By Chief Investment Officer Tom Kelly, CFA.
When he founded SJS in 1995, Scott J. Savage set out to provide a major money center management experience while maintaining small town values and putting the client first, all the time, every time. A novel idea back then in a world where the stockbroker business model was (and still is) embedded with conflicts of interest. There had to be a better way, to sit on the same side of the table as our clients and align our interests. It is this founding "first principle" from which everything else flows. And still to this day it allows us to filter everything we do through that same lens. For example, when working with investment managers, we want them to share that same client-first philosophy and sit on the same side of the table with us.
Stone Ridge Asset Management, one of the investment managers we work with, shares similar first principles. Stone Ridge aims to provide investors with access to diversifying investment strategies (such as reinsurance and alternative lending) that have low correlations to global stocks and bonds.[1] Many of these investment strategies have been historically difficult to access for most investors.
The search for investment strategies that perform differently from global stocks and bonds led us to Stone Ridge, but what kept us interested was their alignment with their clients and partners. Stone Ridge founder Ross Stevens studied at the University of Chicago under famed professor Eugene Fama, who won the Nobel Prize in Economic Sciences in 2013. The name Fama may sound familiar, as his market efficiency work has influenced MarketPlus® Investing. However, Stevens believes that Fama’s greater contribution is his work on the principal-agent problem. At many companies, ownership and day-to-day management are mostly separate. This can lead to each side having different information as well as contrasting motivations. As a result, decisions are often made by both ownership and management that are not best for the various stakeholders.
Stone Ridge seeks to minimize the principal-agent problem through partnering with industry leaders, sharing risk directly alongside them (gains and losses), and collaborating using proprietary data and evaluation techniques. Additionally, Stone Ridge employees invest in the various investment strategies, paying full fees like clients do.
In our first meeting with Stevens several years ago, he spoke about Stone Ridge’s culture. He shared insights on the investment strategies, like reinsurance, where they are one of the largest capital providers to reinsurance companies and partnering with them through risk-sharing – sitting on the same side of the table.[2] He then recounted the origin story of Stone Ridge, which is named after the small town in upstate New York that he holds special – all this from his office overlooking Wall Street. Talk about a major money center experience with small town values!
Important Disclosure Information & Sources:
[1] “Strategies”. Stone Ridge Asset Management, stoneridgeam.com.
[2] “Reinsurance”. Stone Ridge Funds, stoneridgefunds.com.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Statements contained in this report that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice.
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