Thank you President Stanley, members of the Board of Trustees of the State University of New York and my friend, Athletic Director Jim Fiore.
It is a great honor for me to be back at Stony Brook and receive this honorary doctorate of letters. And for those classmates and professors who remember me here in the late 1970’s, I’m sure it is equally a great surprise!
Previous recipients of this distinguished award include Nobel Prize winning economist Gary Becker, famed paleontologist Richard Leakey and award winning mathematician and philanthropist Jim Simons.
I know many of you must be asking yourselves the same question — in the aftermath of the great recession and the resounding political message of the “Occupy Wall Street" movement, why on earth is the school giving an honorary doctorate to a guy who runs a hedge fund?
You’re not alone. My wife, Eva, spent 8 grueling years studying to get her medical degree from UCLA’s School of Medicine, and on the car ride out here this morning, she too asked, “Darling, tell me again … why are you getting a doctorate?”
To be honest, I think she’s just jealous that there are now going to be two “Dr. Dubins” in the family!
I can only surmise why I am being given this honor, but I bet it has something to do with the fact that there are a lot of similarities between you — members of the class of 2012 — and me, when I was about to graduate Stony Brook in the class of 1978.
Yes, that’s right — you and I are very similar in a number of important ways. Let me explain.
My mother was an immigrant from Austria who fled the Nazis and came to America in 1939. My father was a second generation American whose family came from Russia. I grew up in Washington Heights, a working class neighborhood in Northern Manhattan. My father drove a taxi. He worked very long and hard hours to provide a better life for his family. Sound familiar? I see some of the parents out there nodding their heads.
I was the first one in my family to go to college. Now I know that sounds familiar!
In my class of 1978, roughly 37% of the graduates were the first members of their family to graduate from college. I have been told that roughly 30% of those of you sitting in a red cap and gown today — the class of 2012 — will be the first in your family to graduate from college.
Okay, do I have your attention now?
I left Stony Brook with a degree in Economics, no family connections in business, and one wool pin-striped suit that I bought on sale for $90 to make a good impression in my job interviews, which I had planned to start immediately after taking the summer off.
Okay: Life Lesson Number 1 is, if you’re going on job interviews in New York at the end of August, do not wear a wool suit!
I was sure I wanted to work on Wall Street. So I made a list of Wall Street companies where I hoped to get an interview. There were 30 firms back then. Now, after three decades of mergers, acquisitions and bankruptcies, there wouldn’t be more than five firms on that list.
Remember, 30 firms on my list.
After two months of pounding the pavement and grueling interviews, I was zero for 29. That’s right — 29 interviews and zero job offers!
My very last interview was with a firm called E.F. Hutton & Company, Number 30 on my list. Miraculously, I got the job!
I often wonder what would have happened if there were only 29 companies back then and not 30. I’m sure I’d be doing something very different today — probably picking up a summons to appear in county court in Riverhead instead of getting an honorary degree at Stony Brook!
But I learned from my mistakes. I took notes after every one of my 29 failed interviews, self-correcting my interview skills and learning and improving as I went along.
So here we go: Life Lesson Number 2 is that you will experience failures both in your personal life and career. I hope you won’t fail as spectacularly as I did and get rejected on your first 29 job interviews, but some failures in life are inevitable. Work through them and, most importantly, learn from them.
When I started at E.F. Hutton as a retail broker, I set out to build a book of business, or client relationships. I would “smile and dial” all day long, pitching investment products.
After a few years of this, I noticed something very interesting. Almost all the investors that I spoke to were either focused on stocks or bonds or in a few very unusual cases, commodities. No investors that I spoke to in the early 1980’s thought about the possibilities and the benefits of combining these asset classes in a single investment portfolio. Regardless of how sophisticated you were, your investment portfolio was comprised of stocks and bonds or — if you were really “out there” — commodities like gold and silver and agricultural commodities like soybeans, wheat, and corn, which you could buy on the futures exchanges.
The idea of combining them was unheard of back then.
One day, reading through an investment journal, I came across a reference to an academic paper that had been written by a Harvard professor by the name of John Lintner. Let me stop right here for a moment and point something out. Although I’m recounting an absolutely true story, and I did read Professor Lintner’s paper, I don’t want you to get the idea that I spent a good deal of my time back then reading through academic journals. Remember, at this point in my life, I’m a bachelor in my mid 20s living in Manhattan. Trust me, I wasn’t reading academic journals every night!
The Lintner study showed that by combining commodity assets within stock and bond portfolios, you could smooth out the volatility and enhance investment returns over long investment cycles.
This was an “ah-ha moment.” My partner at the time Henry Swieca, who is also a Stony Brook alum, and I used this study to facilitate discussions with a number of sophisticated institutional investors. The end result was that we built one of the very first fund-of-funds business models, combining stocks, bonds and commodity assets. Today, the fund-of-funds industry is estimated to have over $500 billion of assets under management.
Now we certainly could have patted ourselves on the back and congratulated each other for creating one of the early fund-of-funds businesses, but we thought there was a better way to apply Professor Lintner’s studies.
Instead of acting as a manager-of-managers and allocating capital to third party hedge fund advisors, why not take that concept of portfolio diversification and apply it internally to a hedge fund that we would manage ourselves, using various uncorrelated investment strategies? In 1992, we did just that and launched Highbridge Capital – one of the hedge fund industry’s first “multi-strategy” funds.
Now I’m going to fast-forward 20 years and simply tell you that Highbridge has grown from a small multi-strategy hedge fund in 1992 into a $30 billion alternative asset management institution today, with offices in New York, London, Hong Kong, Rio and Sao Paulo.
The purpose of describing this journey is not to boast about the success of the company I co-founded twenty years ago, but rather to point out a key ingredient that has been a vital part of its success: adaptation.
If you go to the dictionary and look up adaptation, it reads: “A change in structure, function or form that improves the chance of survival and success within a given environment.” Whether you’re talking about plants, animals or hedge fund businesses, survival depends on adapting to an ever-changing environment.
And so, Life Lesson Number 3 is that regardless of whether your goal is to become a teacher, doctor, engineer or business person, to be successful long-term — to be at the top of your game — you must constantly evolve and adapt to your surroundings. There is one constant in life that you can count on: Things will change.
I would like to conclude with a few thoughts.
Everyone is dealt a hand of cards at birth. With them come possibilities, risks and responsibilities. What you do with your cards is up to you. The sum of your choices equals how you will live your lives.
I challenge all of the graduates in the class of 2012 to play the cards you have been dealt to the very best of your abilities.
You are graduating from a great academic institution into a world of opportunity. Yes, that’s right – a world of opportunity!
Don’t be discouraged when looking at the economic headlines showing the national unemployment rate at 8% or the economy growing at a meager 2% a year.
When I graduated from Stony Brook in 1978, the economic environment was so bad, economists created something called the “Misery Index.” That’s right, the “Misery Index,” which added up the unemployment rate and inflation. The “Misery Index” was at its high point back then because we were in a period of economic stagflation — low growth, high unemployment and high inflation. I assure you that this was not a healthy combination.
In spite of this, think of the extraordinary advances and opportunities there have been over the last 30 years in medicine, finance, engineering, science, and telecommunications.
In medicine, we have eradicated smallpox and seen major advances in fighting cancer and the treatment of heart disease, biotechnology companies have successfully mapped the human genome and the list goes on.
In finance, in spite of going through numerous recessions, market crashes, and most recently, a full blown financial crisis, the Dow Jones industrial average has gone from 800 in 1979 to over 12,000 today.
Perhaps the biggest breakthroughs have been in technology and communication. We’ve gone from analog to digital. We have the internet and Google, Microsoft and Apple, smartphones and iPads. The breakthroughs over the last 30 plus years have been nothing short of transformational.
Yes, those were the opportunities of my generation. Without question, you will have yours as well.
Class of 2012… Make the very most of those opportunities! Good luck.
Chairman and CEO, Highbridge Capital Management LLC
Honorary Doctor of Letters
May 18, 2012