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Whitewater Kayaking and Hedge Funds

by: Mark Marxer

A former guide’s analysis of their remarkable similarities…

From the age of 19 to 22 I worked during the summers for a whitewater rafting company out of Grants Pass, Oregon that ran whitewater kayaking trips in Oregon, California, Idaho and Arizona.  Looking back, I have to admit it was one of the best summer jobs I could ever have imagined. Since then, I’ve come to realize how many life lessons, applications and physiological similarities there are between people, business, the mystique of hedge funds/alternative investments and leading people down a river.  One of the first big trips I did as a head guide in the summer of 1987 was a client reward trip for a very prominent wall street investment banking/brokerage firm.  Within that trip itself were some of the top execs from Goldman Sachs, Morgan Stanley, Drexel Burnham Lambert, Lehman, and IDS, as well as a few who would become hedge fund managers.  It was a six day trip down the Middle Fork of the Salmon River in Idaho, and most (if not all) of this group had never been on a river before, let alone in an inflatable Kayak.

The night before was filled with anticipation. While we usually do a pre-trip discussion as a standalone event, the leader of the group wanted to combine it with their kick off dinner. Given this was back in the late 80s, you might be able to imagine the elaborate set up of food, wine, cigars – basically the works.  The next morning we had a very early start and put in time, so I was a little surprised by how indifferent everyone seemed to be at dinner that night. No one seemed too worried about the next day even though it was way out of their normal comfort zones and they were headed into unchartered territory on one of the toughest rivers to run in the area (even for people with river experience). There seemed to be a sense of invulnerability, which I had seen only a few times before. For the most part, guests were always very nervous the night before a trip and we spent a lot of time beforehand answering questions and getting people comfortable with what to expect, building confidence, and painting a reasonable picture of how the next few days would play out. That wasn’t the case with this group, which was my first reason to stop and take notice.

The next day everyone seemed a little uneasy, perhaps because the night before when we were trying to run through our preliminary discussion very few had been listening. Things were starting to get a bit more intense and most looked as if they had no idea what they were supposed to be doing. I think the mystique of the river was starting to sink in at that point, along with the realization that each person would have their own boat to pilot and would be in it for 6 full days. I could sense an underlying wave of instability and apprehension run through the group, which at this point was to be expected.  There is usually one guide for every three guests on a trip, and there were 24 guests on this trip so there were 8 guides (including me as the head guide).  Trips like this were pretty costly, so the majority of people we would take down the river were very successful in their respective fields: business leaders, actors, doctors, lawyers, and others who had risen to high positions and were looking to do something adventurous. The key takeaway from all of this is that they were very successful people who were looking to do something outside of their core skillset, so naturally they hired a highly regarded company with professional guides to lead them. They needed to be taught everything from the ground up in a new vocation – how to feather a blade, scout a rapid, maneuver out of an eddy (a place where the current either stops or turns to head upstream usually found below obstructions and on the inside of bends), ferry across a current by paddling upstream at an angle, see a chute, understand how to handle a drop, etc. – basically everything they would need to know in order to not only get through the next 6 days, but to do it successfully without injury and leaving with a feeling of accomplishment and appreciation.

The Middle Fork is a very tough river for those who have never rafted before and rarely a trip we would take first timers on given it has three hundred ratable rapids. Just to set the stage, some of the well-known rapids on the Middle Fork are Dagger Falls, Sulphur Slide, Velvet Falls, the Chutes, Power House, Pistol Creek, Tappan Falls, Red Side, Weber, Cliffside, Rubber, Hancock and Devil’s Tooth. All but one of these rapids are rated class III to class IV (on a scale of I to VI), with Dagger Falls being class V (the most dangerous). Depending on how fast the water is running (i.e. its CFS: Cubic Feet per Second) there are areas which are much more challenging and technical to get through.  What I am saying is this is a very difficult river to run even for those with experience, thus it was incredibly important for the guests to let us guide them in getting through each leg safely.

After we helped get everyone’s equipment on, accounted for each guest, and were in place, they were ready for some more in-water instruction before we headed down the river.  Once in the water, we went through a shorter version of the previous night’s preparation, with one guide followed by three guests in single file order with me leading the way.  Unfortunately there is not a lot of calm water to travel through before you get to the some of the rapids on the Middle Fork. Regardless, we took all the time that was needed on the front end to talk through any questions the guests had, give them instructions, and prepare them in every way we could. We ultimately wanted them to be safe, comfortable, and have a very successful trip, however it would not come without their complete attention, work and adherence to what we as professional guides asked of them.

One of the things we noticed right away as guides is that there were more “toads” than usual on this trip. Toads were what we called guests who were simply way out of their element and were struggling just to get the basic concepts like paddling in a straight line or getting in their boat without tipping over. While some of these skills seem basic, it’s amazing to see people that are captains of their industry in one area be so inexperienced in other areas. However, with the right guidance, toads could and would develop the skills needed to make it through their adventure. Whether it’s kayaking or building a hedge fund, I have found over time that the similarities between the two are amazing.  Many of the people on this trip were very successful at their craft.  At first this group looked at the guides as too young to give them instruction and felt that they knew more than the guides did.  That changed very quickly when they realized the experience and skill we had even at a young age.

The Middle Fork is a series of very technical rapids, and we had several people getting stuck in places and getting in a few difficult situations, dumping into the chilly waters. As usual, in each case we were able to quickly get them back in their boats, situated and back on track – nothing too major, just first day adjustment stuff. At this point, some of the group had been getting a little overconfident in their boats as they watched some of the others struggle or adjust, and one could easily see that there was a false sense of confidence building in a couple of them.  We finally came to our first set of rapids and we were able to pull over, scout, and prepare for our first real test. Everyone was given very detailed instruction on where to be, how exactly we wanted to run it, and most importantly, manage the risk if something went wrong.  In other words, we prepped them in every way for what was in front of them and thin sliced years of experience and river running into a plan of action that would dictate success if they followed it.

The rapid was Velvet Falls, a class IV, and it has a recirculating ledge hole in the middle at some levels. To avoid danger we would need to sneak the rapid and take the left side of the river. Velvet Falls gets its name from the small stream, Velvet Creek, flowing in on river right above the drop.  I could hear a couple of the guys in group talking amongst themselves saying it didn’t look hard at all. They seemed to want to go right down the middle, stating that they didn’t come here to go around rapids, they came to run through them.

We went through everything again and made sure that we focused on the game plan around how to run this first big rapid. I was charged with the toughest guests (those who were getting a little ahead of themselves after a discussion with my team) and would be going first.  As we entered the rapid, every other stroke I would look back to make sure they were still right behind me, and as we started getting closer, guests two and three started veering right. I barked at them to get back in line, but they looked at me with indifference and simply kept heading right.  There is of course, a reason why we do work ahead of time to scout rapids when we can – to make sure we are taking the proper path given the ever changing conditions of the river and to build towards having the skills needed to take things on gradually in a progression.  As we headed into the rapid, my two problem guests (let’s call them Captain of Industry #1 and #2) decided to take on the rapid (or “swirling death hole” as they would later describe it) head on, and as I barked even louder I prepared myself for what was inevitably coming next and positioned accordingly. After my first guest and I went through on the left side, I quickly turned around and awaited the impending captain of industry “yard sale”.  Sure enough, CI #1 went in, actually stalled, filled up with water, surprisingly stayed in his kayak, and was hit shortly thereafter by CI #2 paddling full speed into the area we specifically told him not to go. Voila – boats, paddles, bags, and guests went flying everywhere just as we had discussed would happen if they took that route. Anticipating there might be a problem, I had asked my lead guide behind me to watch and wait for me and the first three guests to get through safely before he went through with the remainder of guests.

After I got my two stray guests back in their boats and collected the majority of their equipment, the remaining groups came through.  As one might expect after the first incident, everyone else followed our instructions and guidance perfectly, and successfully made it through their first major challenge. My discussion with my overzealous and under skilled guests was swift and to the point. CI #1 did exactly what I asked of him for the rest of the trip and we were able to build his skills and increase his enjoyment. CI #2 was another story as he believed he was bigger, stronger, and smarter than the amazing force of nature that powers our rivers, and over the next day and a half put himself in such a jam that he was completely traumatized for the remainder of the trip.

Near mile 20, the river makes an S turn called Pistol Creek, a class IV. A person must make sure that they don’t let the water slam them on the last turn and should sneak or run right of center to avoid a recirculating hole in the middle. It is a straight shot and the guest needs to paddle hard to make it.  Our good friend CI #2 refused to listen to instruction and guidance on how to run the river safely and before day 2 was over found himself ejected, slammed into that last turn, bouncing around like a pinball, and finally shaken and speechless in a recirculating eddy.  While this may seem extreme, my job was to keep him safe and help him evolve. However unfortunate, his continued overzealous behavior and indifference/ignorance about what was to come caused disruptions and consequences for both himself and the rest of the group.

Our job was to make sure our guests navigated this river successfully and safely so they could use this trip as a source of pride, accomplishment, and as a building block for future treks and successes. No matter how hard we tried to help guide CI #2, he felt the need to take his own path. For the remaining 4 days he was so traumatized by his experience on day 2 that he refused to go down river in his own boat and simply shut down.  Unfortunately, there is only one way out of a river once you set your course. The guides ended up having to carry him in the front of their boats for the rest of the trip.  To say it is difficult to run a river with a 220 pound man in the front of your boat and take care of the rest of your guests at the same time is an understatement. Again, his actions ended up having consequences for him and everyone around him. Regardless, we found a way to adjust and persevere, maximize the group’s experience, and complete the journey.

The remainder of the trip was filled with many more parallels between whitewater kayaking and the steps it takes to develop a skill set and build a business in the alternatives arena. It was one of the most memorable trips I would ever take down the river and the legacy of the trip still lives with me today as my first employer was in that very group.  Another amazing point of reference from this particular experience was when a very famous investment strategist in the group actually called the stock market crash of 1987, which occurred just a month and a half later that year.  I remember being completely engaged with his discussion at the campfire, and then watching the collapse of the markets while reflecting on the experience and reference points he used to talk through the “whitewater” that was to come.  There are so many parallels I’m able to draw upon from that trip and convert into my success as a business builder and leader today.  I have not only been able to learn from very smart and skilled people during my years of navigating difficult waters in business, but also from those “toads” that ultimately persevered, learned the skills needed, saw things through, and completed each task at hand.

The ability to understand and read a river are skills very similar to those that I utilize today when forecasting the business environment and potential success within our industry.  A river, like the business environment in the alternatives space, is an ever changing animal with so many variables that only can be learned from building the skills and having specific experience. Time after time I have traveled those rivers, scouted those rapids, and given the best guidance I can to ensure the best possible outcome.  Too many times I have seen managers take their own path or refuse the proper guidance after seeing some of their own success on the first day of the trip. Too many times I have had to carry them down the river in my boat or pick up the pieces of a yard sale.  When managers begin to believe they are indeed better than the changing force and velocity of the “river”, it seems to only create more problems. They risk potentially losing their reputations, clients, partners, employees and end up creating negative consequences for themselves and those around them.  Too often managers underestimate the importance of hiring professionals or “guides” to help manage the risk of their overall business vs. managing their portfolio (where their core skill set is).

Although returns and the management of a portfolio’s strategy are monumental factors in bringing in and keeping assets, attention to and a focus on building a smart, risk managed plan and business is absolutely critical to ensure long term success. I continue to see smart investment teams with a definable edge and niche in managing money make poor, novice or overconfident business decisions that may derail their success, slam them into a wall, and put them in that “recirculating eddy”.  No matter how experienced managers are in their core skill sets, when they are out of their element and try to maneuver down that “river” without the proper instruction and guidance they are bound to find trouble. Like yard sales on the river, unless properly prepared beforehand it may be difficult to overcome.

Just as hiring a guide to lead you down a river is necessary for success in whitewater kayaking, it is equally important to surround smart investment teams with proven business builders to help them make experience driven and guided decisions, maximizing successes and eliminating as much risk as possible to ensure the journey is successful.