Talk to any seasoned investment manager about “the one that got away” and a story is sure to follow. Ask that question of Robert Picard, managing director and head of alternatives at Hightower Advisors, and his mind goes back in time to two different whales that slipped through his net.
His first brush with missed fortune occurred after working for a series of brand-name investment firms. Having earned a Wall Street-style pedigree, Picard decided to strike out on this own in the form of a boutique investment house. He sold his equity to his partners at Optima Fund Management, where he served as CIO from 2004-2008, and used the proceeds to open The Rumson Ridge Group. He soon collaborated with GlassBridge to get Rumson Ridge Group involved in private markets in earnest. The organizations initially planned to do some roll-ups but ended up putting their muscle behind what they saw as a major opportunity to acquire a popular brand-name energy drink for an offering price of several billion dollars.
“It is an extraordinary product,” says Picard. “Its founder is a self-made man from Detroit who built this incredible drink that does not need to be refrigerated. It doesn’t really taste very good, but at the time it was the highest margin business at checkout at both Walmart and 7-Eleven. It was originally conceived as a hangover drink, and what he ultimately discovered was it caused people to feel very focused and alert, without necessarily causing the heart palpitations of other energy drinks. Truckers and shift workers would often buy it as a chaser. They would buy it with a coffee or bundle it with the coffee — just put it in the coffee and drink it that way.”
The energy product was generating per annum earnings of tens of millions of dollars, though Picard and his partners saw opportunities for vastly expanding the product’s consumer base, especially by appealing to women and millennials by slightly changing the flavor, making its ingredients more organic and repackaging the drink in a fluorescent green container with black lettering, a design similar to other modern consumer products. What’s more, there were no international sales for the product back in 2018, giving Rumson Ridge and its partners an end goal of partnering with Roc Nation (the entertainment agency founded and owned by Jay-Z) to help with global branding and marketing.
“There is an incredible branding and marketing group within Roc Nation using their social influencers, which has become an increasingly important asset within private markets,” he explains. “Jay-Z or Rihanna can promote something on their Instagram accounts and instantly get recognition and acknowledgment.”
The offer pulled together by Rumson Ridge and GlassBridge — with the participation of Benefit Street Partners, Viking Global and other underwriters — ended up falling 9 percent short of the asking price, mainly because the company’s revenue had declined by 12 percent during the negotiating period, convincing the would-be buyers the asking price was a bit too high.
“The founder thanked us profusely and said, ‘I am not selling.’ “So, we were left with nothing, but it was a great exercise.”
The 12 percent sales decline was a temporary situation, according to Picard, who says the product continues to grow in popularity and sales. Still, he expresses no lament for having never consummated the deal.
The other one that got away
Picard says his best investment was also his worst. He made a financial commitment to a multi-strategy hedge fund that had exposure to a catastrophe bond that tallied a return of about 4,000 percent in the aftermath of the 2004 Indian Ocean earthquake and tsunami that killed more than 225,000 people and totaled billions in property damage.
“What I then discovered was that the counterparty to the catastrophe bond basically said, ‘You are up 4,000 percent, but we are just not going to pay you.’ They defaulted and it went through the courts for 12 years” to no avail, he says.
The lesson? “I can be fascinated by noncorrelated alternatives, but I’m also very wary of the legal risk and the fact that just because you made the money on a contractual basis doesn’t necessarily mean the counterparty is going to pay you.”
It wasn’t as though Picard didn’t have good instincts before learning that lesson. Consider that in 2000 he and his team met with Bernie Madoff to evaluate investing in his fund that was touting unusually stable historical annual returns averaging 1 percent to 2 percent per month.
“We knew in about eight minutes that he couldn’t possibly be doing what he said he was doing,” Picard says.
Barron’s and Wall Street Journal reporter Erin Arvedlund recounts Picard’s fateful meeting in her book Too Good to be True: The Rise and Fall of Bernie Madoff. Arvedlund was one of a couple of people who indicated Madoff was running a Ponzi scheme, which was eventually proven to be the case.
“We subsequently never allowed any of our clients and investors to have any exposure to Bernie,” Picard says of the result of his meeting with Madoff. “One of my big regrets is that it took 10 years for the wider market and regulators to catch up to Bernie. It is really unfortunate. A lot of people lost a lot of money.”
Indeed, during job interviews Picard makes a practice of asking candidates to name five or 10 ways a manager of a particular fund might fudge the numbers or even cheat investors.
“It’s amazing to me how few interviewees are able to take a critical or skeptical view of how a fund manager might cross over into illegal territory.”
First Republic to Hightower
Just prior to joining Hightower Advisors in 2022 as head of alternative investments, Picard was at First Republic Private Wealth Management, an arm of the ill-fated First Republic Bank that was seized by federal regulators in the second-biggest bank failure in U.S. history, and promptly sold all of its deposits and most of its assets to J.P. Morgan Chase. The private wealth management division was another story altogether, as its private markets business grew by about 500 percent during Picard’s three-year tenure at the midsize bank, where he was recruited to consolidate and grow the Eagle Alternatives Platform and support more than 100 First Republic wealth management teams representing over $250 billion in AUM.
It was one of First Republic’s clients who had relationships with several members of the Hightower board of directors who made the introduction between Picard and Hightower brass. At the time, Hightower was looking to boost its advisers’ access to alternatives in client portfolios. Picard appeared to be the ideal candidate for the newly created position of managing director and head of alternatives in Hightower’s Investment Solutions Group, based on his tenures at First Republic, The Carlyle Group, Optima Fund Management, RBC Capital Markets, InfraHedge/State Street and The Rumson Ridge Group.
He was subsequently invited to meet with Bob Oros, Hightower chairman and CEO; Stephanie Link, chief investment strategist and head of investment solutions; and board member Moss Crosby. Picard got the nod and joined the organization.
“Bob basically asked me to come on board and enhance an already very successful private markets and alternative investments business,” says Picard. “He has provided the flexibility and autonomy to Stephanie and myself to really build out and, to a certain degree, replicate the successes that I had at First Republic Private Wealth Management.”
What does it take to build a successful alternatives platform?
“You need to make it as simple as possible,” Picard says, “so you need a certain dose of technology, you need a story, and when you hear a great investment opportunity you have to communicate it to the wealth management team in a manner they will remember so they can communicate it to the client in a way that gets them interested.”
The watchword at Hightower is “empowerment” of its advisers and wealth management teams, as they are given autonomy and flexibility to make fiduciary decisions regarding how they allocate client assets to private markets.
“That was part of the appeal to me,” Picard remarks.
Advisers also find such flexibility appealing, as Picard experienced during his First Republic days, where he welcomed to his organization advisers and wealth management teams that defected from the major wirehouses. The reason for their defections? Picard says the wirehouses are centralized and require that advisers’ investment decisions be run through management, limiting advisers’ flexibility.
Swiss tank commander
Robert Picard was born in Roslyn, N.Y., on the north shore of Long Island, the son of a mother from the Bronx and a father from Switzerland. When he was 12 the family moved to Switzerland, where they lived in a home next to vineyards. Picard would become an expert skier while navigating the Swiss Alps, and still returns each year to ride the slopes.
The move to Switzerland had been instigated by the 1970s oil crisis and economic recession, which cost Picard’s father his job. Though he found other jobs in the finance field, they ultimately proved to not be the right fit, prompting him to move the family to his native land, where he opened a commodities firm that eventually became Donaldson, Lufkin & Jenrette.
Picard’s schooling included language immersion that made Picard fluent in French and conversational in German.
“I went through a massive culture shock,” he says. “I was thrown into a Swiss school where everything was taught in French. I spoke no French at the time, so I was taught French in French, I was taught math in French, and German in French. It was a very difficult time for me at 12 and 13 years old, but it turned out to be fascinating.”
He persevered and learned the languages while also getting an education in physics, chemistry, and the writings and thinking of Berthold Brecht, Friedrich Durrenmatt and Karl Marx. He read Dante’s Inferno in Italian. Pursuits in higher education took him to College de Geneve and University of Geneva Law School.
“I had a very structured continental European education.”
Picard left the University of Geneva Law School early, leaving the institution after the end of his second year to join the Swiss army, where he became a tank commander, specifically the U.S. manufactured M109 tank, which is currently being used in Ukraine to battle the Russian invasion. The M109 holds eight soldiers and fires 80-pound artillery shells 10 to 15 miles.
It was during his military service that Picard learned the three C’s of leadership: commander (give the order), contrôler (verify the order is being followed), and corriger (if the order is not being properly followed, immediately correct and adjust as needed).
Military service is mandatory in Switzerland, and Picard, being part Swiss, was obligated to serve his two years. It began with four months of basic training, followed by a month of leadership courses, followed by another round of basic training in a leadership role. The training was rigorous. Picard caught rubella, broke his foot during a 35-mile hike, caught rabies, and was involved in a tank collision, and may have unwittingly blown up a mountain chalet.
“Despite my personal experiences, the Swiss military is actually very efficient and process driven,” he says. “It was a hell of an adventure for me.”
All the while, Picard was equipped with the famous Swiss Army knife, which, Picard points out, does not have a corkscrew and is silver with a red cross rather than red with a white cross.
“We used it all the time for cleaning our weapons and for eating when we were out on maneuvers,” he says. “It is very useful.”
Both his Swiss Army knife and dog tags now sit in a change dish inside the front door of Picard’s home on the New Jersey shore.
The missing names of Wall Street
Picard’s first step into financial services was facilitated by a law school colleague who had gone to work at Nomura Bank within the global financial services group that today operates in 30 countries and regions on the strength of its 26,000-member staff.
“He got me an interview and they pretty much hired me on the spot.”
The year was 1990. On his first day at Nomura, Picard was told to take off his tie, start wandering the streets of Geneva and come back with 500 business names. Upon his return, Picard was given a telephone book and told to call the businesses whose names he had collected and set up 20 meetings for the following week.
“I thought it was ridiculous at the time,” he recalls, “but I will tell you I opened up a $3 million account three months later with someone I met during my second week on the job.”
More broadly, he traded Swiss francs, U.S. dollars, Japanese yen and convertible bonds at Nomura.
That beginning was followed by multiple turning points in Picard’s career, perhaps none so seminal as his time at Kidder Peabody & Co., where he came under the tutelage of executive Loren Katzovitz — now managing director at Lazard Asset Management — who served as one of several mentors during Picard’s career. Katzovitz immediately recognized Picard’s knowledge base and his understanding of the European market, and installed him in a leadership role for several years before calling him back to the United States.
“He taught me so much with his background at Banker’s Trust and Lehman,” says Picard. “I eventually grew — the feeder fish eventually becomes the shark himself. I moved on to Carlyle, but he is someone I stay in contact with. He has been a wonderful role model for me.”
Kidder Peabody was Picard’s first lesson in how quickly a brand-name financial company could disappear. The firm’s 130-year history came to an end after running into hard times in the early 1990s and was sold to PaineWebber in 1994, which in turn was eventually sold in 2000, at least in part, to UBS AG.
Besides Kidder Peabody and PaineWebber, Picard also bore witness to the implosions of Dean Witter; Donaldson, Lufkin & Jenrette; Salomon Bros.; and Bear Stearns, among others.
When Kidder Peabody collapsed, Picard, Katzovitz and other team members migrated to RBC Capital Markets in 1995, where Picard was head of the organization’s European operations and part of a 20-plus person proprietary trading desk, before returning to RBC’s New York City offices in 1997. His tenure at RBC came to a close when he was recruited by The Carlyle Group, another career turning point where he worked alongside Afsaneh Mashayekhi Beschloss, a managing director and partner at the firm. She is also former CIO at The Word Bank. Beschloss recruited Picard to buildout Carlyle’s hedge fund business.
It was at Carlyle that Picard came into contact with another influential colleague, Arthur Levitt, former SEC chairman.
“He has incredible blue eyes,” says Picard. “Arthur would look at me and hold me by my shoulders and say, ‘You know, Robert, whatever you do, it needs to be a level playing field. Everyone should have a level playing field when they invest in markets.’ I have really taken that to heart, and I really do believe that if the average billionaire today has north of 50 percent of their portfolio allocated to private markets, we need to evolve, adapt and embrace solutions that allow high-net-worth investors, who are not necessarily billionaires, to have a similar access.”
Picard cites statistics showing the average high-net-worth individual investor has less than 5 percent of their invested assets in private markets. There is a genuine argument to be made that allocation to private markets of 20 percent or higher generates better risk-adjusted returns than the traditional 60/40 portfolio, when dating back five years, 10 years, 15 years and even 30 years, he says.
If investors actually begin migrating away from the 60/40 allocation, as prescribed by many RIAs and other investment managers, to a portfolio mix of 50/30/20 or 40/30/30, it would create a $1 trillion wave of new inflows into private markets, according to Picard.
“We could see that coming soon,” he says.
A third obvious turning point for Picard was his decision to open his own investment house, The Rumson Ridge Group, and his hot pursuit of the energy drink he and his partner firms coveted.
Lowering the barriers
Today, Picard is more focused on ensuring investment opportunities do not elude people of less than astronomical means. He is particularly inspired by the lowering of subscription requirements for private-market investments, largely thanks to product innovations from Apollo, Blackstone, KKR and other name-brand firms.
“I think Hightower is at the forefront of next-generation wealth management business,” he says. “I’m referring to the democratization and miniaturization of private markets to level the playing field.”
If Picard and Hightower Advisors succeed, one imagines there will be fewer investors with tales about the investment opportunities that got away.
Mike Consol (m.consol@irei.com) is senior editor of Real Assets Adviser. Follow him on Twitter (@mikeconsol) and LinkedIn (linkedIn.com/in/mikeconsol) to read his latest postings.