I’ve had the pleasure of being friends with Faris for many decades. Over this time, I witnessed his impressive professional career, and his personal journey from a young college graduate on Wall Street to the founder of a successful investment firm, husband and father of three children. The following interview shares his incredible story and his vision for building an innovative client-partner wealth management firm.
– Wes Finley, early Client-partner
Q: Faris, let’s start way back…before Jafar Management was even a thought in your mind. Where are you from?
My family came to the U.S. in the 1980s to escape the Iran-Iraq war and the increasing brutality of life under Saddam Hussein. They fled Bagdad and managed to make their way to London for a brief respite.
Shortly thereafter, they were able to obtain sponsorship to finish their medical studies in Detroit, Michigan. My parents made tremendous sacrifices to start a family in the United States. They left behind their friends, families, culture, and career opportunities to come to a country with a different language, culture and without a supporting community.
Now that I am a parent, I look back with gratitude and admiration at the hard work and persistence it took for them to become successful oncologists and provide for my sister and I.
While we were growing up, my parents completely sheltered us from their past, and I remember at times resenting or just not understanding the high standards they placed on us while they were not around due to the long hours they worked at the hospital.
My immature frustrations melted away in a moment that changed the trajectory of my life forever. One Saturday in high school my neighbor and her two children rang my doorbell. I answered the door and I saw my neighbor with whom we had carpooled every week for two years, with tears in her eyes.
She handed me a beautiful gift basket and said “When I was diagnosed with cancer, I thought I was going to die – your father saved my life.”
I realized then how foolish I had been. Not only did my parents sacrifice everything for us, they worked tirelessly to save peoples’ lives – they are heroes. And at that awakening moment, they became my heroes.
After that, I poured myself into my studies with a new appreciation for the value of hard work and integrity.
Q: To say you had broad interests in college would be an understatement. What were your majors and what got you interested in each of those?
I’ve always had a social restlessness which made me fascinated in people, processes, and systems: I guess because it’s always changing and there’s always something new to learn. In high school, I had four jobs in part because I liked the independence income provided, but also because I was intrigued with how people came together in different venues to interact and create commercial ecosystems.
Waiting tables gave me the opportunity to watch the chefs procure available produce, design the menu and profitability of entrées, employ servers and dishwashers, all in a great chaotic effort to bring a harmonious and joyful experience to the customers, who were all gathering for a variety of business or social reasons that played into their own initiatives.
I also worked in a bakehouse where I observed the procurement of massive orders of grain, yeast, sugar and other ingredients, which were then processed for days by artisan bakers whose culinary expertise was developed from years of study across different countries and cultures. I then drove the truck that delivered the baked goods to different restaurants, grocery stores and hospitals in the local community. These experiences left me wanting to dive deeper into understanding how these systems work and helped frame the focus of my college experience.
I was fortunate to get a scholarship and direct admission to Indiana University’s Honors College and Kelley School of Business.
Spanish: By the time I reached college, I had studied Spanish for seven years on top of using it in the community during my various high school jobs, and the utility made that an obvious area of study to continue during college.
Psychology: My major and research in Psychology focused on developing a systematic understanding of cognitive processes (i.e. perception, human learning, attention, categorization, problem solving, decision–making, information processing and retrieval, short and long-term memory and forgetting) which has played an important role in understanding how people interact and respond to the world around them.
Finance: I wanted to dive deeper into “human systems” in the business world, and I was able to study capital markets, economics and many underlying variables: competition, regulation, people, etc. that drive the ultimate outcomes.
International Studies: As a 1st-generation American born to refugee parents, my appreciation for global economics and policies started early. I wanted to study human systems on a global scale.
The integration of business economics and cognitive psychology provided an incredible foundation for investing that I leverage to this day. At the end of the day, I feel blessed to have found a career that enables me to spend time doing what I love most, that is, learning.
Q: You then moved into the world of finance. What was your first “real job” and what drew you in that direction?
Indiana University’s Kelley School of Business provided an incredible avenue to network with alumni in a variety of industries. A close friend of mine was a member of the school’s Investment Banking Workshop, and given my interests, he recruited me to join.
We are still close friends and had it not been for his friendship, I’m not sure where I’d be today. Through the Workshop, I networked with alumni across Wall Street and was fortunate to be selected as a summer analyst at JPMorgan’s Investment Bank.
The internship was an amazing experience and the investment bankers provided generous mentorship and hands-on experience in the role an investment bank plays in advising companies on mergers, acquisitions, and capital raising activities.
Energized by that experience, I continued networking in the fall of my senior year and was accepted to join The Blackstone Group for full-time work after graduation. There I was fortunate to meet the most influential mentors in my career and I credit much of my current success to the training I received under their guidance.
Q: You’ve been part of some of the marquee names in finance globally. Tell us about each of those. What types of work were you doing at each?
Mergers & Acquisitions
I joined The Blackstone Group in the summer of 2006 and my team focused on advising clients on mergers and acquisitions. My role as an analyst was to do the financial modeling and analysis that would help clients (CEOs, CFOs, and Boards of Directors) understand the best course of action.
Shortly after joining, however, the Great Financial Crisis (2008) crippled the economy and our activities shifted quickly to helping clients manage through bankruptcy and corporate restructuring.
I often look back in amazement at how much luck has played a role in my life and I was lucky to be at one of the premier bankruptcy advisory practices in the world. It was during this extraordinary period that I developed a deeper curiosity for fundamental research.
When economic times are good, one can be lured into thinking managing a business is easy. When times get tough, even the most veteran industry executives can make grave errors in managing their businesses (which led them to bankruptcy). My mentors at The Blackstone Group helped me understand this dynamic and the importance of hard work and integrity to get a deep expertise in an industry of study to form an independent perspective and course of action – stakeholders including pensioners, creditors, suppliers, employees and stockholders were counting on us to get it right.
I became obsessed with the intensity of research and data analysis that came with breaking down an industry to understand the short-term and longer-term impacts to all stakeholders (e.g. suppliers, customers, competitors, creditors, shareholders, employees, etc.). I’m forever grateful to the team at Blackstone for a priceless experience and their support in helping me transition to the next stage of my career. The excitement of always learning something new in already very dynamic ecosystems led me to explore the private equity experience next.
Private Equity
KKR provided an unparalleled opportunity to expand beyond industry research by diving into the operations of a company. We conducted in-depth analysis of an entire industry’s ecosystem by:
- Benchmarking the performance of all the competitors
- Developing an understanding of the ecosystem’s supply and demand drivers
- Interviewing CEOs, CFOs and operations managers at the firm
- Consulting supply chain experts and customers
The level of depth in research at KKR really opened my eyes to what was possible.
This research would help us identify longer-term investment themes that we would want to pursue. One of the hardest aspects of the private equity business is that once you identify a company for investment (a process which takes tremendous time and effort), you have to find a willing seller at a reasonable price to generate attractive investment returns (no easy feat!).
Inevitably, the board of directors of a target company will conduct an auction to get the highest bidder – which can lead to your team not investing at all if someone else is willing to pay a higher price.
As frustrating as that outcome might be (no one likes to “lose” to their competitors), I also learned an important lesson from that dynamic that reminded me of my cognitive psychology and Great Financial Crisis training: When it comes to investing, one must set aside their ego and respect the truth that despite all the work and analysis and desire to beat your competitors – it is possible that your analysis is wrong.
In fact, one deal that we “lost” to a competitor in an auction actually led to an eventual bankruptcy of that company – our competitor lost their entire investment. This experience taught me that sometimes the best investment you can make is no investment at all, and the significant negative impact losers can have on an investment portfolio.
Hedge Funds
I then decided I wanted to take the fundamental research expertise and apply it to an environment where there is no auction process and more flexibility. If I were to discover new information that changed the investment thesis, I would have the liquidity (ability) to change my mind – this brought me to the hedge fund industry.
My time at Point72, Millennium and Citadel enabled me to integrate all of my passions: psychology, business economics, and endless learning – a rare marriage of career and personal interests (a true blessing).
These institutions taught me the importance of managing risk, portfolio construction, the role of fear and greed on investor psychology and decision making. The liquidity and mark-to-market nature of the public markets also provided a quicker feedback loop which I did not experience in the private equity industry. This quicker feedback loop helped accelerate my learning curve as I could observe and study the wins and losses of some of the best portfolio managers and peers in the hedge fund industry.
I found the most formative lessons to be from studying the failures of others. Much like my observations during the Great Financial Crisis, if you believe in the notion that our careers are best viewed as a marathon rather than a sprint, I believe it is critical to understand the dynamics that led some of the best and brightest to fail.
You can’t win a race if you’re not there to finish.
At the risk of sounding repetitive, I learned that most failures occurred due to any or all of the following:
- Too much concentration (lacking diversification)
- Too much leverage (excessive risk taking)
- Lacking liquidity
- Hubris
Charlie Munger (Berkshire Hathaway) is often quoted saying, “tell me where I am going to die so that I never go there.” His wisdom has very tangible implications to investing: by taking the time to understand the characteristics of failures, you can take steps to address these characteristics upfront and improve your investment outcomes.
There is an excellent book called “Seeking Wisdom – from Darwin to Munger” by Peter Bevelin that discusses evolutionary and cognitive psychology overlaid on interviews and writings of Charlie Munger – a fantastic read for anyone interested in investing.
I strive each day to implement these lessons to position our partnership for a successful marathon.
Q: What would you say each of those companies did particularly well?
The Blackstone Group and KKR are exceptional in deep industry research to support their long-term investment decisions. In addition to developing a thorough understanding of the ecosystem in which companies operate, they also have expertise in identifying operational improvements and guiding the strategic roadmap of a company once it is under their ownership.
On the Hedge Fund side, Point72/Citadel/Millennium are excellent risk managers. They employ many of the fundamental research tools used in Private Equity to understand the trajectory of a company but in a liquid, public market context.
In the Public Markets, portfolio construction and risk management are essential in protecting client capital and enabling portfolios to navigate the “long marathon.” Within that risk management dynamic is understanding the impact of fear and greed in investing, which has been a fascination of mine dating back to my research and studies in Cognitive Psychology.
Q: Without naming names, did you see things in the industry that were concerning or could have been done better?
The private equity and hedge fund industries attract some of the most intelligent, educated and hard-working people in the world – in large part, because the reward for success is tremendous.
I am fortunate that I was able to be surrounded by such incredible talent – each day I was inspired and challenged to take my game to the next level. In an environment as high-caliber and intense as this, I found the best learning experiences were observing failures of the best and brightest investors.
Overtime I noticed a pattern: while most failures were due to concentration (too many eggs in one basket), leverage (excessive risk taking), and hubris (ego), I realized the genesis of many of these failures was actually due to the inherent conflict of interest that attracted these talented individuals to the industry. Specifically, the incentive structure (i.e. the compensation that attracts talent to the industry) was structured on an annual basis, which is very short-term in nature.
The investors were incentivized to try and generate maximum return every year while having no skin in the game – which means when they take excessive risk with client money, the money manager gets paid a fortune when times are good, but when times are bad, the money manager still gets paid and the client loses.
This conflict of interest also influences the investments managers will chose to pursue (i.e. investing in something that will pay off this year, while overlooking something that will generate much greater returns over the long-run).
I’ve always been grateful for my time at these phenomenal institutions. My collective experience also gave me a new perspective on areas to significantly improve a client’s wealth management experience.
Q: Somewhere along the way you got the bug to start your own fund. What was the inspiration?
I noticed a similar conflict of interest to the fee structures in the private wealth industry when I heard how much financial advisors were charging my friends and family for fees while also incurring other expenses and tax frictions.
Issues included the commissions they were charged, the fees the financial advisor would take regardless of the investment outcome, and cookie-cutter approach taken to their 60/40 equity/debt portfolios.
When I asked how the financial advisor designed the portfolio or why people were willing to pay full fees to have someone who has never studied a company or an industry pick their stocks or place 40% (or more) of their portfolios allocated to “safe” bonds that yielded 1% net returns my friends and family shrugged – the most common answer: “everyone else is doing it.” Note that after fees and income taxes they returned less than inflation, meaning clients were actually losing buying power with what they had managers “manage.”
Even people who don’t work in “the finance world” on a daily basis could tell that the people managing their funds don’t really understand the dynamics of the stock market all that well or didn’t have the wherewithal to realize the bond holdings of their clients were actually losing them money.
It dawned on me that the frustrations of my friends and family were likely shared by the vast majority of clients using the wealth management industry, and I decided to take the better part of a year to design what I believe is an innovative approach to wealth management: integrating the financial rigor and expertise of the private equity and hedge fund industry to a cash-like wealth management portfolio where the financial advisor is 100% invested with the client and with a 100% performance-based fee structure.
Now my clients are also my partners, and together, we share in our collective objective to protect and grow generational wealth together.
Q: What was the investment thesis?
Our thesis is simple: we invest only in firms that have a significant room to grow and represent a monopoly or oligopoly power in the market.
Fundamentally, it is my belief that if you focus on the highest quality companies you can do significantly better over the long-run as these companies will take a larger piece of the economic pie and will thrive during good and weak economic periods. In fact, during weak economic periods, these companies emerge stronger because their competition generally shrinks.
Older models like the 60/40 equity/debt portfolios include these weaker competitors and fail to comprehensively address the long-term wealth erosion caused by inflation.
Q: Who were your early investors?
The greatest honor of my life was when my wife agreed to marry me. The next greatest honor was the support and confidence from my friends, family and former colleagues – an honor and partnership for which I am forever grateful.
Q: How has the fund changed over the years?
Strategically, we have always maintained an open-minded approach so that when facts, circumstances, and data change, we can be nimble.
Similarly, given we are focused on generating generational wealth, we are of the mindset that our journey is a long marathon rather than a sprint. I believe this approach requires a liquid, diversified portfolio with a conservative balance sheet – in doing so, out of the gate we try to avoid many of the failures I’ve observed from others.
The end of a calendar or fiscal year has no bearing whatsoever on how we manage our portfolio – we’re looking out over a multi-year period.
Certainly having all of my personal net worth in the fund also helps in keeping capital preservation in mind! In the early days of the fund, I maintained an active short portfolio at all times.
However, I have become much more flexible in that regard and no longer believe a perpetual short portfolio is aligned with the long-term interests of our Partnership. In the spirit of seeking wisdom and always wanting to get better, I have learned and adopted other risk management techniques that better serve the long-term interests of my partners while maintaining our focus on capital preservation and wealth creation.
Q: What types of clients is Jafar Management designed for?
Given my family balance sheet is fully invested in our partnership, I believe we are best suited for long-term investors seeking strong alignment of interests, tax efficiency, and with a preference for liquidity.
On the personal investor side, this ranges from younger individuals who are looking for a place to save and grow their wealth over time to retirees who prefer preservation of capital while beating inflation and passing along wealth to the next generation.
On the business side, I believe this liquid and long-term portfolio also serves the needs of pensions and other institutional investors who have significant long-term mandates and obligations to fulfill.
Q: High net worth investors in the US are marketed to incessantly by big brands and also all kinds of small players who make big claims. If you were to bucket the “typical” investment approaches available to a successful professional looking to build retirement funds, what are the common ones and what works and doesn’t work about each?
I believe our partnership is innovative and extremely rare to find. On one hand, if a client wants access to highly trained hedge fund or private equity managers, they have limited options and are generally stuck with very high fees and very illiquid terms (i.e. their capital could be tied up for years).
If and when they get access to these firms, the potential conflicts of interest I referenced earlier still remain.
On the other hand, I believe the majority of financial advisors have had limited-to-no experience studying industries or companies and generally stick to a cookie-cutter portfolio approach that in addition to not fully studying the investments in it, fails to take into consideration the long-term wealth erosion brought by expenses, taxes and inflation.
Regardless of the investment outcome, the financial advisor or broker gets fees and commissions with no skin in the game.
I believe clients deserve an experience where their wealth manager:
- Brings the skills applied by some of the most highly-regarded investment firms in the world
- Invests only in the highest quality companies
- Is 100% fully invested in the same portfolio
- Has a 100% performance-based fee structure
- Provides cash-like liquidity
I am proud to say we have created just that.
Q: It’s fair to say that the reality is there are lots of investment opportunities where interests are not aligned. Jafar Management takes a different approach. Can you explain that?
I believe we have an extraordinary investment return opportunity. For that reason, my personal family balance sheet is fully invested alongside my client-partners. I am not invested in anything outside of our strategy and I hold minimal cash to meet day-to-day needs. This is enabled by owning a high-quality, liquid portfolio with a conservative balance sheet.
This partnership alignment is further enhanced by our performance-based fee which is unlike traditional management fees that are taken regardless of investment outcomes. Since inception, I have reinvested 100% of my fees back into the fund to further grow my alignment with our client-partners.
This multi-faceted alignment approach explicitly makes me 100% personally invested in my client-partners’ success.
Q: For someone who has all the options mentioned above and setting aside how you’ve aligned interests, why would it make sense to join your fund?
Our innovative partnership approach to wealth management has been well received and has yielded unexpected benefits as well.
I am most surprised by the power of the network effect brought by having a diverse group of high achieving partners with aligned interests – many of whom have experience or expertise that are entirely relevant to other facets of life outside of wealth management.
Whether it’s healthcare, academia, law, real estate, media, international affairs, or corporate governance across a variety of industries, our partners represent an incredible source of intellectual capital that can be an invaluable resource.
In many instances, I have generated investment ideas and research from leveraging the network and knowledge of our partners. I am thrilled to see the growing synergies of our partner community have a positive impact on us inside and outside of the portfolio.
Q: At the end of the day, any fund investment is really pooling money that takes ownership interests in many individual monetary instruments: stocks, bonds, options, futures, etc. What does Jafar Management own?
Given liquidity and a conservative balance sheet are priorities, we generally hold publicly traded securities in companies with monopoly or oligopoly market advantages.
Q: How do you choose those investments initially?
I fundamentally believe in the notion that “competition is for losers”. The free-market economy is brutal and most businesses see profits competed away very quickly as the supply of rival products and services flood the market until demand is satisfied.
With this economic truth in mind, we seek to invest in dominant monopolies or oligopolies that benefit from strong long-term demand that enable them to structurally grow better than the broader economy (i.e. the companies gain a bigger piece of the “economic pie” over time).
I like to think of these companies as “toll-takers” on the global economy; that is, in order for society to function the products or services of these companies must be utilized and there is no reasonable alternative. To be clear, there are only a select few special companies that satisfy this criteria.
A fundamental framework we use to analyze this dynamic is “Porter’s Five Forces,” which was first introduced in a 1979 article in Harvard Business Review.
The highlights are as follows:
- Competition: we seek to invest in companies with minimal competition
- Threat of new entrants: we want high-barriers to entry to mitigate the risk from future competition
- Supplier bargaining power: we want our companies to have a dominant position relative to their suppliers
- Customer bargaining power: we want our companies to have pricing power.
Q: What’s your criteria for holding positions over time?
I believe we are fortunate to be able to own the high-quality companies in our portfolio. Not only are they scarce assets, I believe the durability of their businesses provides capital preservation qualities when economic or market volatility arises.
With that in mind, I take a long-term investment horizon and make investments that can at least double our money over a five-year time horizon (i.e. minimum 15% internal rate of return). This long-term approach has the tangible benefits of minimizing trading expenses and taxes, which in turn generates better profits for our partnership.
Q: How do you monitor holdings?
I build quarterly and annual financial models as a standard practice during our investment diligence process. These models are informed by our proprietary research, investments in data and software, interactions with company management, and review of quarterly and annual earnings reports.
We evaluate the company’s performance in the context of the broader economy, competitor performance, and our expectations. This analytical approach helps me set aside the ego and make data-driven, intellectually honest decisions that are in the best interests of our partnership.
Q: The fund has grown substantially since inception. To what do you attribute that?
My client-partners deserve all of the credit and I think that is a testament to the power of our unique client-partnership approach. 100% of our growth has come from clients adding to their accounts and introducing their network to join our partnership.
I dedicate all my time focusing on our investments because my personal balance sheet is on the line and it’s the right thing to do for my client-partners. To me, the interests of our partnership are second to none. As a result, I spend zero time on marketing or activities outside of managing our investments.
Our client-partners love our unique alignment of interests and my active focus on growing generational wealth. I am honored that they have trusted me with their money and the confidence to refer me to their closest friends and family. This dynamic creates a virtuous cycle of growing a partnership of like-minded, good people with common interests.
Q: Tell us a little bit more about you as the CEO and Chief Investment Officer. What’s a day in the life like?
I consider myself blessed to be able to do what I love and in service of my clients (many of whom are my dearest friends and family).
Each day, I research our portfolio companies as well as new investment opportunities. I overlay that information into various financial analyses that help me determine the best course of action.
I continuously monitor aspects of the portfolio to ensure it is well balanced and optimized for the best outcome for my client-partners. I also enjoy engaging with my client-partners during office hours to hear what they are learning about in their respective professional fields and helping them navigate their wealth management questions.
Q: For someone who thinks they might be a good fit for Jafar Management, what are the next steps? How do they get further information?
Given our unique client-partner model, I like to schedule time during office hours to get to know prospective clients individually and ensure their interests align with our partnership. We’ve made available our contact information and a bookable calendar where you can reserve time to meet us.
Q: For those ready to invest, what’s the procedure?
It’s simple. We’ll set up an introductory call to get a better understanding of your objectives and time horizon. We then have standard documentation that can be quickly executed electronically. Then it’s up to you how you’d like to fund your account (cash, in-kind transfer, and retirement account/IRA’s are common).
Q: How is reporting handled?
We have an independent administrator that provides monthly account statements to investors as well as year-end tax documentation. An independent auditor conducts an annual audit review of the partnership. I also hold office hours and write quarterly letters to all investors.
Q: Any parting words for potential investors that are reading this interview?
Early in my career I was fortunate to have worked at firms that emphasized a culture of integrity – this was a very formative experience for me.
As part of the firm’s culture, the founder insisted on dedicating time to have team lunch each day. The most powerful advice from those discussions was the importance of partnering with people that you like and trust.
Now that I am the fiduciary for my client-partners, this truth is clearer than ever. I am honored to be in their service and forever grateful for their partnership. The greatest reward above all is the feeling of being trusted.