Founder and CEO @ Pelosky Global Strategies
“… remember that the only one who has never struck out is the one who has never swung the bat.”
Jay Pelosky is Founder & Principal of Pelosky Global Strategies (formerly J2Z Advisory, LLC), a global investment advisory boutique based in New York City. Founded in 2011, Pelosky Global Strategies (PGS) focuses on the nexus between global economics, politics, policy and markets to provide independent, bespoke and actionable multi asset investment advice. Jay leverages his 30+ years of financial experience in close to 50 countries to help clients navigate the investment process from idea generation to vehicle/manager selection across both the active/passive and public/private divides. As strategist, he created Morgan Stanley’s global asset allocation and global equity strategy research products. He formed and co-chaired the research department’s asset allocation committee and launched the Firm’s Global Emerging Markets Strategy (GEMS) and Latin American equity research products.
Jay is a sought after commentator on political economy and financial markets, speaking at conferences around the world, appearing regularly on TV and writing for such publications as the Financial Times. Some of Jay’s most recent TV and radio contributions were on Monday’s Bloomberg TV and on Sirius XM radio – Behind the Markets, hosted by Jeremy Schwartz.
Jay did his undergraduate work at Duke University where he was a scholarship football player and received his M.A. in International Affairs from the Elliott School at The George Washington University.
Jobs in ETFs talked to Jay about his challenging career start, taking risks, combating uncertainties and exciting career journey.
JE: Please tell us about yourself and your experiences. What was your first job in the financial industry and how did you decide to pursue the career you have today?
Jay: I have been in the financial services industry for over 30 years beginning as a bank trainee at the old European American Bank (EAB) here in NYC in 1983 and then moving into the sell side of the investment business in 1986. Ironically, I used some published articles that I had started writing in graduate school and continued writing at night while at the bank as examples of my work – that was how I got hired in research doing non Japan Asia in the late 1980s. I have always been a big picture, thematic investor and an early adopter thus EM in the late 1980s was the place for me. I recall visiting Indonesia in the late 1980s and watching them write the stock prices on a blackboard. It was early days for sure!
JE: Was there a time throughout your career where you were unsure about where you were going? How did you combat the uncertainties?
Jay: There were many twists and turns including having an Asian trip cancelled the week after Black Monday in 1987, going on vacation a few months later and returning on Monday morning to be told our team had been fired to working as a doorman and a waiter to make ends meet at the end of the 1980s. That was a time of great uncertainty for me personally. I was 30 or so, broke, unemployed with eviction notices being taped to my door. I just knew I wanted to work and work hard and that I would give my all to the Firm that saw that and would give me a shot.
I persevered and was hired by Morgan Stanley Asset Management in 1990 and told to go launch a Brazil Fund. I was in my early 30s and had pitched myself as a go anywhere, do anything guy, young, cheap and hungry. I was a non Japan Asian expert who didn’t know Portuguese and had never been to South America but I went and got the job done. Brazil then as now was a country of the future and it took everything MS had to raise $25m to start the fund. I learned a really valuable lesson then – that the time to invest and the time to raise money are two completely different things. The USD low for Brazil was in 1990 but no one wanted to invest! From there we launched a Latin American regional equity fund and so I spent the early 1990s traveling the region – those were the cowboy days in EM and a lot of fun.
I was then recruited internally to move to the sell side and launch Morgan Stanley’s LA equity research product; I built the team, the product and served as strategist where I learned another very valuable lesson. Two weeks or so before the 1994 Mexican peso devaluation I wrote that it wasn’t going to happen, writing about bears in the woods and how investors shouldn’t be worried. A few weeks later I was proven completely wrong (and became the WSJ poster boy for how Wall Street got Mexico wrong) and Byron Wien, then a fellow strategist at MS (now at Blackstone) pulled me aside and said look: you can be wrong at the top and wrong at the bottom but you cannot be wrong at both, encouraging me to look forward and find a way to assist investors during that very tough time. You can’t go radio silent during a crisis; today in my advisory business I know that I can often be most valuable when things are going upside down.
JE: What has been the highlight of your career to date?
Jay: I was asked to build MS’s first multi asset, global, research product in the mid-1990s working closely with Amy Falls (now CIO at Rockefeller University); what we called the Global Emerging Markets Strategy (GEMS) product. That job took me all around the world to Asia, Europe, The Middle East and points in between. I have researched, marketed or invested in roughly 50 countries during my career. Following that stint which included the Asian Financial Crisis and the Russia (too nuclear to fail) crisis in the late 1990s I was asked to create MS’s global equity research product and work alongside Barton Biggs, one of the all-time greats in our business.
My last job at MS was to create a full scale global asset allocation product, incorporating all assets and all disciplines: fundamental, quant, technical etc. across all regions. It was a huge undertaking and included setting up and co-chairing the research dept’s asset allocation committee with Steve Roach, another great name in the industry. MS was full of great minds at that time and I learned from all of them. All together I have been doing global, multi asset investing and advising for over 20 years. Along the way, my team and I were ranked #1 in several different Institutional Investor categories, one of the highlights of my career when your clients vote you & your team as the best in the world – that really feels good.
JE: How did you become the Founder at J2Z Advisory and Pelosky Global Strategies?
Jay: I left MS in the early years of this century to start a family and take a break after a very hectic 13 years when I was essentially married to mother Morgan. During that time, 2003-2010, I invested my own capital using primarily ETFs which were just developing as an awesome tool for a big picture, asset allocator like myself. I invested during the Great Financial Crisis and learned an awful lot about the difference between a paper portfolio and the real thing. I have continued to manage my own capital using mainly ETFs for my public positions and that is something that I believe is a big point of differentiation for Pelosky Global Strategies (PGS). I am an active investor as well as an advisor and I eat my own cooking as the saying goes.
In 2010 I was asked by a friend to consult for his private speciality insurance company which was struggling to generate returns in the declining rate environment. That led me back to writing which led to TV and publishing articles and I found that I missed the engagement with others, which I find always makes me smarter. So I founded J2Z Advisory, now Pelosky Global Strategies, and began to offer advisory services to institutional clients ranging from hedge funds to large RIAs, corporates and ETF Strategists. I provide a bespoke, independent, experienced, external voice at the table, setting the global framework via an analysis of economics, politics, policy and markets. It’s a lot of fun – the markets keep one humble and always learning plus there is a scorecard and so it’s not an esoteric exercise.
JE: What would you say is Pelosky Global Strategies’ overall strategy in terms of ETFs?
Jay: AT PGS, ETFs are one of the vehicles clients can use to express a point of view. ETFs are a fantastic investment vehicle and have become even more so in the past few years with the advent of smart beta. They allow an individual or small firm to build global, multi asset portfolios in ways that the largest institutional investor could not have done even a decade or so ago; I know because I used to try and develop such for MS clients back in the day. At PGS we are purely advisory so at the end of the day the client decides how to put an investment position in their portfolio and with what vehicle. It is clear to me that ETFs are becoming very main stream for investors of all stripes ranging from the largest pensions and SWFs to the RIA firm, hedge funds, self-directed investors & all the way through the investor base. One benefit of working with many different clients is that I get to see how ETFs are used by all types of investors, not just ETF only investors.
JE: What do you think is the “next big thing” – or what should we all keep an eye out for?
Jay: I expect that this is only going to continue and grow as what I have termed the low growth, low return world grinds down return and raises the focus on fees and expenses. In the US there are significant regulatory changes such as the DOL fiduciary ruling that is likely to deepen ETF penetration while in the Fixed Income space the low rates and changes in liquidity and dealing processes suggest continued adoption. Following that we have the globalization of emerging market pensions which is still in very early days as most EM pensions remain very home biased. As they grow too big for the domestic market they are likely to invest globally and to do so they are likely to use ETFs to express positions. This will be aided in my view by the rise of smart beta products such as minimum volatility vehicles which are perfect for the long term investor who wants public market beta exposure but doesn’t want to pay much for it. That investor also wants to avoid being shaken out in downturns and then having to make two decisions: one to exit and one to get back in.
The final point in the ETF industry’s favor is what I call: the Rise of the Millennial Investor or Gen Passive. This age cohort (born 1980-1995) is becoming the single biggest cohort in the US and will reshape the financial services industry much as the Baby Boomers did before them. The delivery vehicle will be some form of robo advisory, most likely what is being termed robo bionic with a joint quant and human interface. I think this is super exciting and as noted will reshape the entire industry, buy and sell side alike. These are some of the next Big Things that I see coming over the horizon; it is evolutionary rather than revolutionary though ETFs will be instruments of revolution in the financial space. This is why I am developing deeper relations with the robo advisory and ETF Strategist spaces, I see them as the big winners.
JE: If you can give advice to those who are just starting in the industry, what will it be?
Jay: As far as career advice goes I have always liked to be where others are not. It’s not that I fear competition but rather why face competition if you don’t need to? Thus I studied Sub Saharan Africa in grad school when every other MA in International Affairs student was studying either the ME or the Soviet Union. It’s why I gravitated to EM in the late 1980s rather than be the 3rd assistant on the US strategy team and why I adopted ETFs almost 15 years ago for my own investing. I would encourage those looking at the industry today, just starting out, to think deeply about where they think the future is going and go there, even if the career path is not well defined or even visible.
The sea change in the financial services industry over the next few decades is going to be unlike anything we have seen so don’t be afraid to jump in and make the case that this is where things are going. Take career risk early – after all one is young, most likely without children and can afford to make mistakes so make them. To use a baseball analogy: remember that the only one who has never struck out is the one who has never swung the bat (i.e. never played the game).