Just Say NOPE?

George Noble offers a hedge fund to the masses.

Hedge fund old-timer turned FinTwit personality George Noble launched his long anticipated exchange-traded fund (ETF) today. Offered under the ticker NOPE, the fund targets absolute returns over an investment cycle by pursuing a global long-short equity mandate.

NOPE is advised by Toroso Investments and sub-advised by Mr. Noble’s newly-formed investment advisor, Noble-Impact Capital (NIC). The fund appears designed to bring traditional hedge fund strategies to the masses in a more affordable and approachable form.

Narrative Combat subscribers will not be surprised that I have thoughts about this new development. Since Mr. Noble has not been presented with any real questions given his retail focus and carefully curated followership, here are some things I would be thinking about as a prospective investor.

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Structure

The obvious place to start is why an ETF instead of a hedge fund?

Indeed, the path from hedgie to ETF manager is not a well lit one. Mr. Noble may even be a pioneer in this sense. Granted, a third go at a hedge fund would’ve been equally as rare, so I suppose his emergence from retirement would be breaking new ground either way.

Best I can tell, Mr. Noble’s foray into the ETF space appears opportunistically designed to capitalize on his growing online influence. As I’ve previously written, the former Peter Lynch protege has craftily navigated his way from relative obscurity to FinTwit superstar thanks to a savvy social media strategy that is all dish and no take.

I’m of the view that an ETF makes great sense for Mr. Noble. It represents the path of least resistance for an old school investor looking for one last bite at the fund management apple. The ETF launch process is largely boilerplate with many functions easily outsourced to experienced service providers. Conversely, starting a hedge fund is a more idiosyncratic and laborious pursuit. And raising money for one can be a highly intrusive experience given the nature of its more professional investor base.

Therein may lie the rub. Though far from perfect and subject to their own limitations (cognitive and otherwise), professional investors are a scrupulous bunch. This is especially true of institutional ones motivated by career risk. When the objective is to first keep one’s job and second to avoid any potential for embarrassment, allocators tend to steer clear of anything that looks remotely risky.

If I were a professional allocator conducting due diligence on a Noble hedge fund, I’d certainly be requesting details about Mr. Noble’s prior performance. This would include the past decade’s worth of returns at the helm of his own family office. I would also be calling as many former colleagues and investors as I could to get a read on him as a person, partner and investor.

Mr. Noble will not be subject to that level of due diligence when dealing with retail investors, which I imagine factored into his calculus with NOPE.

He could combat such skepticism by publishing his prior returns. But he’s been reluctant to do so, claiming in various discussions that he is limited in what he can provide. I'd be curious to know what is holding him back from a regulatory perspective here. This information is entirely relevant to his current pursuit and can presumably be presented in audited form.

And since he founded his prior firms, surely he owns their track records and therefore only requires permission from himself to publish them. NOPE is a public rather than private offering that requires no investor accreditation to access, so my understanding is that marketing rules are looser when compared to Mr. Noble's old world. So long as properly disclaimed, I struggle to understand the hangup here. This would be helpful information to parse, especially now that NOPE has gone live.¹

All we can do for now is go off of publicly-available data, the last of which suggested that his relative performance during Gyrfalcon’s final months was worse than that generated by his favorite punching bag, ARKK, during its latest drawdown.

Unlike with (another) hedge fund, I reckon an ETF gives Mr. Noble a much better chance to catch lightning in a bottle. But to paraphrase a friend of his, I can’t help but wonder if “there’s a reason why this is being marketed to retail investors.”

Strategy

I believe we are entering a period that could prove conducive to actively-managed strategies. The long overdue repricing of risk assets that we are witnessing today should make old school stock selection cool again. Whereas the past 12-13 years was basically one big liquidity-fueled beta play, we may be embarking upon a period where fundamentals matter and alpha returns to the vernacular.

I thusly think that Mr. Noble’s re-entry into the world of fund management could be well timed. However, something that strikes me as worth considering is that NOPE’s strategy seems to deviate from Mr. Noble’s stock-picking roots. As Mr. Noble mentioned in a recent Spaces discussion, NOPE will rely less on the relative performance of individual stocks within sectors and more on the relative performance across the sectors themselves.

Which is to say, NOPE’s edge will not necessarily derive from Mr. Noble’s many decades as a fundamental, bottom-up stock-picker. Instead, it will come from his ability to read the tea leaves of the macro and geopolitical backdrop to determine how that might impact flows and sentiment. Per his own admission, the resultant factor-based approach will overweight the importance of sector and country allocations and underweight the importance of individual stock selection. While I’m sure he’s always incorporated some degree of macro and factor analysis into his work, the approach he’s taking with NOPE appears quite different from what he has described himself as being in the past.

This sort of top-down orientation would surely make Mr. Noble’s old boss blush. Indeed, Mr. Lynch espoused bottom-up over all things top-down. He warned investors against the fearmongering that results from watching the news, reading magazines and talking to the same economists (I’m sure he disapproves of the macro-centric, doomer echo chamber Mr. Noble has created for himself these days). Twitter has now come to represent those things in the collective, and Mr. Noble has been outspoken about the importance of the medium to his own process (admitting it’s the first thing he checks in the morning and claiming it somehow gives him an edge over the likes of Goldman Sachs).

I should note that I see nothing particularly wrong with Mr. Noble adopting a differentiated approach with NOPE. But this is a string worth pulling to better understand how new this approach may be for him relative to what he’s done before. For all I know, he may have been implementing this strategy for the past decade at his family office, which is all good and well.

Temperament

Warren Buffett has said that “the most important quality of an investor is temperament, not intellect.” Mr. Lynch talked about “the stomach being the most important organ for investors, not the brain.” Benjamin Graham wrote that “individuals who cannot master their emotions are ill-suited to profit from the investment process.” Charlie Munger has noted that, “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” John Maynard Keynes said that “personality is more important than logical thinking” when it comes to investing. Charles Ellis once observed that “whether investors can control their temperament determines their ultimate investment performance.”

Mr. Noble’s volatile personality has been well documented. He has used Twitter as a bully pulpit and has gone apoplectic on several occasions during Spaces sessions. This is a defining feature of his public persona and has no doubt informed much of the popularity he has won amongst his followers.

He also demonstrates a striking lack of self-awareness in his public dealings. For a man who is no stranger to insult and bouts of bravado, he curiously calls for civility and asks “why the hate?” when people dare to push back. Such dissonance can be interesting to consider for a fund manager, as I’m of the mind that the zeroth rule of investing is that an investor should know thyself.

In fairness, Mr. Noble has been on better behavior in recent months. This may be a function of feedback he’s received from folks like me or simply a byproduct of being in marketing mode. But his reputation for temper is well-established, which is surely something I would be thinking about as a prospective investor. Has he turned over a new leaf that might give skeptics like me some comfort? I suppose time will tell. But I reckon the man is who he is at this point. As the saying goes, you can’t teach an old dog new tricks.

Commitment

When someone launches their own hedge fund, a standard question asked of them is how much of their personal net worth they’ll be investing in their new venture. The question is designed to test the commitment of the fund manager to their new pursuit. Surely these great investors must be willing to eat their own cooking, the thinking goes.

I’m personally not a fan of this question as I believe new fund managers are risking a lot by reputation alone in setting up their new businesses as well as spending plenty of money on it otherwise.

But this is a relevant question in the context of NOPE. For a fund launched by someone whose family office reportedly manages $56 million, I find it interesting that NOPE’s day one assets appear to be just $500,000. Given the limited marketing that occurred prior to launch, one has to imagine that Mr. Noble’s personal capital was used to stand the fund up. Frankly, there doesn’t appear to be much of it there. By way of disclaimer, I must admit unfamiliarity with the ETF game, so I could be missing something here. But this strikes me as odd on its face.

Along these lines, I’d also be keen to understand what involvement Mr. Noble maintains with his family office, how he views the ultimate split in assets between it and NOPE, and what compliance measures have been implemented to guard against any potential for conflict across his funds (e.g., the family office is prohibited from owning anything held by NOPE).

I also find it interesting that NOPE appears to be managed by a skeleton crew. The NOPE deck and NIC website mention only three team members: Mr. Noble as Chief Investment Officer (also occupying the clearly conflicted role of Chief Compliance Officer per the prospectus); a Chief Impact Officer; and a Chief Media Officer.

The impact officer appears to be a philanthropy consultant. Though I’m sure she’s highly intelligent and capable, it seems a stretch to mention her 30+ years of investment management experience when her LinkedIn profile doesn’t nearly foot to that assertion. Even her own “About” summary makes zero mention of investment management, noting instead “30+ years of legal, philanthropic, & curatorial experience”. This also begs the question of what exactly the “impact” in the firm’s name stands for. There is precisely zero explanation of what that could mean outside of a blurb that mentions the past generosity of Mr. Noble’s online followers. I presume there’s some sort of plan to donate a portion of the management fee each year?

The media officer may as well work for the CIA given his lack of online footprint and eerily-pixelated headshot. The guy’s name, Jack Crow, is straight out of a Tom Clancy novel. Most troubling of all, he appears willing to commit the sartorial crime of buttoning the top button while not wearing a tie!

A LinkedIn search reveals no other people associated with Noble-Impact Capital.

Not only is this team small but it’s also oddly-assembled. An asset manager with two of its three people focused on things that have nothing to do with asset management? I’d naturally expect any Noble-led venture to be Noble-centric, but he’s taking the “one guy and a Bloomberg” trope to an extreme here. He must think his name is enough to trade on by itself, which may well be the case for the retail crowd.

This approach is straight from the Rick James school of ETF marketing.

By the way, the NIC website is sloppy, anachronistic and sparse. There are misspellings, weird fonts and colors, and what little text there is includes four separate references to Mr. Noble's 40+ years of investment experience. It’s also one of the few websites I visit these days where my browser warns me that the connection is “Not Secure” (I’m on to you, Jack).

The strangest thing is the inclusion of a Wall Street Week interview that Mr. Noble conducted with Louis Rukeyser in 1990. It looks like it was clipped from an Adam Curtis documentary and has a sort of Zapruder feel to it. I guess the objective is to stress the fact that Mr. Noble has been investing for a long time. (Did you know that?! FOR OVER 40 YEARS!) But it all just feels weird and overwrought to me.

I assume our guy Jack was left in charge of the website, the quality of which further underscores my theory about him being a spy (noting his LinkedIn button on the website rather conveniently doesn't work).²

I appreciate there are kinks to work out in the early days of every business. But a website is table stakes, especially when NOPE has been in the works for several months.

The deck leaves much to be desired as well. The setup seems to be that most ETFs are passive and that hedge funds are expensive (though they’re cheaper today than what the deck suggests). The rest of it forms the most generic description of a strategy and opportunity set that I’ve ever seen. The gist is that NOPE looks to buy good stocks and short bad stocks across all sectors and geographies and can basically be as net long or short as it wants.

Other questions that I would have: How many positions will the book typically have? While the prospectus provides a wide berth, what gross and net exposure ranges can typically be expected? What sort of risk management protocols, if any, exist? What sort of drawdowns should investors be willing to stomach? What constitutes an investment cycle? Are shorts treated as hedges or profit centers? What amount of options and derivatives usage can be expected? Will the fund only invest in equity and equity-linked securities? What is the fund really seeking by way of risk-return? How systematic versus discretionary is the approach, as surely one person cannot be expected to cover every stock across the entire globe?

This all makes me wonder if NOPE could be a cheap call option for Mr. Noble. Rally the flock for some easy fundraising to inexpensively give an ETF a punt and see how we go. If he succeeds, that’s more money and notoriety for Mr. Noble. If the product fails, well, he’s doing fine anyway. And I reckon his social media popularity would persist even if he flames out again. As has been demonstrated by folks like Michael Gayed, one does not need to be a moneymaker - or even make much sense at all - in order to remain FinTwit popular.

Transparency

Mr. Noble has committed to daily transparency of NOPE’s holdings and we can be sure that enemies old and new will be watching closely. It’ll thusly be smart for NOPE to focus on the more liquid side of the spectrum so as to mitigate any potential for coordinated runs at its names. But they can still happen. I reckon Mr. Noble has amassed a collection of deep-pocketed adversaries over the course of his career that could decide to push him around just for shits and giggles. Watch this space.

This also means his performance will be heavily scrutinized. As someone who has struggled with adversity in the past, it will be interesting to see how he handles the bright lights of today’s ETF world.

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NOPE should be an interesting experiment. It could represent a remarkable comeback story or become another meme for FinTwit to feast upon.

Despite my own skepticism, I commend Mr. Noble’s willingness to expose himself like this. He’s putting his money where his mouth is and opening himself up to judgment from a crowd that has been conditioned to root against him. He’s brought this upon himself, but the courage required to put up or shut up is not lost on me.

Price action aside, the biggest risk I see for NOPE is longevity. As Mr. Lynch has said, “most people do really well because they just hang in there.” Given his wealth, track record of strong starts followed by weak finishes, and the heightened scrutiny he’ll be under, I reckon the question of staying power is a relevant one for Mr. Noble’s new venture.

1. Nothing contained herein should be construed as financial or legal advice.

2. Let the record show that all references to Mr. John “Jack” Crow being an agent of any intelligence agency, foreign or domestic, is (almost) entirely made in jest. However, between Jack Ryan and Jack Reacher, my Amazon Prime subscription has me convinced that we can never be too sure about anyone named Jack.