Publications

- September 1, 2019: Vol. 6, Number 8

Success by the book: Arete Wealth Management founder Josh Rogers has found sense and sensibility in classic tomes, education, art and daring alternative investments

by Mike Consol

Josh Rogers’ attitude toward success and failure took shape while reading a book titled The Success Principles, authored by mega-selling author Jack Canfield, who broke big with the publication of his first book (co-authored with Mark Victor Hansen), Chicken Soup for the Soul.

“I read it, more or less, right when I was beginning my professional career,” says Rogers, the founder and CEO of Arete Wealth Management. “He wrote this one thing I have never forgotten, that unsuccessful people think the universe is conspiring against them, while successful people take everything that happens to them and they assume that it is the universe conspiring to help them. So every time I get what appears on the surface to be a setback or a failure — or something that doesn’t go my way, or I get knocked down — I figure in the grand scheme of things it is actually the universe helping me achieve my long-term goals. It all sounds a bit metaphysical, but I basically believe there is a protective force around me, so when things seem to be going wrong on the surface, it is actually just the protective force making sure that I am not making a worse misstep by negotiating a deal destined to fail.”

Accept Rogers’ celestial premise and what becomes clear is that the universe has been doing a lot of conspiring on his behalf. His $3.6 billion, 35-office, Chicago-based alternatives investment house is only a small part of the fruits of that conspiracy. Long before notions of Arete Wealth Management began taking formation, and well before Rogers came spluttering onto planet Earth, his forebearers where putting the pieces in place for his ascension.

THE LAND OF MILK AND HONEY

Rogers’ father Capt. Paul Rogers, a retired Navy captain, was a dominating presence in his life, and is characterized as a man who Rogers believes, at some level, commands expectations that he is still trying to underscore. Giant expectations were also silhouetted on Rogers’ upbringing by his maternal grandparents, both of whom have since entered immortality.

But it was his grandfather’s life that epitomized the American Dream. Granddad’s father, Rogers’ great-grandfather, got the reverie in motion by migrating from Russia to the United States, which required intentionally shooting off his big toe to avoid serving in the Tsar’s Army. When he arrived at Ellis Island, he immediately truncated his name from Josef Perlmutter to Josef Paul to sever the millstone of Jewishness at the time and amplify his odds of success in the so-called Land of Milk and Honey.

“When my grandfather was in seventh grade, my great-grandfather just kind of disappeared, left the family one day and emerged 10 years later remarried to another woman in Wilmington, Delaware,” he recounts.

Making the burden even more onerous was that Rogers’ great-grandmother did not speak English, forcing grandfather to drop out of middle school and become a bag-boy at grocery stores in the Lower East Side of Manhattan, working double-shifts to support his family. Then came the World War II draft and military service. After the war, he moved to Washington, D.C., where he opened a small grocery store of his own on Pershing Street, eponymously named Pershing Market. The market succeeded, as did subsequent copies of the business, ultimately ending up with 17 Pershing Market locations in the D.C. area. Royal Ahold, the Netherlands-based retailer that controlled Giant Food Stores, took note and reached into its bank account, buying Pershing Markets for more money than the unassuming son of a renegade immigrant probably every dreamed.

But grandfather was not done yet. The man who never completed middle school, let alone attended high school, enrolled at the University of Maryland to earn a degree in anthropology.

“During all this time, my grandparents, who loved the visual arts, were docents at the National Gallery of Art in D.C. when I was growing up, and on weekends they would take me on tours at the National Gallery of Art,” Rogers recalls. “That is how I learned so much about art. We also had season tickets to the National Symphony Orchestra and to the Kennedy Center. They really exposed me to the world of fine arts.”

Aesthetics and the visual arts have been illuminating his life ever since.

THE UNSTEADY PATH TO ENLIGHTENMENT

Rogers headed to the esteemed Johns Hopkins University for the formidable rigors of a biomedical engineering degree, perhaps with aspirations of vanquishing some deadly human malady, only to discover by the end of his freshman year that it was not his calling. What he really wanted was to get a more broad-based education, something that appealed to all dimensions of his prismatic interests. That landed him in the Great Books Program at St. John’s College in Annapolis, Md., heralded to be the third-oldest institution of higher learning in the United States, originally founded as King William’s College in 1696 (only Harvard University and William & Mary College predate it). Its Oxford-style requirements entail a four-year curriculum of reading and writing and oral examinations on the great books of western civilization — those authored by the likes of Aristotle, Euripides, Homer, Sophocles, Thucydides and so on. Also mandatory was languages, and Rogers learned ancient Greek and French while at the college.

He matriculated from the school with a double major in philosophy and mathematics, and a triple minor in classical languages, literature and the history of science.

Try fitting a weekend keg party into that schedule.

“I like a challenge,” Rogers deadpans.

TAKING A KNIFE TO A GUNFIGHT

As successful as Rogers’ financial services career has turned out to be, it was not his original calling in life. He probably would have spent his life as a philosophy professor on a university campus, wearing tweed blazers with elbow patches, puffing thoughtfully on a Savinelli tobacco pipe, and imparting the wisdom of Great Books authors, theologians and mystics. He was dissuaded from pursuing that vision by his conversations with academicians in general, and philosophy professors in particular.

“They all seemed miserable, making very little money and were really having difficulty getting tenure positions,” Rogers recalls. “I knew I didn’t want to be poor.”

Rogers fell back on his own philosophy that he wanted to be free, but, having been born into a prosperous capitalist society, the only way to be free was to have enough money to do the things he wanted, without regard to cost.

That drove him to Georgetown Law School, which he instantly deplored with as much fervor as notions of being a destitute, malcontent philosophy professor. Flummoxed, he turned to a friend who had graduated from St. John’s College a year ahead of him.

Their ensuing collaboration is a bit of a long and winding and fascinating road, by Rogers’ accounting: “His name was Andrew Van Luchene, and his dad was friends with a guy named Jay Walker, who had founded this thing in Stamford, Connecticut, called Walker Digital, where he was inventing e-commerce business process patents back in the late ’90s. I left Georgetown Law when Jay and Andrew hired me, and I ended up being a co-inventor on 16 different patents that originally were for the quick-service restaurant business. It had to do with spare-change upsells. The concept behind Spare Change was a name-your-own-price reverse auction system, which then actually became Priceline.com. Andrew, Jay and I are the three inventors of the patents that underlay Priceline.com. We got a lot of venture capital funding and eventually an IPO. Andrew and I are both, like, 22 years old, we have no MBAs, we are not business guys. Jay gets moved from CEO to chairman of the board, then they bring in this guy named Richard Braddock from Citibank as the new CEO and basically, not in a mean way, they more or less fire me and Andrew and say, ‘Go get your MBAs.’”

Another alum from St. John’s College suggested Rogers try his hand at being a stock broker. He joined a firm named Prime Charter Ltd. in Midtown Manhattan, got his Series 7 license and found he liked cold-calling prospects.

“I sold executives of publicly traded companies shares of EMC in the early days,” he says.

He was soon introduced to American Express Financial Advisors and found consultative financially planning to be far more helpful to people than strictly selling them shares of common stock.

“I felt like this was a good path for me to drive my financial independence, which then ultimately would allow me to pursue my other passions,” he comments.

American Express Financial Advisors became Ameriprise, and some of Rogers’ clients at the firm had become high-net-worth individuals with millions in investable assets, but Ameriprise did not have access to the kind of higher-grade investment products accredited investors often seek to diversify and ignite their portfolios.

“Wealthier people were saying how well their rich buddies at the country club were doing with these hedge funds, and we had nothing to offer them,” he recalls. “It was like going into a gunfight with a knife. It was also very difficult to say, pay me $10,000 to do a financial plan on you. At the end of the day, people don’t want to pay for something, they want to invest.”

It was then Rogers first toyed with notions of creating his own organization, one that offered the high-net-worth clients, who were getting bored with mutual funds and exchange-traded funds, more interesting products. In the midst of those thought experiments, he joined the board of St. John’s College and was placed on the investment subcommittee — which manages the college’s endowment — by dint of his financial experience and expertise. The upshot? Rogers got an up-close look at how endowment consultants advise university and college endowments and the kinds of investments that did the heavy lifting in their portfolios. Those were eureka moments for Rogers, who realized he could create a firm that filled the hole he saw in the market, a firm that could build a bridge to connect endowment-style products to rich individuals and families in search of more sophisticated products.

“That was really the genesis of Arete.”

Rogers’ original concept has held true and the business plan required no substantive revisions as the number of offices and advisers expanded. The thing that has changed is the creation of a byproduct, a common occurrence in business. Rogers offered a couple of examples:

  • Cheese manufacturers used to trash the whey protein byproduct produced while coagulating their core product. Then, about 30 years ago, they realized whey was an outstanding source of protein for athletes, bodybuilders and others looking to supplement their diet. That realization turned their former refuse into a new revenue source for cheese manufacturers.
  • Similarly, airlines including American and United derive 25 percent of their earnings from their credit card business. “They are now more into the credit card business fundamentally than anything,” Rogers observes.

In the case of Arete Wealth Management, the byproduct of its core activities was a new service.

“In the course of the last 12 years, in order to do alternatives well — and do it also in a really compliant fashion and make sure that FINRA and the SEC approve — we put a lot of investment into the quality of our due diligence,” Rogers explains. “I have four full-time people in our due diligence department, and all they do is travel and scrutinize alternatives to determine whether we should add them on our platform. Oftentimes they are actually negotiating with product sponsors to change the deal terms to make them more investor friendly. That division is called Arete Capital Markets, which we started about three years ago, and it offers third-party due diligence and it has been a growing portion of the business.”

A HILL OF ETHIOPIAN BEANS

Suffice it to say, Rogers is a man of significant resources, and he spends generously on art, attire, the interior design of his home, and some of the other finer things in life that appeal to and sate his aesthetic sensibilities. He stops short of labeling himself a “conspicuous spender,” though he emphatically embraces the life-is-short attitude, and that a well-lived life is important because money — as fungible as it might be — has never been known to traverse the River Styx.

“You can’t take it with you,” he flatly states.

So, one might say, Rogers takes time to smell the coffee along the way. Indeed, Rogers is a man of many passions, none of which he speaks about with more effusion than coffee. It is a critical part of his morning routine and a craft he takes seriously, right down to hand-grinding his own coffee beans with a Hario hand grinder — as well he should, considering he downs half a dozen cups a day.

His favorite beans are Ethiopian, which he buys freshly roasted from Intelligentsia Coffee in Chicago, and grinds and brews them within three weeks to ensure peak flavor. At home, Rogers uses a Chemex Corp. drip-style brewing system with chemical-free paper filters.

“I love the smell; I love the taste.”

Though extravagantly committed to outstanding coffee, his spending in that area is a veritable rounding error compared with his other monetary habits, much of which goes to charitable causes, especially to fatten up the endowment at alma mater St. John’s College, both because he is a proponent of education generally, and to help underwrite and ensure the survival of the Great Books concept specifically. His second-biggest charitable donations are directed to the visual arts, including the Museum of Contemporary Art in Chicago.

RISK TOLERANCE PERSONIFIED

As to actively and passively earning his daily bread, Rogers maintains an investment portfolio he dubs “very risk tolerant.”

“Super risky,” he adds, placing bets on angel- and venture-capital investments, Italian menswear companies, cryptocurrency, art and other highly speculative assets. That is all in addition to the “boring mutual fund investments” he uses to diversify and round-out the portfolio.

His appetite for risk is partly attributable to his youth (only 44 years old), his situation (owning his place of employment), and the confidence he places in the investment vehicles he chooses (backed by rigorous compliance protocols).

GOING CRYPTO

During times of economic vitality, Arete consistently grows its advisory ranks by 10 percent to 20 percent per year, according to Rogers. But it is during the long, dark nights of economic doldrums that his firm achieves its greatest gains.

“When the markets get bad and there is a lot more disruption, we will probably grow by 30 to 40 percent,” Rogers estimates. “That is typically the way it goes. There is a lot more incentive for advisers and clients to make moves when, finally, there is a little bit of serious volatility or real setbacks. I also think that is when alternatives really shine.”

While the firm offers more than 30 alternative products and services, including investment banking, Rogers most daring venture into alts is Windy City Crypto, which manages the Crypto Futura Fund, a cryptocurrency hedge fund that invests in a diversified portfolio of cryptocurrencies with a market cap greater than $500 million. Rogers is a managing member of the Crypto Futura Fund, which is managed day-to-day by co-CIOs Clint Cox and Jeremy Epstein, the latter of whom was a college roommate to Rogers during his stint at Johns Hopkins. Epstein was named one of the 50 most influential pioneers in blockchain and cryptocurrency by the Satoshi Roundtable, a conference designed to promote a decentralized culture.

Rogers not only considers cryptocurrency a decentralized medium of exchange and a potentially spectacular return on investment, he deems it — and its underlying blockchain technology — a cyberspace revolution. In making his case, Rogers harkens back to when AOL first exploded on the scene and cynics were convinced people would never send anything sensitive through electronic mail, or when they thought purchasing books via the Internet was a nonstarter, or when on-demand movies were considered fantasy because of the fantastically massive bandwidth required.

“This is really internet 3.0,” says Rogers, noting that social media was internet 2.0.

“We are inventing a decentralized infrastructure on a mass scale, and all things related to that blockchain technology have to do with the next stage of the internet.”

THE IMPORTANCE OF TALKING EARNESTLY

Conversation is a passion, and something Rogers considers a lost art.

“There is an art to conversation and people need to learn how to pass the ball back and forth, or how to ask a good question of another person to get the ball rolling and elicit interesting information,” he says. “It is amazing how you could go to a dinner with another couple, and they spend the entire time talking about themselves, never once asking you or your wife a single question.”

That is the type of self-absorption Rogers sometimes guards against by assigning a “conversation captain” who is responsible for developing a series of questions to ensure the involvement of each member of the group, as well as to fuel the best conversation possible.

One recent example was an extended four-night weekend Rogers and his wife took to Lake Louise, Canada, with another couple skilled in the art and nuance of good conversation. They dined at a different restaurant each night, and each took turns serving as conversation captain at the repasts.

“I want to surround myself with anyone and everyone from all walks of life, and I am definitely a super-curious person, but one common thing that I certainly desire is good conversation,” he says.

Consider that a clue as to how to get hired at Arete Wealth Management. Here is one of Rogers’ litmus tests: “I ask myself, ‘Would I want to sit next to this person on a flight from Chicago to Tokyo? Would it be torture or would I find myself having a fun and an interesting flight sitting next to them? What are they bringing to the table? What kind of energy? Do they have the ability to converse? Do they seem interested? Are they friendly and ebullient?’”

Then again, Rogers and Arete do not hire walk-ins. Rather, they recruit star advisers from other organizations, individuals Rogers considers the Kevin Durants and Russell Westbrooks of the business, to borrow a basketball analogy.

“We don’t train new advisers. I’m looking for a scorer, somebody that already has a significant book of business,” he explains. “And the main thing I’m looking for is philosophical alignment around the idea of bringing an endowment-style of asset allocation to the high-net-worth client. If they are not interested in doing alternatives, or the endowment approach, then I don’t think Arete is a good fit for them.”

THE POWERS THAT BE

Given all that, it is safe to say that everybody loves a good cosmological conspiracy, but perhaps nobody more so than Josh Rogers.

 

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter
@mikeconsol to read his latest postings.

 

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