MARKETS SPECTATOR: Jack Gray, finance's gadfly

Jack Gray was 44, a self-confessed “mediocre” mathematician who had been refused the post as head of the mathematics department at the University of New South Wales, when he started work at AMP as a quantitative strategist in 1989.

 A self-confessed “nerd in the back room” Gray came out of himself in his middle age at AMP. He became a director of AMP Investments and then went to work in Boston for legendary investor Jeremy Grantham, co-founder of Grantham, Mayo, Van Otterloo & Co.

 Gray would eventually become co-head of asset allocation at GMO and, in his words, “horrifically over paid”.

 “Finance should be a utility,” says Gray. “It doesn’t produce real goods and services and is largely concerned about doing tiggery pokery”.

 Before the onset of the global financial crises, he says, 40 per cent of all US corporate profits went to the financial services sector.

“Smart people are going into finance where they’re adding far, far less value than they could,” says Gray.

Does the former mathematician who began his PhD at New York University’s Courant Institute for Mathematical Sciences miss mathematics? Apparently not.

“I look at mathematics longingly like a lost lover,” says Gray, who instead spends part of his spare time learning Egyptian hieroglyphics. “She’s a hard lover. You’ve got to be a really good lover to satisfy her”.

Gray is the closest Australian finance has to an intellectual. The son of Polish Jews who grew up under a father whose humanist, left wing beliefs were overshadowed by manic depression and eventual suicide, Gray is critical of the “rent seekers” that populate finance.

These rent seekers, of whom investment bankers are the chief culprits Gray says, extract vast sums of money for their own benefit yet contribute almost nothing.

At numerous public forums on investing Gray is often the lone voice in the room arguing that Australia’s $1.5 trillion in pension assets should be managed by two or at the most three funds. The plethora of superannuation funds add no value, are cookie cutter in their investment strategy and are vast bureaucracies run by deeply conservative white men who reinforce each other’s prejudices, he says.

“Being argumentative is the passionate equivalent of good love making,” says Gray, dressed as though he was still on a campus, black sneakers, blue cotton pants, a somewhat mottled blue sweater that hangs loosely over a grey shirt open at the neck.

The former Sunsuper chief investment officer is back teaching, occasionally at the University of Technology Sydney. Mostly he’s a gadfly in Australia; writing regularly, working as a director for two global hedge funds and as an adviser to Brookvine, an asset management and advisory company.

Gray is on committees that support the United Nations High Commission of Refugees. His wife works as an accountant for the Asylum Seekers of New South Wales. Gray’s opinions on the government and opposition with regard to their policies on refugees are not repeatable in polite company.

As a descendant from a family on his mother’s side that was all but wiped out by the Holocaust, Gray says principles in investing as in life are important.

Grantham told Gray that in the late 1980s he told investors to take their money out of GMO because he could not see a way to make money for them. In the 1990s during the bubble in technology stocks, GMO lost two thirds of its business. By 2005 the firm was managing $100 billion.

“The only risk in markets is paying too much for something,” says Gray. “Buyers should not get excited by high prices”.

As befits someone who is intelligent, Gray downplays it. He is fond of citing Warren Buffett who said: “once you have ordinary intelligence what you need is the temperament to control the urges that get other people into trouble investing”.

Investing, says Gray, now 69, is all about judgment.

“You’ve got to have a Zen-like approach and temperament,” he says. “You’ve got to be arrogant and humble simultaneously. You have to know markets will always humble you.”