The following document is an approximate, but not exact, transcript of the Operational Leaders podcast conversation between host Terrance J. O’Malley and guest Joseph Signorile.
Please support the production of this podcast by downloading the Joe Signorile episode.
Welcome to the Operational Leaders podcast featuring leaders and innovators in the investment management industry, where we discuss the business of running the business with host and top industry executive Terrance J. O’Malley.
Terrance O’Malley 0:21
My next guest has over 20 years of experience in the alternative fund industry, including more than 15 years in the role of Chief Operating Officer. He’s currently the chief operating officer to a multi-family office. And he is the founder of Our Peer Group or “OPG”, a leading best-in-class private network of chief operating officers and chief financial officers that enables peer to peer communications. Please welcome Joe Signorile.
Joe Signorile 0:46
Hey Terrance. Thanks for having me. I’m looking forward to talking with you and talking about the hedge fund industry and being COO.
Terrance O’Malley 0:53
Thanks, Joe. It all rolls up to the chief operating officer in the end doesn’t it?
Joe Signorile 0:57
It really does. All of the glory and the nuts and bolts of it, and running a business, really flows into the COO role these days. And it’s really transitioned and grown over the years, I think.
Terrance O’Malley 1:10
So we have a show here that talks about the operational side of the business, about risk, efficiency, outsourcing and technology. It only makes sense to finally have one of the leading chief operating officers join us, doesn’t it?
Joe Signorile 1:21
Yeah. I thank you for the kind words, I hope I can provide some insight.
Terrance O’Malley 1:26
So with that as background, why don’t you tell us about your background? How did you get started in the business and what are some of the key steps along the way?
Joe Signorile 1:33
Sure. You know, I always say it was a little skill, a little hard work, a little insight, and a little luck. It’s always a combination of all those. But I started out in public accounting at a large midsize firm called Goldstein Golub Kessler in the city, which is now RSM McGladrey, and started off on the audit side transition to the tax side. I was a senior manager over there and was on a few accounts in the hedge fund industry where I sort of learned about it. I really didn’t know too much about it before that. And you know coming out of college, as a lot of people didn’t, and I was placed on two big accounts – Pequot Capital with Mr. Sandberg and then also Omega Advisors with Mr. Cooperman.
Joe Signorile 2:12
I worked on those for a number of years ultimately got asked to go over to Pequot, working under their CFO. I did that for a couple of years. That split unfortunately and became Pequot and Andor right around the 911 timing, if not right at 911 actually if I remember. And went with Dan Benton on the Andor side and I was the vice president over there. I ultimately spent a few years there before joining up with the Kensico Capital founders where I spent the vast majority of my career. I was there for 13 years together until the end of 2016 as the COO and CFO and for part of it as the CCO as well. And since then, I started a multifamily office in the city managing assets and the business as well.
Terrance O’Malley 2:58
Joe, you’ve been in the business a long time. You’ve seen a lot of things go right, probably seen some things that didn’t work as well. You are the head of one of the leading peer groups for chief operating officers, Our Peer Group. What do you think it is that makes somebody a good chief operating officer?
Joe Signorile 3:13
I think it’s a lot of different qualities, you know, and you could come into this role a variety of different ways. It’s not just the way that I came in through the public accounting experience. Sometimes it’s from the sell side, sometimes it’s from the legal side. There’s a lot of different qualities that can make someone a good COO. And I think you have to really be able to understand a lot of the areas of the business, if not all the areas of the business, to the point where you know it as well as anybody who’s doing it so that you can really manage each of those areas as well. And I think it’s managing people as well. I think that’s very important. You have to have good emotional intelligence. You really need to be able to understand what each role is, what each silo the business gives to the overall growth of the company. That’s the only way you can manage such a small place when it comes to people. Most hedge funds are billions of dollars, but not more than, you know, 10, 15, maybe 20 or 30 people. There’s always the outliers that have a couple hundred, but a lot of them are small, and people have to do a lot of different things. And you have to do them well. You can’t be average in a lot of different areas. But handle all those areas. You have to be really good at all those areas in one role, and I think that’s a big challenge.
Terrance O’Malley 4:33
So do you find there’s a consistent set of issues that most chief operating officers grapple with notwithstanding the many different structures you might find?
Joe Signorile 4:43
I think so. I think dealing with regulatory concerns, investor’s, business growth and the general day to day upkeep of the people inside and the firm are things all COO deal with. There’s a lot of variety of roles that happened, depending on the firm, that you may focus more towards, whether it’s the accounting and operational supervision, or whether it’s much more on the investing side, whether it’s on new structures or business growth or working with the founding partners on what they want and changes. Compensation can be a big role. Dealing with managing a lot of people’s compensation deals and performance tracking, it can be so varied. But you have to have the core bones down, I think, which is investors, accounting, operations, and people. Everybody has to deal with those. I think that’s sort of your starting point.
Terrance O’Malley 5:37
What would you say based on that, what is the hardest part of the role?
Joe Signorile 5:40
It’s a good question. For me, I think the hardest part of the role was really understanding how the Founders worked, what their needs were, what their likes and dislikes were and how to really understand how to maximize what I did in a way that resonated with them that they could understand and that would make us all successful. I think that took time. I think trust takes time. People need to see how you operate, how you make decisions, your work ethic, and making sure that they agree with the approaches that you take and the way you handle things. And that’s not something you earn overnight. I don’t remember how long that took, maybe it was six months, maybe it was a year. That’s certainly a challenge. You have to build trust. And you have to show that you’re going to make the right decisions for a firm to help them navigate a very, very publicly out-there type of industry like a hedge fund. I found that and managing people – those to be the two biggest challenges.
Terrance O’Malley 6:39
What do you think is the ideal role or the ideal relationship between the portfolio manager and the chief operating officer?
Joe Signorile 6:46
I think, at least in my mind, that the ideal relationship is one of the Founders seeing the COO role as an equal, as a peer. I think that’s really important. To be able to run the entire business for the Founders in a way that people know that the Founders take what you do seriously, they take running the business seriously, and have delegated a lot of that role to you. So I think that’s an important relationship to have. But as I mentioned before, I don’t think that’s something that’s just given over lightly. I really do think you have to earn that and not just coming in with a big resume or you know, big reputation. I think people have to see that you operate the way they like, the way they understand, and really formulating a level of trust. And I think that’s ultimately what would be the ideal way for the portfolio manager, the Founder, and COO to operate, that they know they can rely on you. They trust you. They feel like they have a third arm out there helping run their firm. That’s ideally what you want to have. That’s hard to find. It’s not so easy.
Terrance O’Malley 7:51
So is that a key for the portfolio manager to trust the chief operating officer and let the chief operating officer run that side of the business.
Joe Signorile 7:58
I think it’s extremely key. A lot of these Founders are starting up what’s essentially a small business and it’s based on their reputation and their skill. And you can’t hand something over like that lightly. I wouldn’t either. So they really have to make sure that not only do they have somebody who’s qualified, but is somebody that they believed in, that they trusted and that, you know, it’s going to protect their reputation, keep them off the front pages, that type of thing. So, you know, in addition to that trust, you really have to have the same personalities, I think. If the personalities aren’t a fit, that trust is going to be really hard to build. And, you know, this sounds all very, you know, subjective, but it’s very important in a hedge fund. And these are not, you know, 10,000 person firms. These are small firms. Everybody’s around each other all day, have a very set and defined series of goals, and really have to work a lot together with each other in a high-stress environment. So you have to be a good fit.
Terrance O’Malley 8:53
If you had one piece of advice that you could give to somebody who’s starting out in the role, what would that be?
Joe Signorile 8:59
Do your work. Learn everything. Get all the experience, don’t take any shortcuts. Don’t jump into the role before you’re ready. Really have the experience and the breadth and the multifaceted experience and the qualifications and get your law degree or your CPA degree. Do it when you’re ready. Don’t be so fast to jump into something, because at the end of the day, yes, you get credit for everything. But you’ll also take blame for everything and nothing can kill a career faster than, you know, something bad happening and you taking that blame on your reputation. You don’t want that. So you need to really be comfortable when you jumped into the role. You’re ready for it. That’s my take.
Terrance O’Malley 9:39
So this may vary from one form to another, but how much interaction would a chief operating officer have with the investors and what does that relationship mean for the viability of the firm?
Joe Signorile 9:50
No, you’re correct. It’s hugely varied across the industry. I think more and more of these days firms are trending towards having a segregated Head of IR that is the primary point focus with investors. But certainly where I grew up in Kensico and spent all my time, I was the prime point person with our investor base, along with obviously the Founders from the investment side. And that worked really well. And I maintained those relationships and made sure everything ran smoothly and was a liaison between all of the accounting and operations and tax questions that went on. So I was able to run that role.
Joe Signorile 10:30
But I don’t know that that’s the norm these days, I do think that people have trended towards having one person on the IR side just to deal with investors. I’m not sure I think it’s the best approach, frankly. I really liked being able to talk to investors because I could answer everything that they really had on their mind, especially on the business side because I was so involved in all of the business items, and you know, what systems are using, what’s not working, what’s working, what’s going on with staffing. I really had such a versed experience and control with the whole business side that I thought I could really service the investor base really well. I imagine a lot of the IR heads these days are able to do that much better as well. But I think you’ll see both, I really do think you’ll see both the way things work these days.
Terrance O’Malley 11:14
Looking back, what do you see as some of the bigger changes in the role from the time you started until, what we might say, the modern chief operating officer?
Joe Signorile 11:22
It’s a tough question, because this industry, as entrepreneurial as it is, really allows such a wide variety of definition. And I’ve always said, I mean, these titles at hedge funds are almost meaningless. You know, what one person does as the CFO or COO might drastically vary to another. I used to tell the story all the time, you know, what do you do as a COO? I’d be asked. And so you know, there were days where I was fixing the leaking sink in the kitchen. And then as soon as I finished that, I’d get my tie on and go meet with our largest investor for three hours. So it really varied on what you could be doing. Personally, that’s what I really liked, because you really just didn’t know what you’re going to do that day. And you really had to be willing to roll up your sleeves and do what was needed for the better of the firm. And I was always – the way I viewed things – doing the hard work. I liked understanding the nitty gritty. And sometimes I think actually, as a CEO, you can get to a level where you sort of missed that side of things. And you’re doing a lot of people management and, yes, investor work and meeting with the fund managers doing that. But sometimes you can really miss what got you there, which is really the nuts and bolts of the operations of the business. But it’s really good to understand how to do all that stuff. I wouldn’t trade that for anything.
Terrance O’Malley 12:40
So we had a lot of vendors who have been on the program and also a number who listen. As the chief operating officer, was there any advice that you would give to vendors in terms of how to approach a firm, how to make their pitch, how to continue to service the firm?
Joe Signorile 12:55
Yeah, I mean, firms have a lot of different needs. And I think the best thing a vendor ever did with me was to really care enough to understand what exactly we did, what we cared about, and what we didn’t care about. Because there was a lot of things that were not important to us that they would sell or, you know, profess how great they were at. And you know, it wasn’t our concern or our needs. And I think it’s really important that they understand that as they’re trying to bring on board a fund and work with a client. And I like vendors that really care about you that are loyal, that are going to be there for the long term. You know, you can always pick out a vendor who is looking to close monthly sales or, you know, make a few bucks, or do those types of things. That never appealed to me. I always sent up a warning sign. And I liked the guys who would pick up the phone, really get to know you a little bit and really cared about your firm and what your needs were and have a long-term view of it. Everything I do is, you know, long term in the way I looked at hedge funds. I wasn’t a short-term person. I didn’t like vendors that were short term. Obviously, technology these days is great, and the better technology is going to win. But sometimes it’s a matter of catering to what you need and catering to your long-term relationship. I think that was missed a lot when it came to vendor relationships.
Terrance O’Malley 14:15
Talking about technology, obviously it’s one of the bigger trends right now in the business. Another big trend, I think, is outsourcing. What are your thoughts on those two areas?
Joe Signorile 14:24
Yeah, that’s changed a lot over the years without a doubt. When I was at Pequot back in the 90s, I think more the approach was to build staff and in-house everything and control everything. It worked. Certainly worked, but you ended up with a massive infrastructure cost, you know, massive headcount, and a bit of an inflexible environment. So you know, I took a lot of lessons out of that. And I always viewed outsourcing as outsource everything that you can that’s not value-added that can be outsourced and keep internally the review process and the value-added process. That’s what the employee should be doing. So outsourcing trade-matching outsourcing reconciliations, those things today have become very popular and frankly, I think the right choice.
Joe Signorile 15:16
But as I mentioned earlier, you’re responsible for everything at the end of the day, and you’ll get credit for working and you’ll get credit for not working. So you better keep internally that process of checking, reviewing, shadowing, and doing those types of functions. But I’m a very big fan of keeping lean, not having everything built in-house and constantly having to update it and have 10 people to manage it. I think the industry has proven these days that outsourcing, especially in back office and middle office functions, really is the smart way to do it. You can leverage so much better. The technology is great. Don’t have to worry about constantly adding and replacing people. It’s really a good solution these days, but you cannot give up responsibility, that’s key.
Terrance O’Malley 16:02
Those trends are kind of interrelated, aren’t they? The better technology allows a little bit more outsourcing and the outsourcing kind of feeds back in.
Joe Signorile 16:09
Absolutely. And things that once took so much manpower and time to do are just being done so simply and automatically these days. But I will say that it leads to, I think, a trend of people just thinking that everything works. And everything’s, you know, done automatically, and you sort of move on to other stuff. And I just, I was always very careful of remembering that all of these systems and outsource people don’t ultimately have to answer to the Founders at some point. You do. And you really have to make sure that you’re constantly on top of that, constantly checking it, constantly managing it, and that still takes a lot of work because you can’t, you know, let your fund be reliant on people that you don’t really know and don’t employ. That’ll get you in trouble. But that’s why you have the value-added, you know, smart thinkers internally so that you can manage that process.
Terrance O’Malley 17:00
So Joe, that’s actually a good segue into another area. The Coronavirus impact on everybody – work from home, remote working environment. You had a couple thoughts on that. How’s that going to impact long term?
Joe Signorile 17:13
I think so much is yet to be determined. I do think that it’s worked really well from my perspective and from other funds that obviously I talked to a lot of people. People who had good BCP and DR plans and tested them and paid attention to it along the way, I think have really seen a very seamless transition to people working at home and running the business and operations. It’s really works well. If nothing else, it’s proven that all the work we did with our IT guys and building all of these remote setups and systems that annoy everybody from testing it every time – like, “when are we ever going to use this?” Well, you know, we’re using it and I think those that paid attention to it really have seen good things come out of it. Now. I think, you know – I don’t know any better than knew at this point, really – but I think it’s inevitable that the amount of people in offices and the office space is going to be really re-thought and probably less. They still haven’t heard a great way that you’re going to source 1000 people into a high rise in New York City on a daily basis. I just don’t know how that’s going to happen. But I think a lot of firms have – the ones that were resistant to this at home concept – are going to have to adapt this idea that, you know, “workers don’t work as hard or as well, from home”, I think is sort of gone by the wayside. And people can start to focus less on the amount of hours somebody spends and the amount of results that they get. I think that’s the way to look at it.
Joe Signorile 18:40
You know, the one other thing that I think is important is that it’s worked so well because everybody has such a deep relationship with everybody they’re working with. So when I’m on a conference meeting with 10 people that I’ve worked with for five years, I know how to talk to them. I know what they mean. I know I can trust them and all these things. And over the years, some of those people are going to leave, some new people are going to come in. And I’m not so sure yet how this remote environment will work in those cases. You haven’t built up that physical face to face trust. I think it’s yet to be determined. But I think it’s something people have to be aware of, because it might not always be this smooth. It might actually get harder. But I think that’s something we’re going to have to live through before we really know.
Terrance O’Malley 19:24
Joe, I want to save a few minutes here at the end to talk a little bit about Our Peer Group. Can you explain a little bit what the group is and what it does? You are a founder, what led you to start it?
Joe Signorile 19:34
Yeah, no, I appreciate it. I started this back when I had been at Kensico for a few years. I was very frustrated with having these, you know, periodic email trails with 100 people on the “to:” line, and never being able to get off of them and not knowing who I’m talking to and not having a resource to really help me do my job. Because no matter how qualified you are, when you start, you need people, you need growth. you need learning. And so what we essentially did was build a back-end system, sort of a new way of doing things. And by doing that, we were able to bring in all the peers that I normally would have to pick up a phone and call or go see for lunch or coffee. And we gave them a real time platform and a best-in-class way where they could have conversations. We could run surveys of what everybody thought. We can do interesting webinar topics. We can share jobs, do all of these things in a really great website-driven way.
Joe Signorile 20:33
And I kept it very closed. I would call it so just people that I knew it first and then friends of friends of friends. We didn’t let any sell side in. And it was just a trusted way that everybody could communicate and do their job better. Which to me, was such a huge benefit to me personally, just to be able to do my job better. When I was able to go to people and say, you know, I’m really not sure what my expense ratio should be in a long short fund in my audits. Should it be 30 basis points? Is that the normal? What are people seeing? I don’t have time to go get 20 audits from people and figure out the answers, And this way I can get instantaneous results from 20 other billion dollar firms and really be able to say to myself, and to the Founders, “hey, we’re right in the sweet spot, or we’re off and we need to be here.” And it was such a great benchmarking way to do that.
Joe Signorile 21:29
You know, over the years, it’s grown into something different. It does all of those same core elements, but it’s much larger. We’ve got, you know, 200 – 250 member firms. And it takes up a wide variety of time. I do a lot of writing, I do a lot of analysis of different topics for people and you know, I’m running over 50 surveys a year for the group to help them all do their job better. So I love it. It’s sort of an entrepreneurial thing for me and I hope it lets everybody do their job a little bit better. Especially in this world where everything needs to be sort of remote and you know, real time, and COVID safe and approved. So really, I hope it provides a really great service to a lot of these people and friends that are part of it.
Terrance O’Malley 22:12
What are your long-term goals for OPG?
Joe Signorile 22:14
I’d really like to see it grow with some real value-added quality firms and have them added in. I think it’s important to cycle in new firms periodically as well. You get new flavor, new questions, new ideas. But really like to see some growth inside of the firm itself. But you know, we really want people who are going to participate, people are going to add value. And when I send out a survey, I want to be able to get 50 or 60 firms to respond.
Joe Signorile 22:39
You know, I’m getting a little bit more involved into some virtual conferencing. I’d like to do a little bit more with the group on being able to fill jobs for everybody. And, you know, I’d like to be known as sort of the industry stopping point for CEOs and CFOs where they can really think “this is the place to be, this is where our common goals can be served.” And, you know, it’s not a competition. We’re all working for the same things, in the same way. So I’m hopeful that we continue to grow that way.
Terrance O’Malley 23:07
For someone who is a chief operating officer or a chief financial officer, and they’re not part of your organization, ff they want to know a little bit more about it, how can they find out more?
Joe Signorile 23:15
They can go straight to our website. We have our whole presentation on there. It’s www.ourpeergroup.com, or they could just look me up on LinkedIn, shoot me a message under my name. OPG also has its own site on there as well and just reach out and we can figure something out and get you involved.
Terrance O’Malley 23:36
Joe, thanks for coming on today. You know, it’s great having somebody who’s been in your seat, who has that perspective. It’s about time we did that. And I’m really thrilled we got you on here today. So thank you very much.
Joe Signorile 23:48
Thank you. Thanks for asking me. I hope it had some value and did a good job for the listeners.