By Jeremy Schwartz, Director of Research at WisdomTree
Last week on our podcast, we had two great guests with very different foci.
The first guest, Ron Albahary, Chief Investment Officer of the Threshold Group, a $3.3 billion registered investment advisor (RIA) founded as the Russell Family office, relayed how he has embraced behavioral finance extensively at Threshold, with a special focus on impact investing.
The second guest, Beeneet Kothari, founder of Tekne Capital Management, focuses on the technology sector, and we had an interesting discussion on valuations in the Internet space.
Behavioral Finance and Impact Investing
Ron Albahary outlined the four areas where he uses behavioral finance in managing client outcomes:
- Transparency in Personal Biases: Albahary talked about the behavioral mentalities that each of his team members brings to the table and how being aware of team dynamics and biases helps them understand how they approach different decisions in their portfolios.
- Understanding Manager Biases: Albahary suggested the biggest problem he has found with active managers is their overconfidence in their abilities and how due diligence helps manage behavioral biases in their portfolios.
- Client Communications: Albahary talked through an example of a simple framing issue in communication with a client: “You have $20 million; would a 10% loss be acceptable?” The client said yes. But when the question was framed as “Would you be comfortable losing $2 million?” the client said no. Using clear communications with clients is one way Threshold helps manage portfolios to achieve their clients’ goals.
- Mental Accounts for Structuring Portfolios Geared toward Impact: For many clients interested in impact investing, Threshold has started utilizing a concept of mental accounting to better frame investments geared toward impact. Listening to the bucket approach of mental accounts was an interesting way to manage toward outcomes.
Albahary’s team does a lot of work on impact investing for clients. This discussion was worth having to understand how an RIA moves investors toward having an impact with their investments and how they change portfolio structures to help investors achieve these goals.
Albahary and I talked off the air about how all the political conversations currently happening are accelerating interest in impact investing—which is an interesting commentary on today’s state of affairs.