Opinion: If Not Dalio, Who?

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Steve Jobs’ death caused me to reflect on Schopenhauer’s insight: “Talent is like the marksman who hits a target which others cannot reach; genius is like the marksman who hits a target, as far as which others cannot even see.” With this in mind I ask you: Is (or was) there a Steve Jobs of the investment business? 

Selecting Steve Jobs, not Steve Wozniak, as the archetypal innovator, means that genius requires execution. And this comes with certain consequences. First, it allows me to recognize talented academics like Markowitz, Sharpe, Black and Scholes, and Kahneman and Tversky, whose ideas transformed and shaped the way we think about investing. However, it seems to a priori exclude these thinkers as innovation candidates as they themselves did not develop industry-changing businesses. This selection also disqualifies talented investment “inventors,” people who developed new products or services that have certainly reshaped the way we invest. I’m thinking of people like Ted Benna, the creator of the first 401(k) plan; Leo Melamed, the father of financial futures; Alfred Winslow Jones, the creator of the first hedge fund; and Bill Fouse, John McQuown, and James Vertin for launching the first index fund.  

Reluctantly, I would exclude asset owners from this “inventor” category. To me, their job responsibilities, fiduciary duties, and compensation structures tend to discourage not only innovation, but also invention. However, there are clearly ingenious asset owners that have transcended these constraints and redefined investment policy, asset allocation, portfolio construction, and risk management. I’m thinking of David Swensen and Dean Takahasi (Yale), Jack Coates (Weyerhauser), Marv Damsma and Greg Williamson (BP), Howard Pearce (Environment Agency), Leo de Bever (Alberta Investment Management Corporation), Erik Valtonen (AP3), and Tony Day (QIC and Future Fund). These inventors are clearly talented men, but not Jobsian innovators. With these parameters—and excluding the already-covered Ray Dalio of Bridgewater Associates—I humbly suggest a few possible nominees for innovators. 

Jim Simons, founder of Renaissance Technologies, whose integration of multi-disciplinary academic theories, the scientific method, and tremendous computer technology produced not only robust returns but also broadly validated the concept of quant investing, especially high-frequency trading. I’ll admit that I’m a bit ambivalent on Simons as an innovator, not investor, but unlike other great investors (Gross, Buffett, Soros), his approach has had a broad impact on how others invest.

John Bogle, the founder of The Vanguard Group, was a visionary who industrialized the DC and mutual fund businesses by commercializing the index fund and making passive investing a genuine investing option for individuals and institutions. He also lowered the costs of fund management, including pioneering the no-load mutual fund. Is this the iFund?  

If we include Bogle, do we also include Ned Johnson, Chairman of Fidelity Investments, for also developing and shaping the 401(k) and mutual fund businesses by linking an open architecture investment platform (complete with intra-day NAVs, daily liquidity, discount brokerage, and money market checking accounts) with distribution?

Let me throw out a wild card: Barr Rosenberg, as the founder of BARRA, for combining computer technology and academic financial theories to fundamentally reshape how we identify and comprehend risk factors and construct and evaluate returns-based and holdings-based portfolios. In so doing, BARRA provided the foundation for quantitative investing. 

An idiosyncratic choice might be Michael Bloomberg, as in the eponymous “Bloomberg terminal,” “Bloomberg TV,” “Bloomberg Radio,” and “Bloomberg News,” for melding computer technology, communications, and trading to reshape how we access and use financial technology, media, and data.  

And my two outliers: Michael Milken, former head of Drexel Burnham’s high yield group, for developing the high yield bond market, which radically changed the way companies raise capital, facilitated the development of LBOs, and made junk bonds a genuine investment option for institutional investors.  

Certainly securitization has profoundly changed how we invest (for good and bad) and the person credited with developing and commercializing the MBS market (which later opened the door to other forms of securitization) is Lewis Ranieri, then with Salomon Brothers. Ranieri, like Milken, changed how we perceive and access the embedded value of assets and in so doing created a vast new realm of investment opportunities. 

So I now leave it to you, dear readers, to send me your suggestions for Jobsian innovators in the investment business and your ideas on two other possibilities: 1) our Steve Jobs has not yet revealed him or herself, or 2) there simply is no equivalent to Jobs in our industry. This last option leads to another line of inquiry: are there structural impediments that might prohibit the realization of this type of Jobsian innovation? In spite of having incentives in place to encourage industry-changing innovation, might it be that the very nature of alpha—scarce, transitory, and capacity constrained—is a self-limiting condition to innovation?

I look forward to all of your comments. Email me at angelo.calvello@iip-llc.com.  

Angelo A. Calvello is CEO of Impact Investment Partner LLC, the wholly owned affiliate of Impact Investment Partners AG. He is responsible for developing and marketing investment strategies that seek to generate real returns, including environmental infrastructure and private equity strategies.