Goldman Sachs Ashish Shah on Reading the Market With AI and Technology | Masters in Business

Thanks so much for having me.

Look, I had no plan. This whole world was completely new to me, but I knew two things. First, I knew I loved markets. I worked for Jeremy Siegel as a research assistant when I was at Wharton, and that embedded in me a love of macro and markets. Second, I knew I didn't want to go into an investment banking track. I wanted to work on interesting problems that would allow me to cast the career I wanted without being shoehorned into a fixed analyst-associate track.

Blue Border Partners. I joined that organization right after 9/11, right after I came back to New York City. It was a fantastic experience. The markets were all over the place, but it was a very small organization, five or six of us spread across the world. I got to work with Greg Coffey, who has gone on to fantastic things. But I basically sat in a cubicle by myself trying to come up with investment ideas and realized that that is not my best place; my performance wasn't the best. But I learned a lot from that experience, knowing that I'm very much a team player and I work well in mid-to-larger size organizations.

Yes, so going back to the late 90s, the internet was all the rage. I had a brother-in-law who joined a company called Level 3 Communications that was building out the internet. He called me and said they were looking for people with my profile. I saw it as my opportunity to build out my skill sets. I was head of a prop trading desk at Bankers Trust, but I was interested in going to business school without actually going. So I went out, learned the telecom industry, worked 120-hour weeks helping Level 3 raise money and build out its business plan. I learned a tremendous amount about business, startups, and innovation. After that, I left because I saw that the industry needed greater transparency and financial discipline. So I founded Sage Logics, a software ASP in the telecom space focused on telecom providers. My thesis was that if these organizations didn't get their heads around their cost structure, they'd all go bankrupt. In reality, I should have come back to Wall Street and expressed that view in 2001 because that's essentially what ended up happening.

I was brought in by Doug Peebles and Peter Kraus to lead the credit organization. They had really strong credit capabilities but needed to unify a team and build an investment process that was scalable. They had some of the most talented portfolio managers and investors in the world, who really understood how to construct portfolios. I learned from them. What I brought to the table was an ability to bring the team together to operate under a singular set of incentives: delivering performance. I brought the hedge fund skills, derivative skills from operating in hedge fund and prop desks, to that traditional asset management. What I learned was how to construct portfolios in a way where you can stick with your bets over the long haul at size, where you are the market, so you don't have the ability to increase risk or decrease risk, but rather you build your portfolio so you can stick with the risks that make sense over time.

Those are absolutely critical elements. It's amazing how as the asset management industry has consolidated and these investment organizations have grown, how difficult it is for them to pivot. I think it ends up being cultural. Investing requires focus, and organizations are built around small, agile teams. But how do you pull those teams together into larger organizations to do bigger things? That's where my innovation experience from technology and software came in handy. I understood markets and investment process, but I was able to bring technology as a force multiplier so that investors can focus and operate in smaller teams while still delivering large-scale customization for clients.

When I go back to that period, there were four of us at Alliance Bernstein that realized something was materially changing in the market: fintech was accelerating changes within the asset management ecosystem. So myself, Vicky Wallia, Matt Bass, and Carl Sprouls, the CTO, decided we needed to build that muscle, not just top-down but as a bottom-up engagement tool. We tackled topics like robo-advisors, crypto, and blockchain to educate the organization rapidly and get people leaning forward into innovation. It ended up leading to both research and venture investments, but most of the effort was around building organizational readiness to innovate. A lot of the things that spun out of that effort continue to impact the organization today in terms of forward lean and the operating stack that allows portfolio managers to focus on markets while delivering scalable solutions.

Culture defines success in investing, particularly in investing organizations. You have to set an investment culture where investors are aligned to deliver performance that makes clients happy. You need a culture where people collaborate; if not, it's tough to have scaled performance. The world is moving rapidly; the way you do research, construct portfolios, and execute is changing. End advisors and clients want mass customization delivered with institutional quality. That requires innovation and technology. And frankly, that's why I joined Goldman Sachs: I felt we needed the scale and resources of a firm like Goldman to invest in technology and data to succeed in delivering institutional quality portfolios that meet individual needs at minimum sizes of $100,000.

Absolutely.

The most successful investors decide what works over time and try to stick with it. The worry is about whether that thing you believe works over the long haul is wrong, because where you really underperform is if you get a long-term trend wrong. So you should constantly challenge your core thesis, but it's also critical to be humble and stick with it. The other aspect is what can you do to make sure you stick with your core thesis? You need to construct portfolios so that you can tilt out of positions when they get crowded or overextended, and lean in when opportunities are best. That's how you buy low and sell high rather than having to sell low because investors lost patience.

That's where doing research and developing an investment process are absolutely critical. Your investment process should include tools like momentum and risk analytics so that you can reduce your risk before the market questions your thesis, even if nothing has changed fundamentally. You need to have things that diversify you out of that long-term bet. The second thing is you want to do research so that when your style goes out of favor, you know when to double down and lean in with confidence. That's what investment process design is about: how to stick with long-term bets, tilt out and tilt in, so that you're front-footed rather than back-footed, and you shallow out drawdowns and lean into opportunities.

From a long-term perspective, it sounds trite but fixed income is about income. The starting point is evaluating income and the likelihood you can capture and hold onto it, because losses give up the income. Shape of curves matters: spread curves and interest rate curves are normally steep, but they're inverted now, which is unusual. We've seen an inversion for about two years without a material slowdown in growth. The reason people forecasted a recession is because yield curve inversions historically announce slowdowns. What's changed this time is that real and nominal rates are high enough to slow the economy, but there's enough fiscal impulse offsetting it, so growth continues. Inflation has come down from its peak, though not in a straight line. For fixed income, you're better off in the front end now. From a longer-term perspective, real rates relative to the economy's ability to grow are pretty attractive. If growth slows in a way that cascades into inflation, bonds will do their job of diversifying equities. So falling inflation, still robust growth, and decent yields create a pretty good environment.

I was a client of Lehman in the early to mid-90s, so I had a lot of relationships there. I always loved fixed income, but it became less interesting in the late 90s, so my team had pivoted to equity strategies. When I came back looking to get back into Wall Street from tech, Lehman was one of the calls I made. Tom Cochran and Rick Rieder were people who knew me. They asked if I would consider trading prop within Lehman. I said I hadn't traded fixed income for five or six years and shouldn't manage capital right away. But there was a real change in fixed income: derivatives were coming into the space, hedge funds were coming in. The people who understood derivatives didn't understand credit, and vice versa. I was one of the rare individuals who understood both. So I came in as a hedge fund strategist, working with traders and salespeople to come up with ideas for hedge funds. That cascaded into running all of credit strategy including prop research.

It was super high energy. This was the world of fixed income; fixed income was booming. The growth of structured credit, mortgage credit, was expanding the opportunity set. There was a lot of credit being borrowed to fund companies after the 2002 credit cycle, and there were secondary opportunities in distressed debt. It was a high-energy, rapid growth area, exciting to be there and influence product creation and client education.

I didn't directly watch the mortgage side; I was on the corporate credit side. But without question, the overall fixed income franchise was growing, and we were able to cascade that into growth in our franchise and product innovation that served our clients, which were largely hedge funds and asset managers.

I have many stories about the fall of Lehman in 2008. It was a difficult time for the economy and everyone involved, but it was a tremendous leadership experience. You really got to understand what you were made of. One story that stands out: I had taken over the weekly credit call. Lehman failed on Sunday. I went in, cleared my desk, was interviewed by media. Monday morning, I walked in wearing a suit, ready to go. We didn't know if we had salaries or healthcare. My team and I were sitting down, and we had this call scheduled for Tuesday morning at 7:45 AM. I said, 'I want to do this because it's the right thing to do. I don't want to go out this way; I want to go out with everyone knowing that the last thing we did was try to serve them.' One of my team members, Krishna Hegde, and I worked until midnight to prepare the presentation. The next morning, we had about 300 or 400 clients dialed in, and they couldn't believe we were still doing this. About an hour later, over the intercom, the CEO of Barclays announced they were buying Lehman's US operations. Someone in equities played 'God Save the Queen.' The number of emails I got from clients saying they respected our work and that we went on to service them on that day of all days was overwhelming. It's lost in the media that there were people who really cared about clients and went out of their way even when the chips were down.

The assumption is all the risk has attenuated and you're left with searching through the rubble of the collapse. Here are some really spectacular assets, great teams, and a long history of making money. The experience was surreal. I think when you work in financial services, you're used to change, but not at that scale and speed. What the organization accomplished and what we learned was priceless. Once you've been through an environment like that, everything else pales. You're able to deal with any sort of crisis. I contrast that with the pandemic, which was a much more massive crisis, but we had been through crisis. For managers who have had to manage risk through crisis, you learn the lessons and roll them forward. One thing I do well is in periods of difficulty I zoom out, slow things down, and pull people together to solve problems. That baptism of fire is unique to our generation.

It was as soon as we were allowed to, like a couple of months. More weeks. We continued doing that at Barclays for about 18 months until Alliance Bernstein gave me a call and said they were looking for a head of credit, and asked if I was interested.

There are a couple of things. First and foremost, take care of your people and your clients, and everything else will take care of itself. Because I was very involved with the New York Fed around stabilizing things, despite having gone bankrupt, we provided insight and ideas for actions to stabilize the US financial system. It was a calling. The importance the financial system plays for the US economy and national security is critical, and we can't take it for granted. Anyone in a seat like mine has a responsibility to ensure the country benefits from your work. Whenever policymakers call, I provide the best advice I can. History has shown that growth and innovation rely on the ability to finance infrastructure. That's very much our purpose at Goldman Sachs—to fund growth in the economy.

I spent more time with the New York markets team—Hayley Boesky and her team—because I'm a market expert, not a policy expert. Some of my work turned into programs the Fed launched, including TALF. I can trace back through books that have been written where I'm a small character. It was reassuring to know I helped students get student loans through that period when banks couldn't finance those loans.

It includes public stocks and bonds managed both fundamentally and through our quant business, in individual sleeves as well as multi-asset portfolios. Multi-asset could be a hedge fund or more traditional mutual fund or ETF, all internally managed.

It's fantastic because you have a partner. It takes effort—you have to invest in the relationship, communicate, and overcommunicate—but you get different perspectives. My co-head in London was from an emerging markets background, I from developed market credit. We mixed macro and bottoms-up, and it allows almost full-day coverage. But it requires constant communication.

We have a large effort to invest in private assets. To make sure we also invest in our public strategies, we unified them under public investing. There's a lot of change in public markets—trading, market structure, hedge funds, ETFs, passive versus active. To leverage our data analytics capabilities across all these strategies, bringing historically independent strategies together made sense to deliver better performance for clients.

I wake up every day and the first thing I look at is markets and prior days' performance—performance is job one. Then it goes around three things that deliver long-term performance: people, process, and platform. People are the investors—checking in, investing in them. Process: performance and process reviews across strategies to learn from best practices. Platform: investing in data and analytics. You need scale and focus to keep up. Clients are looking for more than a return number—customization, tax efficiency, direct indexing, SMAs. We can deliver institutional-quality portfolio construction down to a $100,000 minimum size.

I have the best job in the world. I get to see every investment process, interact with the smartest people who genuinely care about clients. Every day I learn something new from my investors. What differentiates our organization is the density of smart people and their humility and willingness to learn and teach. Culture is foundational—you can't succeed without it. Every day we ask what we can improve. This is a competitive environment; if you're not training to get better, you'll fall behind.

Collaboration is core to our culture. We have weekly and monthly collaboration across public and private investing with appropriate governance. We share insights on markets for the benefit of our investment teams and ultimately our clients.

We saw late last year inflation coming down steadily—the Fed's hikes were working, the economy normalizing. We felt rates were too high. In six weeks of 2023 we saw the rally we hoped for in 2024—a huge 100 basis point move. Since then, growth has been strong, inflation ticked up a bit. The long-term trend is still toward inflation normalizing. Our focus is: you'll get periods of retracement; make sure you have room to add in because when inflation turns, it will turn quickly.

Central banks outside the US are becoming more accommodative except Japan. Underlying growth looks good and diverse. Companies are disciplined on costs, leading to earnings growth outpacing nominal growth. So equity markets have continued runway. But parts of the market, particularly tech and AI, have run up so fast that risk-return sets up for potential corrections. There are long-term trends in Japan, India, and value in other parts of the market. When something is overdone and crowded, tilt out and into places that will work. We see material opportunities in India and Japan, and more broadly in industrials.

The deficit is large and structural. If the curve doesn't represent value, auctions will tail. The US government needs to manage its liability side, and investors need to consider whether there's good value. Many investors are concerned about long-term stability of running deficits at this pace. That requires political solutions. Demographics, Social Security, Medicare are finally taking effect as baby boomers retire. In the short term, we're in good shape because duration represents value on a real basis. But we have to be focused on debt sustainability.

I don't think that's part of their charge. They do look at liquidity in Treasury markets. With this level of debt and cost, if growth slows down, it can cascade into a real problem for the Fed on employment. The Fed is watching debt stacks like commercial real estate, where high rates impact values in the banking system. If that becomes more problematic and spills into growth, you'd see the Fed move rapidly.

I got involved because I followed a girl I really liked who volunteered every Saturday. This May is the 30th anniversary of my marriage to her. My wife introduced me to Minds Matter. I've always cared about education as a path for people to better themselves. Minds Matter serves over a thousand students in 14 cities, helping them get into college, believe they belong, succeed, and then build a network post-college.

Three stand out. Early on, Dr. Jeremy Siegel at Wharton—fantastic educator. He got the inflation cycle more right than anyone. When the first CARES Act passed, he said how inflationary the fiscal stimulus would be—dead right. I owe a lot of my career success to him. Others: Eddie Raha, my first trading boss from Salomon Brothers, and Duncan Hennis, who ran markets at Bankers Trust and was a CIO at Soros. More recently, Peter Kraus gave me an opportunity and I learned a lot about leadership, and Doug Peoples about investing and asset management.

I read a lot outside the industry and I love a good techno thriller like Brad Taylor, Brad Thor, Vince Flynn. For content, one favorite in the last 12 months is Chip War—the history of the chip is amazing. The Gene was eye-opening about genetics and its investing implications. The Hard Thing About Hard Things is great on leadership. The latest Elon Musk book is a fantastic read about value engineering in a physical sense.

First, read voraciously about markets and build a model portfolio. The best way to learn is by doing. From an investing style, read about other investors, especially how they lost money—it's easier to learn from others' mistakes. Third, be process-oriented: be conscious about how and why you make decisions.

Three things. First, discipline works over smarts—the smartest people lose the most money. Second, when in doubt, do what works over time; don't try to time the market. Third, if you don't think about after-tax returns, you're missing the whole game. The highest hit ratio and lowest cost is to be tax-efficient. Taxes will likely rise, so invest through a tax-efficient lens.