stock market’s been down about 36%. You’ve got a lot of wood to chop if you’re the average investor, and you’re losing 30% to 40% to 50% sometimes in a recession, you’re going to have to take a long time to dig out of that. Ultimately, I don’t know. I think that volatility is just a little bit overrated in the sense that people look at it because they can, and it’s harder for them to say what the absolute risk of loss is. But I’m curious how you think about volatility, but also risk of loss and how to prevent drawdown in times of stress. What are some of the investments that would go into a portfolio that would provide it with the characteristics that you mentioned in terms of durability and being all-weather?

I’d say, in terms of volatility, we certainly measure it. We look at the standard deviation compared to, say, an index and ensure that we’re not achieving the same return for a higher risk. As far as what we target and what that means to clients, it doesn’t necessarily have a lot of meaning to look at a volatility number. I’d say, in terms of risk of loss and how we mitigate against that in a year like 2022, well, again, the introduction of private assets is key because even though we all know they are still ultimately based off the same markets and valuations as public markets, there is that lag so that we won’t actually experience any amendment to the valuation at the same time. That offers some buffer just in terms of time frame of realization.

In 2022, those portfolios with a higher allocation to alternatives did have a smoother return profile. We would expect certain areas, for example, bonds, generally to provide a hedge. Of course, in 2022, that blew apart and they did not. In general, in more normal market conditions, when we don’t have the steepest rate rise cycle in history, we would expect bonds to provide some protection, and we still do. We think they still will. At the moment, that relationship has been a little bit distorted.

When it comes to things like real assets, we do see them as being a good defensive source of income in a portfolio. Clearly, real estate is also suffering from some of the malaise around real estate valuations and some negative sentiment. That’s certainly correlating to one. We do also have to expect that many risk assets will correlate to one in a crisis. There’s no real magic bullet to prevent against that.

I don’t tend to be a big believer in the risk mitigation strategies that present themselves as a magic bullet. Usually, that tends to just be a blend of CTAs and some other form of insurance, generally paired with treasuries, which actually wouldn’t have worked very well. I wouldn’t be a huge believer. Ultimately, we cannot insulate portfolios from a loss like in 2022, but what we can do is hope that we lose less than the market.

It’s ironic that a lot of the bank failures have been due to overexposure to fixed-rate treasuries and mortgage-backed securities. Ultimately, that wasn’t a hedge. It actually is what blew them up. There are a lot of people who forget about interest rate risk and think only about credit risk. They learned the hard way in 2022 that interest rate risk is real. When yields increase, it can be because of spread widening, or it can be because of interest rates increasing or base rates. Either one is going to have the same impact on the price of the bond. It’s just funny to me that a lot of people who were so-called sophisticated bankers missed that basic risk management principle, and we’re down three regional banks at this point, probably more to come because people didn’t somehow have that in their risk management.

Alternative Investments

We could talk about that all day as well. It’s amazing to me that that was allowed to happen. Those people were even in those seats, and the government didn’t really effectively regulate in any way as well. We won’t get into that. We’ll leave that for another time. Let’s talk about alternative investments. You talked about some that you guys have been involved in.

What role do alts play in a diversified portfolio? Noting that a 60-40 portfolio, by definition, is not fully diversified because it’s missing the majority of assets, which tend to be private assets. How do you think about true diversification by adding alts, and what are the benefits of having alternative investments?

I’ve been using alternative assets for my entire investment career. I’d say that we see the benefits as being the exposure to a different source of return, basically expanding the sources of return in the portfolio. Clearly, private equity and public equity are exposed to a high gross area of return, and they’re both exposed to equity markets, and they’re very similar in how they should be categorized, with the exception of that different liquidity period, the liquidity premium, the illiquidity premium you should expect on private assets, as well as just the different skill that should be embedded in the private manager that you’re getting exposure to. A little bit more exposure to alpha generation ability and skill.

When it comes to something like private credit, again, you’re getting exposure to a part of the market that previously one could not get exposure to at all via the public markets. It’s just extending the sources of return in a portfolio, increasing them and giving more diversification. They will behave similarly when there’s a credit crisis or when there’s any kind of a crisis of sentiment, but we can expect that the timing of that loss might be different and also that the magnitude might be different. The fact that there is no ability to sell in the case of privates does give you, it forces you to hold and not crystallize that loss. That’s all the reasons of why we are a believer. They’re not for every client.

Sometimes the commitment schedule, the reporting schedule doesn’t fit for every client. We might look for different solutions for them, maybe a manager or managers upon the fund. Very small clients just don’t have the capacity at all to, even though there’s more available to smaller clients in terms of accredited investor and QP qualified funds, we still don’t think they’re suitable for everyone. There’s a complexity there, perhaps a tolerance for illiquidity that not every client has. Overall, I’m very keen. I think most of us own houses, so we’re quite used to owning real estate, which is an alternative asset. I think there’s other entry points that are perhaps more accessible on that learning curve than others.

With private credit, and I have to ask because venture debt, of course, is a subsegment of private credit. What are the benefits of private credit for high-net-worth individuals and for the typical RIA? The reason I ask is that most RIAs do not have access to private credit. I think that’s crazy, but it’s changing quickly. There are a lot of folks that were historically in a 60-40 portfolio of 60% stocks and 40% bonds. Maybe on the margin, if they got into alts, they’d get into real estate, like you said, REITs predominantly.

That was the extent of it. Now we’re seeing that, my view on this is that RIAs are really in a lot of competition with each other. There’s a ton of mergers and acquisitions going on. There’s a lot of roll-ups. People are fighting for clients. How do you differentiate if you’re an RIA? You’re not going to be a better stock picker. You’re not going to be a better bond picker.

What justifies an RIA charging 50 basis points to 100 basis points in fees if they’re just putting you in a 60-40 portfolio that you could get for three basis points as an individual? My view is that there are a lot of folks that are waking up to that, and they’re thinking, wow, I’m going to lose all my clients because they were down 20% in 2022 in a 60-40 portfolio. How the heck am I going to keep them from leaving if I don’t have anything differentiated and exclusive to offer them that also offers some upside that they can’t get in stocks and bonds? I’m seeing a lot of folks that are getting into private credit, but it’s slow.

There are two questions here. One is, why do you think RIAs have been so slow to get into alts? It’s 2023. We had David Swensen doing this 40 years ago. I don’t understand why people haven’t figured it out. That’s question one. Why is it taking so long? Question two is, how can they get on board so they stop missing out on the upside?

Great, in terms of those two questions, first of all, I just want to go back into something you said before around how do you retain clients if you are down 20% and you’ve added no value versus an index. I think that, increasingly, RIAs look to retain clients in aspects other than performance because the wraparound service that an RIA gives a client is so much more than investment performance. It is a financial planning piece. It is the understanding of the client’s goals and needs. There may be estate planning, maybe tax planning involved in there.

There’s a relationship which is built over time, which hopefully is worth more than last year’s performance and the relative value versus an index. I would hope if an RIA is doing their job properly that they have cultivated a client loyalty which goes beyond one year’s underperformance or even a spell of underperformance. That said, what has been behind the slow movement into private assets? I’m not sure. Maybe it has been slower, maybe it’s been in fits and starts, but there certainly was not always the array of offerings on offer that we see. That’s been a relatively new development. I’ve been following alternative markets for 20 years.

There have always been something for retail clients, this whole democratization of alternatives that’s been going on for well over a decade, but it took a very different form and a very different shape a decade ago. It looked like listed products were forcing private equity into a listed form and essentially offering liquidity terms that couldn’t be matched by the underlying investment. There was a promise and then the reality when clients looked to exit was that they weren’t, they were either getting out with a significant discount on the fund, which would be very unattractive, or they weren’t getting out at all. I think there is very much a mismatch and a mis-selling of products to smaller clients, which I think we’re getting to the end of now, but one always has to be very vigilant that a client matches the suitability of the product and fully understands it and that the products are essentially well-structured.

I think we’re moving beyond that. That’s an evolution. That’s probably why there’s been, and maybe some were burned by that. Maybe there was some scarring from some poor product placement in the past, and that would lead to some hesitation. It’s getting easier for individuals to be invested in private assets. Previously, they were quite burdensome. Maybe RIAs didn’t want to subject their clients to that additional paperwork and complexity, which, quite rightly, is not for everyone. I think that’s probably part of it.

As far as why private credit now with RIAs, first of all, it’s one of the first products that is somewhat accessible and has been accessible for some time. The structures are right. There is, in terms of the income element, that’s quite attractive to clients who’ve always been focused on yield, and yield is something you can touch. It’s much more tangible and relatable than a private equity IRR that you may not see into the future. Often, that yield is being paid right after the very first quarter after that first investment. You immediately start to touch and feel the benefit of that investment.

Also, these private credit funds tend to have a somewhat shorter timeframe than private equity or infrastructure. Again, a little bit more tangible, a little bit more, a little bit less of a scary situation of having 10 to 15 years of a lockup, a little bit more near term. Something that one can get one’s head around. That is all some of the reasons why private credit is attractive. I think it’s particularly attractive as we like to look at areas that will take advantage of perhaps strain or stress in other areas.

You mentioned earlier the regional banking crisis that is likely to lead to ongoing strain in the credit sector and the bank sector’s provision of credit. More regulation, more fees, and just more of a pulling back when it comes to extending credit. If they pull back, we would expect that private credit markets can fill that gap.

One of the things I talk to RIAs quite a lot about is where venture debt fits into that private credit mix. What I’ve been finding is that folks really like it once they learn about it because it’s floating rate loans. Ultimately, when rates go up, you get paid more, and you don’t lose money like you would in a fixed-rate bond. Typically, the yields are pretty high, mid to high teens, and they’re senior secured, so there’s a low risk of loss. Ultimately, you’re getting access in venture debt to the top venture-backed companies out there, but you’re getting it in a safer wrapper. With VC and private equity, you’re basically waiting 7 to 15 years for a payout.

Depending on how old you are, you might be dead by the time the thing pays out. With venture debt, these are short-duration loans, typically 3- to 4-year, and they’re paying off immediately, so there’s no J curve. Ultimately, you’re also getting equity upside through warrants, so you participate if that company does exceedingly well and becomes the next big thing. You can actually have a lot of upside that you wouldn’t have in a traditional credit investment.

Investment Themes For The Future

Those are some of the things that have really been resonating in the RIA community when it comes to venture debt. I think there are a lot of other great private credit products as well, like you said. We’re almost out of time. I wanted to ask you a key question, maybe the key question, which is what are the main investment themes that you’re thinking about over the next couple of years, and how should investors incorporate that into their thinking to have the best returns possible?

Certainly, some of the emerging areas I may have already touched on, and this gets around, I wouldn’t say mission-driven investing, but certainly investing with purpose, with responsible investing as a lens, with a view to creating impact and to really making one’s capital work as a lever in many ways, and not just a lever to get return, but a lever to effect change. I think that increasingly, there is a responsibility that comes with being the manager and allocator of a large amount of capital, and that’s something that needs to be taken very seriously. I’d say that that is one area I see on the horizon looking around corners. I think increasingly looking under the hood of some complex strategies and really understanding the components of those returns and trying to strip out those components.

I think simplifying asset allocation will be a trend of the future, not making things more complex. I think we keep learning lessons from when we have these hype cycles of complex products that really the complexity was not worth it. With the advent of AI, etc., we’re seeing complexity just mount in other aspects of our lives. I think what we should really do in the investing side is try to drive things towards more simplicity because the more simple we make things, not just to invest in products.

What we should do on the investing side is try to drive things towards more simplicity. Share on X

I mean investment committee memos, agendas for boards, get out of the 400-page board agendas, we strip down what we want a board to do in terms of governance and make sure they do it with teeth, with enforceability, with conviction, with engagement. That, I think, is going to be more and more important as we operate in a more complex world.

I love that point because you touched on a couple of key things. One is, with AI, that’s going to totally disrupt the industry in various ways, and so I want to dig into that briefly before we go, but I also wanted to mention this other point you made, which is ultimately that companies should be simplifying before they utilize AI. In other words, don’t use AI to make cumbersome processes that should be gone anyway more simple. Just get rid of them. Don’t say, “Okay, we’ve got all these crappy processes that we’ve had in place for decades that don’t really work, that nobody likes to do, that waste everybody’s time and that are not a good use of resources, but hey, we’re going to use AI to fix those.” That, to me, is idiocy.

Just get rid of the bad processes, and then use AI once you’ve simplified your processes and made them stronger to begin with. That’s one thing I’ve been thinking about. The other thing I was thinking is, with AI, it’s going to actually cause, in my view, a lot of commoditization across the industry because everybody’s going to have access to the same level of tools, and what does that mean for a financial advisor who’s not that skilled? What’s going to differentiate a mediocre midsize RIA from the other 2,000 or 3,000 midsize mediocre RIAs?

My view is it’s going to be two things, and I’d love to hear what you think about this. First is it’s going to be the relationship that you touched upon. Are they high touch? Do they add value for the clients in what we call above-the-line planning? It is not just the investment performance but everything else, including tax planning, estate planning, and being there when the client is making emotional decisions and needs a trusted advisor to keep them on the right track. I think that’s going to be a huge differentiator.

Relationships will matter more, I think, when AI is prevalent. The other thing I was thinking is that access to differentiated investment strategies because AI could tell you, “Here’s how your portfolio should be structured ideally based on your needs or your wants,” but then you actually have to get into that portfolio. In other words, there’s a lot of paper trades that make sense that look great on paper. I was a former bond trader at Deutsche Bank and Sun Life and other shops. I’ve traded $50 billion-plus in bonds, and what looks good on paper is not always actionable.

I think having access to the top tier managers that are top quartile or even top decile across private credit, private equity, venture capital, venture debt, real estate, commodities, etc. To me, that’s going to be a huge differentiator, but what do you think? How are RIAs going to differentiate in the face of AI?

I’ll try to keep it short. What I’m reminded of when I look at AI and its output is being a first-year associate at a law firm, where we have to generate a document, we would go to the legal precedent, to a previous version of that document, which had everything in there, including the whole belt and suspenders, metaphorically speaking. We have to whittle it down for our own purposes. As a first-year associate, you often didn’t know how to whittle it down. You just dumped everything in there just to be safe.

It goes back to the old days when lawyers used to be paid by the word. We ended up with these giant, unwieldy documents, which were so far from the essence of what we needed to deliver. I see exactly the same thing with AI. I can always tell right now, at least for now, maybe not forever, when something’s generated by ChatGPT or similar because it is a gigantic word salad, which generally looks very formulaic and doesn’t always hit on exactly what’s actionable here. What exactly is the meaning?

We talk a lot in my podcast and in our general work-life about bringing one’s authentic self to work. I think we have to bring our authentic product to work. We have to always ask that so what question. It’s all very well to wax lyrical about the direction of the Fed, where inflation’s going or what’s the unemployment figure going to look like.

However, if the so what is relevant for the client’s portfolio, then we shouldn’t be having that conversation. We have to bring it back to relevance, bring it back, access will be key, and just trying to sift through the dross of what is currently the output from AI. If anyone is relying on AI and it becomes a commodity, I think that is a real disservice to clients.

Podcast And Superpower

Before we go, tell people how they can access your podcast and also what your superpower is because I know you have a bunch, but what’s your number one superpower? Let’s start with the podcast and then leave people with the superpower.

I’ll leave you with that. The podcast is accessible like your podcast on all channels, it’s called Fiftyfaces. We have 200 official podcasts, but we also have a number of capsule collections where we look at diversity. I spoke before about reasoning by analogy. If we listen to leaders in tech, medicine, law, we get some great insights as to leadership, managing careers, and words of wisdom. I fully recommend that anybody listen across the segment, not just the world of investing.

My own superpower is my stamina. I suppose the fact that I produce pretty much single-handedly, although I have had some help, 300 podcasts in less than three years is a testament to my staying power. I’ve never been a sprinter. I’ve always been last in every sprint, but I can run marathons, and I can stay the course. That, I suppose, is my superpower, my stamina and persistence. I just never give up.

I feel like that’s my superpower, too. We’ve got that going. Irish ancestry. Thanks so much for coming on. I learned a ton. I’m looking forward to listening to a bunch of your podcasts. I’ve listened to some, and they’re great. I haven’t listened to all 200 yet, but I’m going to get there one day. Thanks, everybody, for reading. Take care.

 

Important Links

• Aoifinn Devitt
• Moneta Group
• Aoifinn Devitt – Twitter (X)
• Fiftyfaces
• Instagram: ⁠⁠https://www.Instagram.com/7in7show/⁠
• TikTok: ⁠⁠https://www.TikTok.com/@7in7show⁠
• YouTube: ⁠⁠https://www.YouTube.com/@7in7show⁠
• Facebook: ⁠⁠https://www.Facebook.com/7in7show⁠
• Twitter: ⁠⁠https://Twitter.com/7in7show⁠
• LinkedIn: ⁠⁠https://www.LinkedIn.com/in/zackellison/⁠
• iTunes: ⁠⁠https://Podcasts.Apple.com/us/podcast/7-in-7-show-with-zack-ellison/id1681652927⁠ ⁠
• Spotify: ⁠⁠https://Open.Spotify.com/show/0f2NGukm1OcZYCgVbiwlZX⁠
• Work with A.R.I.: ⁠⁠https://www.Applied-Real-Intelligence.com/⁠
• DISCLAIMER: ⁠https://7in7Show.com/disclaimer/

 

About Aoifinn Devitt

Aoifinn is passionate about financial markets, knowledge sharing and education. She strives to demystify the world of investing for clients by educating them rather than merely offering advice. Her commitment to reducing complexity has empowered countless clients to make informed decisions.

Her decision to transition to Compardo, Wienstroer & Janes (CWJ) at Moneta reflects this passion and her personal aspirations to advise clients more personally and create lasting relationships with families for generations to come.

In her role as Senior Investment Advisor, Aoifinn is responsible for leading the team’s overall investment efforts and serving as a liaison to Moneta’s in-house investment department. Aoifinn also operates as the team’s Chicago Market Leader with an emphasis on serving the Family Office Practice.

Originally from Ireland, Aoifinn began her career in London as an investment banking associate at Goldman Sachs International and a specialist consultant at Cambridge Associates Limited. She subsequently founded Clontarf Capital, a pan-alternatives research and consulting firm. She later served as CIO for the Policemen’s Annuity and Benefit Fund of Chicago and head of investment for Ireland at Hermes Fund Managers Ireland Limited.

When Aoifinn joined Moneta in 2021 as CIO, she brought with her a wealth of experience in institutional client management and alternative investments, coupled with a robust background in portfolio oversight. Her illustrious global career, spanning key financial hubs such as London, Hong Kong, New York City, and Chicago, has enriched her perspective and nurtured her creativity, innovation, and adaptability. Over the years, she has cultivated a vast network of industry contacts and gained exposure to a diverse array of investment manager talent. Most recently, Aoifinn excelled as Moneta’s Chief Global Market Strategist, leveraging her over two decades of experience in the financial industry to provide a truly global investment outlook.

Aoifinn is also a licensed attorney and has been a member of the New York Bar since 1996. She holds law degrees from Trinity College Dublin and Oxford University, an MBA from INSEAD in France, and an MSc in Applied Neuroscience from Kings College London.

In addition to her professional achievements, Aoifinn hosts and produces The Fiftyfaces Podcast, which highlights diversity and inclusion within the investment industry and other professions. She has completed 55 marathons, speaks German, French and Spanish, and enjoys traveling, particularly when it involves some skiing in the winter months.