What were some of the main successes of Crewcial Partners last year?

Summary: Most importantly, we maintained our long-term posture through an unfriendly market. Markets have a way of overreacting to events; however, our clients stayed on track and kept their public equity exposure at high levels. Our process ensured we never faced liquidity challenges or any issue that demanded we act in a short-term matter.

Lesson: A long-term bias works but requires discipline, diversification, and an understanding of expectations. Fundamentals and valuation—the price you pay for something— ultimately matters. Crises and difficult times have winners and losers. The winners are ultimately those with the strongest balance sheets, best business strategies, and the most capable manager teams; they win over the longer term because they're better than their competition.

What are your thoughts on sizing in the current environment?

Summary: It can seem contrary to human nature at times; the stuff that does well, you want to see become a bigger and bigger part of the portfolio.  However, you should be adding money to managers that have struggled but are poised to rebound, keeping in mind your longer-term return profile. Sizing is important and depends on a deep understanding of diversification and manager volatility profiles.

Lesson: Take advantage of the natural cyclicality within markets, selling at the peaks and buying the bottom is the way to long-term sustainable success. Be proactive when managers have a great year. When Crewcial has a manager that's up 100%, we ensure that we trim back 25-50% so the capital is ready to redeploy into out-of-favor managers with even stronger future prospects.

What are some of the areas that could be improved from 2023?

Summary: We are still trying to wrap our heads around the way markets are actually functioning; the gap between price and fundamental value seems as if it's become unbounded. This creates a problem of balance. If you're constructing a diversified portfolio, one of your underlying assumptions is that it will moderate volatility and some of the short-terms concerns; this should allow you to play offense when things are bad and a little defense when things are really good. But that falls apart if markets are creating high correlations that shouldn't exist between strategies. We’re still learning to better understand which conditions can and will create more of these correlation issues, so that we don't end up constructing portfolios that require truly extraordinary levels of patience to see through.

Lesson: Cultivate a better understanding of correlation among managers.  Thinking about managers based on the way they behave in different market climates is important. Prepare for various environments and build portfolios that are not going to have several seemingly distinct strategies reacting to the same market environment. Diversification is ultimately always your friend.

What are some of the insights you’ve gained from your latest year of travel?

Summary: Being back on the road has been one of the great events of 2023. It’s rewarding to physically sit down with people, whether in Europe, Asia, South America, Africa, or the United States, and really hear what they’re seeing on the ground, what they’re doing in their portfolios, and the real-world implications, because markets aren't necessarily the real world.  Being reminded how different people see the world differently is immensely important as an investor.

Lesson: Preferable options exist outside indexation; opening up to a global perspective broadens one’s ability to consider truly impactful diversification. The goal is to find differentiated thinking wherever it is.  We're not looking for investment managers, we’re looking for thoughtful, engaged people who invest.

What does history tell us for “Magnificent Seven” index funds going forward?

Summary: The index has reached a very high level of valuation concentrated in a group of unbelievably dominant companies.  However, while no one is arguing that Apple is a bad business, there is a price for everything and this price seems too high right now. From the 60s through the 00s, people felt the same about many companies that didn't prove to be very good investments. One way to illustrate this is to look at the top five in late 90s, which included Cisco, Intel, General Electric, Microsoft, and IBM. If we exclude Microsoft from the equation, these are all still pretty powerful businesses but they have not been good stocks to own. It’s the inevitable nature of impermanence. We can almost guarantee ten or 20 years from now, the current names will be around, but they probably won't be the most popular or dominant names in the market.

Lesson: Design portfolios to capture the broader economy; while well-constructed portfolios will always have allocations to bigger names, entire swaths of the economy are growing at a much faster rate than these brand-name businesses and are currently being overlooked by investors. Capture long-term opportunities today cheaply.

What is Crewcial excited about for 2024?

Summary: First, ESG, which has unfortunately become a very controversial subject. However, at the end of the day, it's a powerful risk framework; from our perspective, we need to be able to arm both our clients and our research team and consultants with better information on this subject and approach, as it’s a complicated topic.  We can't make it simple, but we can identify very specific variables at the portfolio company level to transparently consider which managers and portfolios have a higher level of risk around material environmental, social, and governance issues that affect their viability as good investments.

Second, another big change at Crewcial was our formation of an investment committee. We’re doubling down on our approach, allowing talented team members to focus on what they understand best and follow their passions as investors, but we’re now taking those passions and directing them into somewhat of a more formalized process. It's based on tracking, monitoring, and ensuring individuals get the training they need to scale and fully capture the bigger picture to find the best managers, no matter their initial backgrounds upon entering the firm, while pairing complementary skillsets to bring out the team’s full potential.

Lesson: Don’t be afraid to be different while embracing the fundamental rules of finance. Identify the full scope of everyone’s areas of strength and play off each to build a greater whole. Embrace idiosyncrasies and preferences while being open and honest with feedback and assessments. We do not treat our investment team members as analysts, rather as investors cultivating an owner’s mindset. We're trying to find ways to capitalize on differentiated perspectives to ultimately uncover the difference between market price and fundamental value; seeing things differently, and cultivating an environment in which such perspectives can range openly, is a critical element of that.

We don’t just want the usual suspects from the same handful of schools, we want to expand our collective perspective to include more women, ethnically diverse individuals, and people of all persuasions from different parts of the country or with different educational or experiential backgrounds—talented people come in all shapes and sizes. A diverse team of diverse perspectives is intended to capture the overlooked points of view necessary to uncover the next great idea.