Founder-Led Companies Drive Persistent Public Market Outperformance

The Meb Faber Show - Better Investing · December 26, 2025 · Listen to Original Episode →

Original Title:

TL;DR

Founder-led public companies historically outperform competitors by an annualized 1-3%, driven by founders' risk-taking, rapid decision-making, and significant personal wealth alignment with company stock.
Investing in founder-led companies, particularly within the S&P 600 and S&P 400, can add 1-2% annually to portfolio returns, acting as a valuable "spice" rather than a core holding.
Founder-led companies are more prevalent in growth-oriented industries like technology, finance, and healthcare, as founders typically launch businesses in dynamic sectors rather than utilities or mining.
The departure of a founder from a public company often signals a shift, with successors historically delivering significantly lower annualized returns compared to the founder's tenure.
A founder-led strategy, when applied as a tilt to a passive index portfolio, can enhance returns without requiring a complete overhaul, emphasizing portfolio construction and factor diversification.
Founder-led companies demonstrate a commitment to long-term objectives, mirroring the philosophy of private market investors who prioritize sustained growth over short-term profits.
The Japanese yen is notably undervalued relative to the US dollar based on purchasing power parity, presenting a potential currency opportunity alongside Japanese equities.

Deep Dive

Founder-led companies offer a persistent performance advantage in public markets, driven by inherent founder characteristics like risk-taking and significant personal investment in the company's success. This factor, when applied as a tilt within a diversified portfolio, has historically added incremental returns, but its effectiveness diminishes and requires strategic adaptation as company and team size increase, necessitating a shift towards automated quality control at scale.

The appeal of founder-led companies stems from their tendency to be more agile and less constrained by traditional corporate governance, particularly when founders retain substantial equity stakes. This alignment of personal wealth with company performance incentivizes long-term strategic thinking over short-term financial gains. Analysis across various market segments, including smaller capitalization indices like the S&P 600 and S&P 400, confirms this outperformance, suggesting it's a pervasive factor beyond just mega-cap tech giants. However, this founder-led advantage is not a standalone strategy; it functions best as a complementary factor to a robust core portfolio, rather than a primary driver. As founders eventually depart, this performance premium tends to dissipate, indicating a need for portfolio adjustments upon leadership changes.

The implications for portfolio construction are significant. While a founder-led tilt can enhance returns, its application must be nuanced. It generally steers investments toward growth-oriented sectors like technology, finance, and healthcare, as these are more commonly launched by entrepreneurial founders. The strategy's effectiveness also appears to be inversely related to organizational scale; at larger company sizes, the benefits of human oversight through founder leadership can be outweighed by coordination costs, pushing organizations toward automated solutions for quality assurance. This suggests that the optimal approach to leveraging founder-led companies evolves with market dynamics and company maturity, requiring a strategic reevaluation of this factor as companies grow or transition leadership.

Action Items

Audit founder-led companies: Analyze 3-5 public companies for founder tenure and stock performance correlation (ref: founder-led outperformance thesis).
Implement factor tilts: Apply quality and founder-led factors to passive portfolio construction for incremental value.
Track currency valuation: Monitor Japanese Yen for potential undervaluation based on purchasing power parity (ref: Big Mac Index).
Evaluate sector rotation: Consider S&P Value and Semiconductors for tactical allocation based on market broadening and dovish policy outlook.

Key Quotes

"We set out to create a fractional family office for CEO founders. So these are people who started and built a business either in the private equity side or in real estate and are looking for kind of an all-inclusive service with investing and everything else involved."

Jack Ablin, the founding partner of Cresset Asset Management, explains the firm's initial mission. This quote highlights their focus on serving entrepreneurs who have built businesses, offering them comprehensive financial services beyond just investment management. It underscores a client-centric approach tailored to a specific demographic.

"Our main goal is really to immunize our clients' lifestyle from the vagaries of the market and so we try to commit as little capital as possible to have the highest degree of success in delivering on those lifestyles."

Ablin articulates Cresset's core investment philosophy. This statement emphasizes their priority of ensuring clients' lifestyles remain stable, regardless of market fluctuations, by strategically allocating capital to achieve predictable outcomes. It suggests a risk-averse approach focused on lifestyle preservation.

"If you just take that, isolate that factor, that if any public company that is run by a founder has a you know, a slight advantage over their competitors or at least from a performance point of view."

Jack Ablin discusses the performance advantage of founder-led companies. He suggests that companies managed by their founders tend to exhibit superior performance compared to those led by non-founders. This observation is presented as a factor that Cresset considers in their investment analysis.

"We've done a number of different ways we've looked at CEO founders just equal weighted relative to their competitors and their sub-industry groups and we've added percentage points a year doing that."

Ablin details the quantitative analysis supporting the founder-led company thesis. He explains that statistical studies, comparing founder-led companies against their peers, have shown a consistent addition of performance points annually. This indicates a data-driven approach to identifying investment factors.

"The philosophy of our firm is public market beta, private market alpha. We believe we can gain an edge in the private markets through access, through the ability to invest in co-invest, try to out-invest in instruments that are outside that GP agreement and look for opportunities accordingly."

This quote outlines Cresset's strategic approach to different market types. Ablin articulates a belief that while public markets offer broad exposure (beta), the firm can achieve superior returns (alpha) in private markets by leveraging unique access and investment structures. It highlights their focus on active management in private equity and debt.

"The one currency that is just table-poundingly cheap and I am I'm putting my money where my mouth is here is um is Japan. The yen is remarkably cheap."

Jack Ablin shares a specific currency view based on purchasing power parity. He identifies the Japanese yen as significantly undervalued relative to the US dollar, using the "Big Mac Index" as a qualitative indicator. Ablin states he is personally investing based on this assessment.

Resources

External Resources

Books

"Shareholder Letters" by Jeff Bezos - Referenced for long-term business positioning and philosophy.

Articles & Papers

"RIA Intel's CIO of the Year for 2022" - Mentioned as an accolade for Jack Ablin.

People

Jack Ablin - CIO at Cresset Asset Management, guest on the podcast discussing investment strategies.
Meb Faber - Host of "The Meb Faber Show - Better Investing."
Ed Thorp - Mentioned in relation to Frank Fabozzi and prepayment models.
Frank Fabozzi - Mentioned in relation to building a prepayment model for mortgages.
Warren Buffett - Mentioned for his investments in Japanese equities.
Jeff Bezos - Mentioned for his shareholder letters and long-term business philosophy.
Howard Schultz - Mentioned in relation to his performance at Starbucks.
Bill Gates - Mentioned in relation to founders versus successors.
Alex Karp - Mentioned as an example of a founder with a significant stake in Palantir.
Brian Nicholls - Mentioned in relation to his performance at Starbucks.
Yellen - Former Treasury Secretary, mentioned in relation to debt management.
Hassett - Potential successor to Chairman Powell, mentioned in relation to a dovish stance.
Powell - Chairman of the Federal Reserve, mentioned in relation to stepping down and potential policy shifts.
Gunlock - Mentioned for his presentation on the difficulty of selling winners.

Organizations & Institutions

Cresset Asset Management - Firm where Jack Ablin is CIO, manages over $70 billion AUM.
BMO (Bank of Montreal) - Previous employer of Jack Ablin, where he was CIO for 17 years.
Cambria Investment Management - Firm co-founded by Meb Faber.
The Podcast Consultant - Provided editing and post-production for the episode.
Liberty Mutual Insurance Company - Underwriter for Liberty Mutual insurance.
Meyer - Retailer offering deals on groceries and celebration staples.
Palantir - Publicly traded company with a founder-led structure.
Nvidia - Mentioned as a mega-cap founder-led company.
Meta - Mentioned as a mega-cap founder-led company.
Tesla - Mentioned as a mega-cap founder-led company.
Blackstone - Mentioned as a large-cap founder-led company in finance.
Blackrock - Mentioned as a large-cap founder-led company in finance.
Capital One - Mentioned as a large-cap founder-led company in finance.
Regeneron - Mentioned as a large-cap founder-led company in healthcare.
Global X - Previously had an ETF focused on founder-led companies.
Berkshire Hathaway - Company led by Warren Buffett.
Monarchalo Associates - Firm with which Cresset Asset Management announced a partnership.
Lunarian - Mentioned in the context of mortgage-backed securities trading.

Websites & Online Resources

cressetcapital.com - Website for Cresset Asset Management.
mebfaber.com/podcast - Website for podcast show notes.
libertymutual.com - Website for Liberty Mutual.
meyer.com - Website for Meyer.
thepodcastconsultant.com - Website for The Podcast Consultant.
cambriafunds.com/351 - Website for information on the 351 ETF exchange.
mebfabershow.com - Website for feedback on the podcast.

Other Resources

Founder-led companies - Investment theme discussed for outperformance.
Asset allocation based on time horizons - Investment framework used by Cresset Asset Management.
Liquidity strategy - Part of Cresset's time horizon-based allocation.
Income strategy - Part of Cresset's time horizon-based allocation.
Growth strategy - Part of Cresset's time horizon-based allocation.
Aspirational strategy - Part of Cresset's time horizon-based allocation.
Lifetime capital needs - Component of Cresset's portfolio structure.
Wealth surplus - Component of Cresset's portfolio structure.
Quality factor - Investment factor discussed for its historical resilience.
CEO founder factor - Investment factor analyzed for its impact on public company performance.
Opportunity Zones - Investment strategy related to tax deferral on capital gains.
Public market beta - Investment philosophy of Cresset Asset Management.
Private market alpha - Investment philosophy of Cresset Asset Management.
Real estate debt - Investment area discussed for its current attractiveness.
Real estate equity - Investment area discussed with a cautious outlook for 2024.
Industrial development deal - Type of private market investment Cresset is involved in.
National build to rent development - Type of private market investment Cresset is involved in.
Big Mac Index - Metric used for currency valuation based on purchasing power parity.
Carry trade - Financial strategy related to currency exchange rates.
Small cap stocks - Segment of the equity market discussed for potential catch-up trade.
Value investing - Investment style discussed as potentially outperforming.
Dividend stocks - Mentioned as an area of interest.
Dividend growers - Mentioned as an area of interest.
Global tactical strategy - Strategy employed by Cresset involving global sector rotation.
Nuclear energy - Sector with an outsized allocation in Cresset's global tactical strategy.
Semiconductors - Sector with an allocation in Cresset's global tactical strategy.
S&P Value - Index mentioned in relation to value outperformance.
Mortgage-backed securities - Financial instrument traded by Jack Ablin early in his career.
Option adjusted spread model - Model built by Jack Ablin for mortgage-backed securities.
Prepayment model - Model built by Jack Ablin for mortgages.
Family office services - Future service expansion planned by Cresset Asset Management.
Governance - Aspect of family office services.
Consiglieres - Aspect of family office services.
ATM (Automated Teller Machine) - Mentioned metaphorically in relation to family office services.
351 ETF exchange - Investment vehicle discussed for tax-savvy investing.
Fiscal stimulus - Economic policy mentioned in relation to market outlook.
Tax refunds - Economic factor mentioned in relation to market outlook.
Quantitative easing - Monetary policy discussed as a potential tool.
Operation twist - Monetary policy discussed as a potential tool.
Private credit - Investment area discussed for its potential.
Venture capital firms - Firms with which Cresset partners for access to deals.
Endowments - Type of institutional investor.
Foundations - Type of institutional investor.
Pensions - Type of institutional investor.
Japanese equities - Investment area discussed for its current valuation.
Foreign stocks - Investment area discussed for potential outperformance.
Dollar weakness - Potential currency trend discussed.
Tax exempt institutions - Type of investor.
Taxable event - Financial concept related to capital gains.
Capital gains - Financial concept related to investment profits.
IPO (Initial Public Offering) - Process for companies going public.
SPACex - Mentioned as a potentially large private company.
OpenAI - Mentioned as a potentially large private company.
Databricks - Mentioned as a private company.
US dollar - Currency discussed in relation to its recent performance.
Euro - Currency discussed in relation to its fair value.
Pound - Currency discussed in relation to its fair value.
Canadian dollar - Currency discussed in relation to its fair value.
Japan Yen - Currency discussed as being remarkably cheap.
US equities - Primary focus of discussion for investment strategies.
Mid-term election years - Period in the election cycle discussed for its impact on equities.
Bond market vigilantes - Term for investors who react to fiscal policy.
Fed independence - Concept related to the autonomy of the central bank.
Treasury yield - Interest rate on government debt.
Mortgage rates - Interest rate on home loans.
Housing market - Economic sector discussed in relation to interest rates.
Debt financing - Process of borrowing money.
Inflation - Economic factor influencing interest rates.
Small cap crap - Colloquial term for speculative small-cap stocks.
Zombie stocks - Companies with poor financial health.
Mega cap - Refers to the largest companies by market capitalization.
Mag seven - Refers to the seven largest technology companies.
Average stock - Refers to the typical stock in a market index.
Forward P/E - Valuation metric for stocks.
Core ladder portfolio - Fixed income strategy focused on cash flow certainty.
High yield bonds - Bonds with lower credit ratings and higher interest rates.
High yield municipals - Municipal bonds with lower credit ratings and higher interest rates.
EM (Emerging Markets) bonds - Bonds issued by companies or governments in emerging economies.
Private market alpha - Edge gained in private markets.
GP (General Partner) - Role in private equity funds.
Co-invest - Investing alongside a general partner.
Financing costs - Cost of borrowing money.
Cap rates - Rate of return on real estate investments.
Real estate equity - Ownership stake in real estate.
Real estate debt - Lending money for real estate projects.
Industrial development - Construction of industrial properties.
Build to rent development - Construction of rental housing properties.
Venture capital - Investment in early-stage companies.
Purchasing power parity - Economic theory comparing currencies.
Foreign investment opportunities - Investment prospects outside of one's home country.
Rate hikes - Increase in interest rates by a central bank.
Dollar weakness - Decline in the value of a currency.
Tax impact - Financial consequences of selling investments.
Bragging rights - Social benefit of successful investments.
Portfolio standpoint - Perspective on investment holdings.
Psychological one - Mental aspect of investment decisions.
Google - Technology company mentioned in relation to its IPO and stock performance.
Wall Street Journal - Financial newspaper.
MIT - Educational institution.
PC (Personal Computer) - Computing device.
Bloomberg - Financial data and software company.
X (formerly Twitter) - Social media platform.
LinkedIn - Professional networking platform.
YouTube - Video-sharing platform