Interview with Phil Bak

I recently had the pleasure of interviewing Phil Bak

We discuss

• His journey in finance and entrepreneurship

• Investments

• Advice for young professionals

Interview with Phil Bak

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Transcript:

00:03

So kind of the purpose of this interview is to get a sense of your story and how you got to where you are to share with this kind of new generation of students and young professionals. So to kind of start off, I would love to get an overview of your career. Yeah, so um I work in asset management um with a specialty in ETFs. So I've done a few other things. And I started my career back

00:32

just before the global financial crisis working for a couple asset management firms, I started off as an ETF product developer versus like an analyst and kind of a catchall for all the projects that nobody else wanted to do. I focused on trying to show everyone that they can give me something to do and I'll get done that was dependable and able to just finish projects. And I think for people starting out, it's really the critical skill is that you know that if

01:00

somebody gives you a project, it'll get done and it'll get done independently in the right way and kind of take it from there. And from there, I became a product manager and product developer of Exchange Traded Funds. And I got very lucky that the vehicle, the ETF vehicle became very popular from the time I started. And from there, I had a couple other jobs in the ETF space. And then I joined the New York Stock Exchange in 2010 to manage the ETF listing business. So to work with...

01:29

the ETF companies and the market makers and the regulators and everyone involved in the trading of ETFs. And I stayed there for six years. And then in 2016, I started a company called Exponential ETFs. We're based in Michigan. We started in Ann Arbor and we ended up moving to Detroit and we were an ETF company and know, did that for several years. Then we sold the company to Title Financial Group. And since then I've started another ETF company and just recently sold that as well. So.

01:56

Um, you know, it's been a long road, a lot of ups and downs, but a lot of fun. And that's what I do. That sounds that's awesome. What initially drew you to kind of this world of finance and then eventually entrepreneurship? I like math and I like numbers. Um, but I didn't want to be an actuary. I didn't want to be, you know, only doing math. was looking for something that kind of combined, um, technical expertise with, you know, the ability to do deal making or be creative and do different things.

02:27

I didn't really know what that was. And I tried a few things before I started in finance. Actually, my first job was in, was with an import export company. And, you know, I tried that and I saw that wasn't really for me. And then I got into trading back then, you know, day trading was a bigger thing than it is now. I did that for a little bit. But I didn't really know exactly. I knew that I wanted to do something, you know, that I was attracted to markets and, know, I knew I wanted to do something related to that, but I didn't know exactly what I wanted to do. And I think

02:55

It's important for young people to not be afraid to try things. Like if you don't know something is exactly what you want to do, try it. Try it out. Try different things. there's a lot to learn from doing something that ends up not being your final path, uh not just process of elimination, but also you get to see what you're good at, what you're not, what you enjoy doing. uh Most people that end up with successful careers didn't know from the onset exactly what that would look like. They just kind of.

03:23

um fell into different things and they you know followed their nose for opportunity and you know their own skills and the things that they're enjoy doing and that leads them to the right path. Yeah so what um what drew you to ETF specifically because I saw that most of your career has been tailored towards ETF so what about ETFs really drew drew you? When I started in ETFs they they weren't uh particularly well known but they made a lot of sense and

03:50

kind of the investment nerds, know, the blogs that I would read and the podcasts that I would listen to and the people that were like really deep into weeds were very excited about ETFs. And I started to pay attention and listen and, I didn't know that I was going to work in ETFs, but I knew that ETFs were beneficial for investors relative to other investment vehicles. And an opportunity came up to get a job with an ETF company. And I was really excited when it was very aggressive in trying to get that job because I knew

04:20

Um, that this was, you know, a hot area, but I didn't know, you know, what it would be like working within the industry or anything like that. I, you know, I tried it, like I tried other things and it just happened to, um, work out. Yeah. So you did say that you started a couple of businesses yourself. What was the first business you started and what was that process like the learning curve with that? The first one was a company in Ann Arbor called Exponential ETFs. When we started, we were called the ACSI funds. We ended up changing the name.

04:49

But the first product that we started with was an ETF that invests in companies based on their customer satisfaction scores as calculated by the ACSI, which is a company in Ann Arbor. And it's a little bit scary. There's a great quote by Nassim Taleb that says, most harmful addictions in the world are like drugs, something else, and a weekly salary. I forgot the exact quote.

05:17

but it's very hard when you're used to working at big companies and you're to being taken care of by them. And you know, get benefits and health insurance and all these things, and you have some certainty there to go off on your own. as you know, there are skills involved, there are things that technically that you have to do or master in order to go off and start your own company. But there's also an element of risk taking that you have to, smart risk taking, you know, stupid gambles, but you do have to be able and be willing to take

05:47

And I think that's something that, you know, for anyone to be successful, that they have to understand. have to understand that, you know, risk taking is not necessarily a bad thing. And, you know, if you can see around the corner and try to, you know, understand the odds and tilt the odds in your favor and make smart gambles, but be able to take those gambles and take those risks when appropriate, that um that's really how you kind of level up in different areas.

06:14

When you went about start, you know, was entrepreneurship something that you've always wanted to do is something that came up in the spur of the moment. What mess, what kind of prompted you to start your own business? I've always wanted to be an entrepreneur. think a lot of people have, and like a lot of people, it was something that I just kind of wanted to do, but you know, never really put into action for a long time. And then at the time before, I guess in the months leading up to when I did, and I left the exchange to start the first company, I had some, you know, personal issues that kind of

06:43

led me to feel like, know what, this is really like, you know, when you're young, you don't think about that. Like, you know, life is short, you only have so much amount of time. You just feel invincible. It's not something that people think about, not something I thought about. And at this moment in time, I started to think, you know what, there only is a finite amount of time in this world. And there are things that I want to do. There are things that, oh yeah, I'd love to do that someday. Well, there is no someday. It's today. Like either you do it or you don't. And you got to, know, maybe you have to take big risks and maybe you have to...

07:12

you know, do things that people think you're crazy, but, know, if you want to do these things, you have to just go out and make them happen and do them. And, you know, the missing element here is, is the courage to be able to do that. And kind of had this moment, epiphany, this moment of realization from that point forward was much more quick to go off and start, you know, companies that do things like that. Oh yeah. I love that. So I read your article, playing to win and

07:42

In there you talk about finding the right partners. You have a quote that says, either find people who get you or don't even bother. So could you talk a little more on the importance of finding the right people to work with? And if you have any examples of certain people that have been monumental in your career and how you kind of found those people.

08:05

I think a lot of people, they're first starting a company, they want the validation that they have investors behind them. And, you know, somebody's going to say, yeah, this is valid. This is good. And, you know, someone who's going to fund their business so they can do it, which is, you know, which makes sense. And the same thing, if you take a job, you want a good job. And sometimes, you know, people just want to get the job for the affirmation or because the, uh, the salary is really good, but they don't think further down the road. And now it's like, okay, so now you got the company funded or you got the job and you're working with people.

08:35

Well, now what? And if they're not people that um get you that are going to let you be you, or if it's not a work environment that you're happy with, you and your business partners or your investors don't have alignment or vision, then it could go very poorly. And it's not fun. But if everyone's on the same page, and I know your strengths or weaknesses, you know mine, and you're going to let me be me, and I'm going to let you be you, and we're going to do this together, and we know what we want to do, um it becomes a beautiful thing. It's like anything else. It's like,

09:03

you know, family or friends or anything else. You need the right chemistry, the right people. You don't want people exactly like yourself. You want people with complimentary skill sets, but you want to have people that are in it for the longterm. There's a quote by Naval Ravikant. It says, play longterm games with longterm people, because all the best returns in life come from compound interests. you know, there are people who are short-term people and they're looking for, hey, can I get a quick score? Can I make a little money in the short-term?

09:32

There people who are long-term people saying, you know what, I'm gonna act in a way with ethics and do the right thing so that uh I build relationships over decades, right? Or I build a career and a reputation that's gonna compound and last me a long time. And um those are very valuable, precious people and precious relationships. And it's very important that you foster those and that you yourself take on that idea of you're gonna be a long-term person.

10:00

and work with people that are long-term people rather than just work with anyone who shows up with a check. Right. And so how do you go about finding these people? Well, that's tricky. And that's a lot harder. um I think especially early in your career, it's very important to get out of your comfort zone and to get out and meet people and talk to people. It's a lot easier to send an email than it to make a call. It's a lot easier to make a call than to go and ask somebody for an in-person

10:28

meeting and to go meet them or have lunch with them or breakfast with them, right? There are conferences and, you know, it's hard to go to conferences and you go to a conference, you don't know anyone. It's very hard to walk up to a circle of people talking to say, hi, you know, I want to introduce myself, right? These are, these are hard things to do. But if you can get out of your comfort zone and get into the habit of doing those, it can pay big, big dividends because, you know, over the course of your career, you know, you're going to see people, you're going to come back around to people and stay in touch with people.

10:55

And maybe they need your help, maybe you need their help, maybe not. It's not like a transactional thing, but over time these things do tend to come back around. And it's very important when you're building a career that you're building relationships to because you really can't do it without people who are either gonna be your clients, your advisors, your vet. Everyone has to work with people. There's very little these days that could be done in a silo.

11:23

You you have to just get out of your comfort zone to make those relationships. Yeah, know that extra was, you know, quote, your network is your net worth. I've heard that a lot and I really do love that quote. So kind of going back to, to that first venture, you said, so you exit that and you started another one. kind of through that process of where you realized, okay, this is enough and how you found that exit opportunity.

11:49

The exit opportunity was interesting. There's a, you know, we provided certain services in addition to the funds we had. We're doing management of other people's ETFs and there's another company that kind of needed that team to plug in. uh And it worked out pretty nicely, but it wasn't a, you know, hugely successful exit. wasn't the kind of exit that, you know, we're drinking champagne on the yacht. And uh even if it was, you know, I think

12:13

When you do these things, when you do it because you enjoy doing it and you do it for the challenge and you do it for the love of it and all that, then it's not about like, you know, yeah, you can make money and that's great. That's kind of the point, but it's also about the thing itself. like there are some people who are, you know, always thinking about retirement and trying to save for retirement and they're always just counting, counting down until they can retire.

12:36

And I don't really think that way. Like I don't want to retire. Why would I want to retire? I love what I do. And I think it's fun. And as long as I can do it, I want to keep doing it regardless of whether I've had success or failure. you know, that's kind of my view. And, you know, I like the early stage of trying to start a company. I think it's hard. It's the hardest part, you know, of the life cycle. And I like the challenge and, I like to try to solve hard things and get things off the ground and go. And it's just something that I enjoy doing. So,

13:04

It's not so much about whether ah it's a means to an end to try to get some money so I don't have to do it. It itself is the thing that I enjoy doing. Right. And so with that exit, wasn't that that company came up to you or you actively looking for an exit so you can start something new? That was a company that we were already partnered with on a couple of funds. So it was a company that I knew well. I knew their CEO very well for many years. So it wasn't a...

13:30

you know, it wasn't a big uh reach. We were already working together on a couple of funds and they wanted to bring the services in-house and apply them to their other funds that they were managing. So, you that one was a little bit of a more logical leap. The last one was uh we sold the company to another Michigan company in Venium. uh And it was a similar thing where they needed the fund structure that we had set up and certain things. And it just kind of made sense. But, you know, in that case I was introduced to their founder and, you know, by mutual...

14:00

uh, acquaintance who said, Oh, you know, you guys are both Michigan. You got to meet. So again, the network right comes, comes into play in a big way. Um, and, know, I think we were just me and the other founder was very like-minded and got along quite well. And this deal made sense for both parties. And, know, we both saw that it made sense and went ahead and executed it. Right. After that, that first exit, did you jump straight away into that next venture? Yes. Uh, well not.

14:28

In between, I worked for a company um here as a Chief Investment Officer. So there was about a year in between, which I think I maybe needed a little bit to decompress. It was very intense, the first startup. uh And also to try to get a clear view of the landscape and where I the next opportunity was.

14:52

Right. then with that next, so you were working for about a year. Were you planning on keeping to continue working or were you actually looking for new opportunities? And then how did you find that new opportunity? I was working continuously through, um, and, uh, how did I find the opportunity? Um, well, so again, through, you know, through a network, there was, um, a real estate investor that was looking to launch a fund and he didn't know how to launch an ETF. So he,

15:21

asked around who knows how launch a ETF, somebody that works for him, asked somebody else who said, hey, I know this guy, Phil Bach and introduced us. And I met him and we started talking. I became an advisor to his business on his advisory board before I came in and we started the whole Armada. So again, it was really through relationships that were building over time. And there was some trust there already because we're already working together as opposed to something that was just

15:48

I decided on my own in my basement, hey, this is what I'm gonna do. I'm trying to go out and do it. It was more of a natural evolution of the people I was already working with. Right. I know you did say that you are currently working on a new venture. As much as you are allowed to talk about it, what can we expect in your future?

16:10

ah Hopefully I'm in a position where I can continue to try to innovate, right? And continue to try to disrupt the startups like to say, which is really what I enjoy doing. I've been very lucky that I've had a couple of at-bats, a couple of chances here to build things. um And it looks like I'm gonna have one more and I'm very grateful and lucky for that. And I hope I don't squander it and really deliver on what I think we can. Right.

16:38

So, you throughout your career, there's been a lot of change. You said you started right before the financial crash in 2008. What have you seen? What are some major trends that you've seen from since then through now? And what do you kind of predict for the future in kind of, know, in the ETF space or in the financial space in general, or even in the startup entrepreneurial space? The financial markets since the global financial crisis have oh

17:08

over the course of time since then have ah just continuously and uh increasingly dismissed the idea of risk. uh We haven't had a big market crash in some time and portfolios are up and they've been up pretty consistently for a while. And uh I would warn people that if they're thinking about things on a forward basis that the next 15 years are unlikely to look like the past 15 and that there are certain uh concepts or certain ideas,

17:36

valuation, fundamentals, risk management. There are certain things that are really just being discounted today as people try to chase the next shiny thing and the next big move. uh And I would caution people against that thinking. say, look, nothing, things don't change in the laws of markets and the laws of nature, right? Things are cyclical and there is more risk that you can't measure, right? There always is. And you should be prepared for that. You should prepare.

18:04

few clients, should prepare them for that um and expect the unexpected. Right. so working in asset management and being in ETFs, how would you describe your investment philosophy, if any? I'd say, at the end of the day, I believe that risk management is key to any investment approach.

18:33

a well-defined parameters or risk plan, diversification and investing in hard assets and assets at good prices. So not to chase assets that are overpriced, uh which is really basic stuff, but nowadays can be seen as kind of radical as, valuations are so crazy, there's really, um there's nothing new, right? There's just cycles. Everything is kind of patterns that repeat, might look a little different, but

19:02

They're very similar patterns that continuously repeating markets. And I would say take a long view, read history, look at different cycles, up markets, down markets, and plan for all possible outcomes. Right. And when you talk about diversification, do you even consider or just completely ignore cryptocurrencies with that? Yeah, think within a well-defined risk-managed approach, it's appropriate.

19:32

There are a lot of things happening in crypto that uh are not overbought, that are really interesting. The ability to trade real world assets on blockchains, uh the ability to get yield enhanced stable coins. There's a lot of very interesting things. I think there's also a lot of froth. There's also a lot of fraud. So you gotta be really careful with crypto, more so than the regular markets, but the regular markets are not that easy either. So...

20:00

You know, I think there's absolutely opportunity in the crypto markets, but there is also, think, at least at this moment in time, while everything has run up so much, there is a lack of respect for risk. And I think people need to just really have a predefined, you know, risk process in place. It could be a hedge. It could be that you're just allocating a certain amount within certain parameters that you can afford, you know, a down move on. Nothing goes to infinity, no matter what. Nothing ever goes to infinity.

20:29

but I certainly would not say that investing in crypto is any less valid than anything else. Right. And you did talk about using, looking back on history and using how everything moves in a cyclical nature when looking at uh emerging new asset class like cryptocurrencies, how, mean, there is no history. How do you kind of look at it then? Well, there's no history for Bitcoin or for, know,

20:56

cryptocurrency and assets, but there are certainly examples that you can draw from. And it's not just crypto, it's also, what does crypto do as a counterpoint to the US dollar or to other assets, other, let's say gold or other things. And you can extrapolate and draw conclusions, but at the end of the day, it's supply demand, right? So is demand gonna increase? it gonna continue to increase? It might, right? There's a great story there.

21:26

Supplies constraint. So it's really a question of demand. You know, did trading of it get ahead of itself? Right? Did people get a little too excited? Did run up a little too much? And now there's a lot of announcement. Do you have edge? Right? If you're trading it actively, you know, there's, there's a few concentrated people that own outsized amounts of the crypto, right? The whales that can really push the price around. If they decide to sell, it's going to, you know, it's going to really dramatically impact the price. Do you have any edge? You have an escape route?

21:55

Right? Do you know how you're getting out if you have to get out? um You know, these are things that people have to consider. It's never as simple as, you know, numbers going up. So I'm just going to buy it. Number is going to keep going up. um While that has worked for the last few years, while it could work, you know, for, who knows, I have no crystal ball, but you know, investors should be aware of that. You know, nothing, nothing goes in one direction forever, ever, you know, so you just have to have, you know, good exit strategy, a good plan. And that's it. Right.

22:25

And so kind of looking, still going through that, that asset management kind of lens, but your, you know, asset classes and types to invest in. Um, I've been doing a lot of work on real estate investing lately, um, which I think is interesting because it's a little bit out of favor. So it's a little bit contrarian, at least in the public markets, whereas in the private markets, it's held value. So there's an opportunity there to invest.

22:51

you know, opportunistically in different asset classes and different product structures where, you know, real estate might be undervalued relative to the others. uh I like gold. I've been invested in gold for some time. uh And, you know, at the end of the day, I think uh if you're a value investor and you're buying stocks because the intrinsic value is higher than the stock price and you can find those opportunities, really can't go wrong. You can go wrong in short term, but not in the long term. So, you know, there are ways to mitigate risk. think

23:20

Also people are a little, at least a lot of people that I speak to now are overly concentrated in the US and I think people should really consider being diversified globally ah more so than I conventional wisdom is these days. So that's another uh good tip for investing. And do you see yourself investing more in the private or the public markets? I've been in the public markets. My next venture might be more in private markets but we haven't announced anything about it yet.

23:50

And with kind of the, I don't want to say rise, but it has been gaining popularity, the private markets. What do you see within that with, you know, private equity and private credit? What's your opinion on that and where do see it going? I think private markets are highly sensitive to interest rates. And if interest rates

24:15

I know there's big push now to bring them down, but with inflation being what it is, it's very hard to, and it's hard to say if that's even the right thing to do. So there is a little risk. There is some uh feeling out there that the private equity marks are a bit inflated relative to real world values. But having said that, there's plenty of opportunity in the private equity side and private credit. uh There is uh opportunities to innovate not just in the investing side, but in the... uh

24:43

market structure side of things. you know, those assets are not as liquid as they could be, as they should be, as they can be if you utilize things like blockchains and, you know, other investment vehicles that are a little more modern than how some of that stuff is accessed nowadays. So there's a big opportunity there to modernize the rails for how people access private equity.

25:06

And you talked about a little bit about value investing. You've seen the run kind of versus fundamental analysis with the whole quants and all that. What do you see with that? What side do you take it any or do you use both kind of tracks? It's a big joke now. It's a big meme that all value investing doesn't work anymore. And it's all momentum and growth and just by the shiny object.

25:33

uh And that is the case today, right? But on a longer term basis, the basic principles are always gonna apply. And if you do your homework and if you buy something at a good price and you understand what it's worth and you use some edge there, then it's gonna work out. think Warren Buffett, there was a period during the dot-com bubble where the NASDAQ was outperforming Berkshire Hathaway by, I forgot the exact number, but some comical degree and I've said, oh, value investing is dead.

26:01

uh It wasn't, of course it wasn't and it's not today. So value investing will make a comeback. can't tell you when, but at some point it will. And I think investors would be wise to consider the price, not just the sentiment, but also the price that they're paying for something.

26:17

And so kind of thinking a step back, you know, kind of going back to your career, you talked a lot about people and how people are. Are there any certain people that you think impacted your career in a positive way and how did that kind of happen? Yeah, there's a number of them. uh I'll talk about one. had a boss at the New York soccer change, Laura Morrison, uh who was one of the leaders at the New York soccer change and

26:46

You know, one of the things that she did early in my career was she put me in a position to uh not just succeed, but also to really get my name out there more. We used to do this thing at the exchange where would host companies would come in and we would host them and they would ring the bell. And uh you know, when she put me in a position to host those events and to speak with them and I was really nervous and I was terrible at it. And she said, no, no, no.

27:11

you're gonna do great, keep doing it, and kept putting me in that position and had faith in me. And even though I probably didn't warrant it, and it's because of that that I ended up becoming very good at it. And to the point where now I enjoy public speaking, whereas I used to be terrified of it. And if I didn't have someone like that looking out for me earlier in my career, I don't know if I would have been able to be as successful. Right. And so you talk a little bit about public speaking. What are some skills

27:39

You think not just technical soft skills that are important to have while going into not just finance, but trying to be an entrepreneur and a leader.

27:50

people need to, think one of the things that I came to see, which is not great, but it is, is that people need to, to a degree and tastefully, and bring a bit, an element of PT Barnum to the business world and have to self promote sometimes, but certainly promote and in a tasteful way and in a way that doesn't ruin your credibility, but

28:19

You know, there's, there's the opportunity now through, know, there, there are no, used to be that if you didn't get invited onto CNBC or if you weren't written up in barrings or whatever it is, then you wouldn't be able to get your name out there. And that's no longer the case. You can go now and you can just start writing. Uh, you can start putting yourself out there as an expert in different fields. can record your own podcast. can just like you're doing, you can call people and interview them and write about it or put it up. And that wasn't always the case. And I think people should really take advantage of that.

28:49

and use those tools to establish themselves in their own credibility and their own expertise. And you kind of have to do that now. If you're going to build a business, you need to show the world who you are. So you have to learn how to do that. Right. Yeah. You talked a little bit about blogs and stuff, and I saw you do have your own blog, a few of your articles. What inspires you to do that? So when we started Exponential, the first company,

29:17

We didn't have a big marketing budget at all. And we're competing against these massive firms like BlackRock and Obesco that were spending hundreds of millions of dollars on marketing. And we're trying to scratch our heads. What could we do that they can't do? And we realized that while it takes them a long time to go through various approvals to get, let's say, a tweet out or something like that, we could be controversial. We could speak our minds. We can talk to the media to say what we think. We can get our name out there that way.

29:43

So I started writing and doing different things, experimenting with different things just to get our name out there back then. I'm very lucky though, I was afforded the opportunity to do it when I was at bigger companies for most of my career. I never did anything like that, but I started to write and at first I hated it and I was terrible at it, but I kept pushing through and eventually I came to enjoy it and now I write all the time. That's awesome.

30:10

If you can go back in time and give your younger piece, you you're yourself one piece of advice, what would that be simple?

30:18

I'd say enjoy the moment, just enjoy it. Life isn't so serious. um Try different things, some are gonna work out, some are not gonna work out, but just have fun, work hard, keep it simple, um make good relationships, keep in touch with people. um Nothing earth shattering there, but I think some of those things are, they're conventional wisdom because they work and they stand the test of time. So I would just say,

30:46

You know, work hard, but embrace it, enjoy it, know, avoid assholes, you know, find the right people to work with and, you know, do it consistently over a long period of time and things are going to work out just fine.