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Scott Orn

Scott Orn, CFA

Brian Sterz of Wavepoint Capital talks about launching the Wavepoint Fund, an equity hedge fund focused on industries with rapid technological evolution

Posted on: 03/22/2022

Brian Sterz

Brian Sterz

Founding Partner - Wavepoint Capital

Brian Sterz of Wavepoint Capital - Podcast Summary

Brian Sterz of Wavepoint Capital talks about launching the Wavepoint Fund, an equity hedge fund focused on disruptive opportunities in technology, media, healthcare, and financial services.

Brian Sterz of Wavepoint Capital - Podcast Transcript

Scott: Hey, it’s Scott Orn of Kruze Consulting. Thanks for joining us on Founders and Friends for another awesome podcast. Let’s give a quick shout out to the Kruze Consulting accounting team. We’re very fortunate. We have a ton of people at Kruze who work on the monthly books for our clients and get them all set up, due diligence ready, rocking every month, answering all the clients’ questions, making all those adjustments. There’s no better moment for a founder, and for us really, when a founder says, “Hey, I think I’m going to get a term sheet. Are my books ready for diligence?” And we get to say, “Yes, they are. Fire away. Send them over, give them access.” That is a great feeling. It’s the feeling that let’s us know we’ve done a job very well done, and nothing is better than watching that cash at the bank account. So, if you are a venture back startup, you’re going out to fundraise, maybe check us out. Check us out We love what we do. At taping here, I think we have 575 clients. Clients raised over a billion dollars this year, so we know what we’re doing and hopefully we can help you be successful in your fundraise. All right, let’s get to the podcast. Thanks.
Singer: (singing) It’s Kruze Consulting. Founders and Friends with your host, Scotty Orn.
Scott: Welcome to Founder and Friends podcast with Scott Orn at Kruze consulting. Today my very special guest is Brian Sterz of Wavepoint Capital. Welcome, Brian.
Brian: Thank you. Thank you, Scott. It’s an honor to return to your podcast.
Scott: Second time podcast. That is rare company. You have a pretty exciting new venture so I want to have you on so you could tell a story.
Brian: Yeah, thank you. So, I’m in the process of launching a hedge fund. It’s called the Wavepoint Fund. It’s an alpha focused long biased equity hedge fund with the ability to take short positions and hedge the portfolio. The areas I’m kind of looking at are areas of disruption, areas with rapid change or evolution going on. Historically, I’ve looked at the technology sector, media, consumer healthcare, financial services. Given everything that’s going on in the world, obviously that can apply to a lot more. I am launching with the support of friends and family, former clients. I have some family offices in institutions that are supporting me at the launch as well. Funds are going to be available to qualified purchasers and Wavepoint, because of my Tourette syndrome, qualifies as a disability owned business entity.
Scott: No way. I didn’t know that.
Brian: Yeah, yeah.
Scott: That’s awesome.
Brian: Yeah.
Scott: Good for you. We’ve known each other a long time. You’ve worked in financial management advisory services pretty much, I guess… Your first job was on the specific stock exchange. I don’t want to date us too much. We’re getting old.
Brian: Yeah.
Scott: Then you went into financial management and advisory. So, this is your world. You’ve learned probably everything, not everything, but everything you possibly could up until time to start a company. I’m really excited for you to start your own fund.
Brian: Yeah, thank you. The way I kind of view it is putting together all of my experiences. I did. I started off on the derivatives trading floor of the [PICOS] when there was actually an open cry market back in 2002. I’ll date us if you don’t want to. Started there and then worked for a firm called Callan Associates, [crosstalk] fund consultant. I worked in the global manager research group there covering fixed income managers for large public pensions, as well as corporate pensions. Did manager research there for about five years. In 2007, I left there, moved down to Los Angeles and joined a pretty small registered investment advisor now called EP Wealth Advisors. Started off with just a few folks. I was one of three people on the investment committee helping to manage our equity portfolio. I also managed fixed income portfolios. Went back to business school at UCLA. Had a fellowship in quantitative investing there. Then joined another registered investment advisor down here in LA called Miracle Mile Advisors, where I ended up as the head of investments, overseeing portfolio management, strategy research. In the middle of the pandemic, I left and started my own firm with a few clients and am now in the process of launching the fund. So, the way I think about it, I’ve had experience trading and managing portfolios from derivatives to fixed income, equity, and then even overall asset management. The strategy that I put together incorporates all of those components. So, the basis of the strategy is fundamental stock picking, but from my experiences, my education, I look at things from a number of perspectives, from derivatives, fixed income and even things like real estate, commodities. I think all of it factors in.
Scott: Yeah. Not to pat you on the back too hard, but I remember the early COVID days and, I wasn’t a client but I was definitely nervous. You gave me some very friendly advice and was like, “Hey man, this is the buying opportunity of a lifetime, basically.” My portfolio thanks you. And thank you for also helping me manage my stress a little bit during the March and April of 2020. That was a tough time, very tough time, so I really appreciate everything you just kindly passed on to me. Appreciate it.
Brian: Yeah, yeah. No, thank you. No, I was fortunate during that time period to come out pretty well during that time period. We were pretty well positioned coming into it. During that time, it was crazy. I mean, I still remember getting in the office at five in the morning and no one knew which way was up. Just kind of had that feeling as everything was falling apart that it would be a good opportunity.
Scott: Yeah, yeah. And you were right, man. When starting your own fun, what’s kind of surprised you about it? Are there things that are harder, things that are easier than you thought? What’s your day like every day?
Brian: Yeah, yeah, no. That’s a great question. I mean, every day is different. Getting started here, it’s funny. The focus is on picking stocks and the market and all those things that I’ve spent my career doing. But I’m really getting to see the entrepreneurial nature of it. I’m not in the markets now, so every day is really focusing on operations, building the outsource team and really putting that infrastructure in place, which is something I’ve been aware of and I’ve seen from an outside perspective. But putting it all together and making those decisions has been a learning experience. So, certainly, a good one, learning a lot. Really happy with the team that I’ve put together.
Scott: That’s awesome. I have the same kind of epiphany when I joined Vanessa because I had worked in the venture lending fund and M&A. You just don’t realize how many moving pieces are in any business let alone entrepreneurial business, and all the stuff you got to do and all the people you got to talk to and set things up. Because you’re doing that while also focusing… For us, it was accounting in taxes, but for you it’s money management, stock picking, things like that. It’s like you’re keeping 20% on of your brain on the operational stuff and 80% of your brain on your day job, which is, for you, probably picking stocks and looking at different asset classes and things like that. You live this binary life or you’re juggling things at all times. It could be super stimulating and fun. It could also be exhausting and stressful.
Brian: Yeah, yeah. Well, I mean, it’s certainly both, right?
Scott: Yeah.
Brian: But it’s what I want to do. I’ve had this as a goal for a long time. We’ve been friends for a long time, you know that it’s something that’s been in the back of my mind for forever. So, it’s really exciting because I’m building something and putting it together for myself. I’m excited to get it going. I’m excited for what it can become. And I’m excited for the clients that are coming on board and supporting me and looking to put up good returns for them.
Scott: That’s awesome. For us at Kruze, Vanessa was our founder. Vanessa Kruze, she built Kruze for three years before I ever joined.
Brian: I remember.
Scott: But we were dating, so I watched the whole thing happen. I have a tremendous amount of respect for her, for people like you, for the clients we work with because you’re… Dude, getting going from a standstill is tough. I’m actually really thrilled for you that a lot of your prior clients are supporting you. It makes life a little bit easier. You did well for them, they’re giving you the benefit of the doubt. And I’m sure on the sales front it leads to more benefit of the doubt, right? Being able to point it like, “Oh, these folks over here trust me. They’ve been with me for a long time.” Has that been your experience? Does that social proof and just the background of the people who are continuing to support you pretty helpful?
Brian: Yeah, yeah. I guess taking a step before that, I remember when you were starting this. I remember when Vanessa was starting this and you talking about it when you came on board, so I’m fortunate to have friends like you that have gone down this route, whether it’s in this arena or in many others. So, I’ve had a lot of people to bounce ideas off of, people that give me advice and help me through that, which has been super helpful. Of course, to have clients and people supporting me is great. Then on top of that it’s been 20 years in this business, so there’s a lot of people that, whether I’ve worked with them directly or indirectly, have been really supportive. It’s kind of a momentum thing so you kind of get your toe hold, you talk with more people, you get more support. So many people have been great and happy to help, making introductions for me and planting seeds. I’m still in the operational phase, about ready to launch. That’s really what I’m focused on. But yeah, it’s exciting to talk to anyone about it because this is what I love to do.
Scott: you mentioned the planting seeds phrase, and that’s exactly it. And you know what the fun thing is at the stage you’re at? Some of the seeds you plant might not come around for three years or four years or five. I just talked before I got on the podcast with you, I talked to a woman who was a client for five years, that company got bought by Apple and she’s back at it. It’s the second time we’re working together and it’s just amazing. I’m sure you have a lot of those people coming through the door, too. It’s a nice testament to your professionalism, how you acted, the fact that you delivered the goods or the services. It’s a nice validation anytime people come back into your life and you get to start working with them again.
Brian: Yeah, yeah, without a doubt. That component of it is, I don’t think particularly new. For forever being in, certainly in this business and people in theirs, you meet people, you build relationships over a long period of time and you never know where those things lead. It is funny. People will come back around after three, four years. “Hey, I’ve been thinking about you. What are you up to? What are you doing? You should meet this person.” You know how it goes, sometimes you meet some people and leads to something else and you stay in touch with everyone. That’s something I love doing anyway is connecting people, talking to people, and something I love to do.
Scott: Yeah. When you were describing the fund, it sounded like you could do a lot of different stuff, but stock picking was the core, but you could do hedges. How do you communicate that to your investors? Is there an allocation or is it more like, “Hey, the market’s going to move around.” All of a sudden, we’re recording this in March of 2022, energy is… Correct me if I’m wrong, but energy was really struggling for a long time.
Brian: Years, yeah.
Scott: And now with the Russian war in Ukraine, it’s spiking. Is that kind of the strategy? Hey, be opportunistic, recognize the world’s changing before everyone else does and pursue it.
Brian: Yeah, yeah. That’s a lot of it. The foundation of it, from the bottom up, stock picking, the idea is to try to take meaningful positions in companies that are going to create significant, hopefully, shareholder value and really start with that foundation. And then around it, markets do move around. Particularly in a volatile market like this, there’s going to be a lot of opportunities in secondary and derivative markets. So, I view the ability of the hedge the portfolio as opportunistic. Some of it depends on what the underlying portfolio will look like. Some of it depends on what the pricing of the other markets may be. On top of that, where those markets may overlap with what those positions are. So, it’s a way that you can be a little bit nimbler in the portfolio. The way I think about whether it’s the underlying holdings or the hedges is you want to make things that are going to be meaningful to the portfolio. So, the day to day fluctuations have been pretty significant during this time period are something to keep an eye on. You want to always be thinking long term and what’s going to add value over a longer period of time.
Scott: Yeah, I love it. And the people you’re working with have seen you do that for them at other stops, and so they know you have the long-term eye. That’s really cool. You’re based in Southern California, but are you taking investors nationally or internationally? Forgive me, I know the venture capital game, but I don’t know the hedge fund game as well.
Brian: So, as I get launched, most of the relationships are ones I’ve had or known people, so it’s fairly regional. A lot of Southern California, Northern California, some clients outside of California. In this day and age in the remote world, regional stuff is less important. The relationship’s really what is important. So, people who want to talk and have that kind of conversation, it’s not going to matter what time zone they’re in.
Scott: Yeah, for sure. That’s probably the nice thing, right? Culturally people are used to Zoom and taking pitches or presentations over Zoom. It’s got to be kind of different than pre-COVID, right? I mean, I know our business is. Our clients are so receptive just talking to us so video, and it’s so much more efficient for us. We’re actually more helpful because we’re not spending a lot of time parking the car or sitting in traffic or doing whatever. It’s kind of nice, but I assume that’s translating to the LP investor world as well.
Brian: Yeah, yeah. Well, it’s really efficient, right?
Scott: Yeah. That’s how I feel, too. That’s efficient.
Brian: Yeah. So, you can get anyone on the phone or on a video call and connect with them. It’s amazing how fast that’s transitioned. I’ve talked with folks in other countries and all over the place, and it really doesn’t matter. Certain Los Angeles, we appreciate being out of the traffic, too. We probably appreciate it more than anyone.
Scott: Yeah, totally, totally. Hey, it’s Scott Orn and we’re going to take a quick break from the podcast to give a shout out to the Kruze tax team. Gosh, it’s so nice to have an in-house tax team. I can’t even tell you. We have some really amazing professionals on team. I think it’s 13 people now. We do everything from your federal state income tax return, state franchise tax filings, R&D tax credits, those are pretty popular these days. And guess what. They’re there for you when you go through diligence. A lot of people don’t, but you actually go through tax diligence, not just operational financial diligence, but you do go through tax diligence. So, it’s nice to have Vanessa Kruze on the phone with your VCs in with the accounting firm they hired to diligence all your stuff, and the law firm they hired to diligence all your stuff. Vanessa knows what she’s doing. She’s done this a million times. It’s not just Vanessa. We have a really great team of tax professionals that will do those calls too. It’s sometimes the difference between getting around close or having it taken another two weeks because something was disorganized and the tax compliance wasn’t done correctly. We hear those horror stories from clients that come to us. So, hey, if you want Kruze’s tax team on your side, we’re here for you. Check us out Thanks. So, you’re going out, now, you’ve mentioned you worked at Callan before. That was when we were young, out of college. Has some of that experience translated? Because you’ve worked for a couple RIAs, which to me has a direct applicability. But I would think the Callan time would be pretty helpful too, because you’re watching and evaluating and scoring and all these managers, you probably picked up a bunch of stuff there or kind of know what limited partners or investors are thinking about, right?
Brian: Yeah, yeah. It was a really, really interesting experience, particularly where I came from. So, starting on the derivative trading floor, which is kind of the heart of the capital markets, and then going to Callan where your clients are some of the largest public and corporate pension plans in the country, if not the world. So that perspective is really interesting. If I think about in addition to learning about stocks and bonds, but understanding spectrum of investors from individuals all the way up to how do large public pension funds think about asset allocation and manager selection. My time at Callan was phenomenal. Looking back at it, the ability to research and study and be in direct contact with some of the smartest investors out there, I learned so much. And it was such a great job, just to a great seat to sit in. It was an interesting time period; the markets are always interesting. But I was there from 2002 through 2007. To hear people, talk about the markets, talk about what they thought were coming down the pike, what they thought was coming down the pike and watch those things materialize, I learned so much and I think about that all the time.
Scott: That’s amazing. Yeah, it’s like you got paid to go to school in a way. [crosstalk].
Brian: It was a whole education, without a doubt. I’m still close with a lot of people there. It’s a great organization and it was a great place to start my career.
Scott: That’s awesome. One of the things I always wonder about in the money management world is how do you measure yourself? How do you think about, is it absolute returns? Is it relative returns? It sounds like your strategy is pretty fluid, so there’s no kind of benchmark that you’re going to be compared directly to. Or maybe you will, I don’t know. That’s my question is how do you measure success for Wavepoint?
Brian: Yeah, yeah. No, that’s a great question. From the start of it, it’s the best ideas portfolio. I’m not particularly thinking about it from maybe a full traditional sector standpoint. I want to be opportunistic to where their best ideas across a number of areas. I’ll think about companies and industries pretty generally. I think that there’s a lot of convergence out there across sectors and across industries, so I want to be careful in the portfolio construction in having best ideas in different areas and building a portfolio that is diversified from an idea standpoint, and that’s where the hedging can come as well. You can manage the exposures that way. It’s not a market neutral strategy. It is long biased. You obviously have to be aware of what benchmarks are doing, but at the same time, I think that there’s room in a broader portfolio for a fund like mine that has meaning exposures in particular areas where broader portfolio won’t.
Scott: It’s super interesting. If a prospective investor comes to you, they’re going to put a portion of their wealth with you. They might have some stocks, they might have some bonds, they might have some indexes and then they have an allocate for Wavepoint basically. It’s almost one of their plays out of many or a few. You want them to be diversified as well, right?
Brian: Yeah, yeah. So, describing the strategy, I think that there’s a number of ways that it can fit. I think that it can complement an index based and more diversified strategy. For some folks it may fit into that alternatives bucket where there might be a little bit more room for less correlated assets. I describe the strategy up front. I think people are going to decide where they think that it fits. That’s generally kind of how I think about it.
Scott: I love it, I love it. When you look back on your career as an investor, is there anyone that jumps out where you’re like, “Oh, that person was a great mentor, really trained me well or gave me these life lessons in the investing world,” that you reflect on? I think back to my career and there’s some people who were just so helpful. Do you have the same thing in the investing world?
Brian: Sure. I have a number of people that come to mind. I guess it would start probably at Callan Associates. My first boss, I guess you’d say, Greg DeForrest, was a great mentor to me. Really took me under his wing in the fixed income space. Taught me a lot, not only about the markets, but just about business and how to think about things, what kind of things to focus on, what things are important, what things are aren’t important, and gave me a lot of great advice. When I left Callan and moved back to Los Angeles after my father passed away and he was really great throughout that as well. So, there’s a number of people like that at Callan. It’s a great organization. Then even the two RIAs where I worked, I learned a ton from the partners there. In both cases they were very entrepreneurial themselves. They started these things on their own and I watched them build great businesses from the ground up. So how to think about this business, how to think about a firm, how to think about people, how to think about strategy and growth. They’ve both been tremendously successful and I’ve learned a lot from them as well.
Scott: I love it, I love it. It does take a village. We all have our careers, and getting lucky enough to find those mentors who point us in the right direction is so valuable. That’s one of my favorite things about Kruze is we get to do that for other people now for our team. It’s time to pay it back as you get into your mid-40s like you and I are.
Brian: Yeah, yeah. You sit in a great position as well, right? You have so many companies doing so many interesting things. You probably learn a ton just from them-
Scott: We totally do.
Brian: … And the clients you deal with. They’re building the companies that are building the future.
Scott: Yeah, it’s kind of like your world where you’re probably looking at a different investment every day or multiple investments every day, and you have the smartest people teaching you about something they’re very passionate about. That’s actually, for me, the most exciting part about Kruze. I love working with the clients and I love helping our team develop. No day is the same, no day is boring, always a ton of learning or passing on that learning on to other people. So, I’m with you, man. I’ll be doing this for a long time. I really enjoy doing it.
Brian: Yeah. I’ve had a lot of entrepreneurial clients as well, even getting started talking with them. It’s been super cool, right?
Scott: Yeah.
Brian: I can talk about stocks and bonds. First of all, I love it because like you said, you get to learn something new every day. So many interesting companies, markets. There’s always something to learn. You’re never going to learn it all and it’s super exciting from that standpoint. And then I’ve had a bunch of clients who are entrepreneurial themselves, and it’s fun to talk to them about what they’re doing. They are building these businesses and it’s really fun to be able to be doing that myself now.
Scott: Well, I bet you, if I were to look, if you have a spreadsheet of all the people who are supporting you in the new venture, I bet you a lot of them are people who started something themselves because they kind of understand that first check or the first investment. Or someone did it for them and so they pay it forward too. That is actually how you get good returns, too. It’s beneficial to everybody, but I bet you that’s the profile of the early people. Well, Brian, I’ve got to be respectful of your time. Really appreciate you stopping by. Can you tell everyone how to reach out, how to find Wavepoint if they’re interested in getting the pitch or hearing more about it?
Brian: Yeah, absolutely. So, you can reach out to me. You can find me on LinkedIn, Brian Sterz. Wavepoint LLC is the company’s LinkedIn. Feel free to shoot me an email, I’ll respond to everyone. I love talking to anyone about what I’m doing, what they’re doing. Those are probably the best ways.
Scott: Awesome. It’s so exciting to see you doing your own fund. You’ve worked so hard and learned so much and appreciate all the advice you’ve given me over the years. I’m excited to see how Wavepoint plays out.
Brian: Well, thanks buddy. We’ve known each other a long time and congratulations to you, Vanessa, and all the success that you guys have had.
Scott: Thank you, thank you. It’s team effort, team effort at Kruze.
Brian: Sure is.
Scott: All right, buddy. Thanks so much. I’ll catch you later.
Brian: Yeah. Talk to you soon.
Singer: (Singing) It’s Kruze Consulting. Founders and Friends with your host, Scotty Orn.

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