Collaboration, conviction, and the AI opportunity

Episode notes

For long/short equity investors, finding differentiated opportunities requires more than identifying attractive businesses.

It means understanding what could change market expectations, combining bottom-up research with a view of broader risks, and continually adapting as conditions shift. In this episode, Mike Toman explains how collaboration, creative research and flexible risk management inform his approach, and why AI could create opportunities well beyond the technology sector.

In the latest episode of Investor Exchange, Chris Perret sits down with Wellington’s Mike Toman to discuss:

· What he looks for in a growth company

· How he seeks to identify differentiated investment insights

· The role of bottom-up research, macroeconomic analysis and risk management

· Where AI could create opportunities beyond technology

· Why investment processes need to keep evolving as markets change

Transcript

Mike Toman: Growth is in the eye of the beholder. What I'm looking for is a fundamental change in the business. Something that is changing the top line or something that's changing the cost structure, that's going to drive incremental inflections either to the positive or to the negative, that I don't think people are kind of focused on.

So, I'm looking for businesses that something is happening and we're going to dig in and find out what it is and how it's going to impact them.

Chris Perret: Our former CEO used to say that our firm's greatest assets clock in every morning and walk out every night. Here at Wellington, one of our best assets is my colleague, Mike Toman. Mike is an experienced growth focused, long/short equity investor who uses a differentiated approach and takes full advantage of the collaborative potential here at Wellington.
I'm Chris Perret, platform leader for Wellington's hedge fund business, and I'm excited to have Mike here on InvestorExchange. Mike, welcome to the show.

Mike Toman: Thanks for having me.

Chris Perret: So, Mike, you were at Citadel before you joined Wellington and were running a pretty large discretionary book. What was the compelling offer that made you leave and join Wellington?

Mike Toman: Really, when I was thinking through the opportunity of coming to Wellington, there were three main buckets that that kind of come to mind. I think first and foremost is culture. And I spent over a year in discussion with Wellington before ultimately coming on board, and something that consistently came up in every conversation was collaboration.

Until you're inside Wellington, you can't really appreciate what collaboration means. And collaboration is so deeply ingrained in everything that's done here. I spent so much of my earlier career wondering what’s in long-only thinking, what are they doing? How were they positioned, what will it take for them to get incrementally involved in an investment? What would it take for them to exit an investment? Now I can just walk down the hallway and have that conversation, right? And so having that kind of nuanced perspective that you can flex in a number of different ways, it just allows us to kind of find alpha out there in a much more targeted way, a nuanced way, which I really like.

And it's also how we think through and manage risk. I think at times it makes sense to run a book that is really pared down, really high idiosyncratic risk, really tight. And there are times where that's actually a detriment. There are factors outside of the risk model that are ever present but have yet to be captured. I think crowding is kind of first and foremost one of those factors.

And I think the last bit would be building a business. My mandate coming on board was to kind of institutionalize the investment process, to build out the team, to build the asset base. And the ability to be a bit more entrepreneurial, but at the same time have the benefits of scale that a bigger organization brings you, that's exactly what I wanted at this point in my career.

Chris Perret: What kind of inefficiencies are you trying to identify?

Mike Toman: At the highest level, what I believe drives stocks are buy-side estimate revisions, right? If that analyst from Wellington or from Capital Group or from Fidelity or from Citadel or Millennium is going to hop on their model, they're going to take up their estimates, that stock is going to go higher. If they're going to take down their estimates, that stock is going to go lower.

Valuation ends up being, for me, much more a mechanism of sizing and risk management than necessarily a buy or sell decision. And what I'm really kind of harping on is figuring out a creative way to get that differentiation. How can we go about doing things that are novel that we just don't think other people on the street are doing because they don't have the time to do it, they don't have the focus to do it, or they're just not looking at the world through a different enough lens.

Chris Perret: You talked about being a “growthy” investor. Why don't you define that a little bit more in detail for us?

Mike Toman: Growth is in the eye of the beholder. You know there's a number of different flavors of growth. What I'm looking for is a fundamental change in the business, right? Something that is changing the top line or something that's changing the cost structure, that's going to drive incremental inflections either to the positive or to the negative, that I don't think people are focused on. So, I'm looking for businesses that something is happening and we're going to dig in and find out what it is and how it's going to impact them.

Chris Perret: So, let's talk a little bit more about your mandate. You mentioned that you have the ability to be both idio and at the same time use flexibility in terms of directionality. How do you go about doing all that? And in terms of building a book that aims to deliver an outcome that you're trying to achieve?

Mike Toman: Yeah. I mean, I think there's, you know, predominantly bottom-up emphasis and focus on how we think about portfolio construction. And then there's also a top-down component of it. And so, from a bottom-up, you know the analysts on the team are again focused on figuring out that creative differentiation for the names that they cover and collaborating deeply within Wellington to pull out those ideas where we think we have businesses that are inflecting either positively or negatively and leveraging those resources.
And so, you know, it’s a view of whatever the underlying KPI that's driving the stock and a level of differentiation around it. And we'll go through and kind of try and earmark our confidence intervals around that differentiation.

And then there's also a portion of it that's more top-down driven, you know, where are we in the cycle? Increasingly it's been what's going on in the geopolitical arena and what kind of risks are out there. And if we think those are, you know, appropriately priced into the market or not. And so, they can have an impact on how we're thinking through our growth and our net exposure. And, you know, also, quite frankly, how we use things like derivatives in order to go through and manage tail risk.

Chris Perret: What's your approach to risk management?

Mike Toman: So, we have a pretty holistic approach to risk management. There are a number of tools that we use internally to monitor the positioning of the portfolio and what our exposures look like, both from an idiosyncratic perspective but also a factor perspective. We run various stress tests across the portfolio.
We have monthly meetings with internal risk team to walk through the fund and kind of where risk sits.
And then I'd say, lastly, I write a weekly email where I reflect on where the performance of the fund sits and where the positioning of the fund sits, and where the risk of the fund sits. And kind of an internal debate with myself on my level of comfort with each one of those things.

Chris Perret: Switching gears again, what are you most excited about regarding the opportunity set and how your portfolio is set up today?

Mike Toman: I mean, AI is incredibly topical, and it's going to continue to be incredibly topical for a long time to come. And I think there are a number of ways of thinking about AI as it stands today. If I think through the investment opportunity, you know, 2023 and 2024 really kind of like the picks and shovels years and you started to see in ’25, a broadening out of that.

And, you know, a lot of the emphasis and focus is still around tech and TMT and semiconductors today. And you know, our debate there is really, you know, what's the end-market demand and how capacity constrained do we see the market being and for how long. And that's the debate that everybody's having. I think what you're going to see as we get into the back half of ‘26 and ‘27 and ‘28, is an increasingly agentic world. And what does that mean for the broader economy and sectors that are outside of TMT?
And so, what I'm looking for are the companies that are going to be best positioned to utilize some of these tools to drive incremental efficiencies in their business. And so, as this trade goes through and broadens out, which, you know, we fundamentally believe it is, the value of running a diversified portfolio is that there's going to be opportunities outside of TMT. And we're increasingly excited and focused on figuring out where those sit and why.

Chris Perret: So, Mike, you tend to be favorable in a lot of different places in the AI space, kind of outside of the core compute and other mainstream areas where AI thematically is getting expressed on the long side. Where else are you focused these days?

Mike Toman: I would say that we spend a lot of time through the whole of the supply chain, both domestically, internationally, and try and create a compelling mix of names and exposure, where we think that there's incrementally more scarcity value than the market may appreciate at this point in time.
There are very few AI winners or beneficiaries that haven't seen some kind of bump at this point in time. And so, through the supply chain, it's really thinking about and trying to get an understanding for where we think there's still an underappreciation of that scarcity value.

Chris Perret: Mike, every investor’s always thinking about how to improve themselves. So why don't you talk through some of your key lessons learned over the last couple of years?

Mike Toman: Yeah, I mean, I think that's the core part of an investment process. In my mind, an investment process is like a living creature. It should always be evolving and changing and adapting. There's so many lessons learned.

I think Liberation Day is a great one. And, you know, we walked into Liberation Day and looked at a world that honestly wasn't pricing in any real tariff risk. And vol was incredibly cheap. A lot of consumer discretionary names simply weren't pricing in any impact of it. We looked at that and we were like this is this is a little bit more fraught than people think. And we dropped our net exposure to effectively zero.
And in doing so, we were able to do it in a very alpha-constructive way. And so, we ended up getting short a lot of the consumer discretionary names, especially those that had manufacturing footprints outside of the US, we were able to take advantage of a mispriced volatility in the derivative market and put in a lot of tail-risk protection into the portfolio.

We were able to look at our exposures and say, you know, within the consumer discretionary space, for instance, you know, this company has 75% of the tariff risk priced into it. This company only has 25%, and we're going to go through and kind of reallocate that exposure. And you know, we were sitting nice with a very defensive and rightly defensive portfolio. A mistake coming out of that, quite frankly, we held on to a portfolio that was too defensive for too long and really didn't participate as much in the snapback as I would have liked to. The blessing and the curse of the market that we're in now is that I just think we're going to see shorter cycles and more visceral cycles.

My view coming out of something like Liberation Day was very much that, you know, we did the right thing of, running a defensive portfolio. And we did the wrong thing of running, you know, a defensive equity portfolio and still having kind of derivative downside protection on it; effectively double dipping, when the pain trade post the Liberation Day kind of digestion was higher and not lower.

Chris Perret: You've been on a lot of teams before, and now you're building your own team here at Wellington. Tell me about your approach to building a team.

Mike Toman: I mean, I think it's really important to understand who the analyst is as a person and as risk taker. I think that when you have and you kind of marry together, you know, the fundamental rigor of an analyst and the portfolio construction and risk management of a portfolio manager, then you can have somebody that is not only thinking about, how can I get differentiation on this name? It's having kind of another thoughtful person on how it fits into the portfolio and why.

Chris Perret: Mike, you're an AI expert from a business standpoint. How also are you integrating AI into your own life, both professionally and personally?

Mike Toman: Yeah, I think it's a great question. And it's actually a question that I increasingly like to ask management teams, because if I find that a management team doesn't really have an answer to that question, how should I expect them to push it forward within their own organizations? I think when you're adopting this in your personal life, at this stage of where we are in something like AI, it's the easiest for you to see how incredibly impactful it can be.

But I have an email that goes out every day to both of us that lays out our kids’ schedule. But it lays out our schedule at a level of depth and granularity that you wouldn't see elsewhere. And so, it's not just the time of an event that you'd see in a calendar. It tells you the time it'll take from our house and based on real-time traffic to get there. There's a link that you can click that will pull up a map from our house to get to that event. And what it also is doing is it's going through and scraping a couple of aggregators of activities for kids, and it will pick out activities that are based on my kids’ age, in their interests, that fit into time slots that they already have free and propose activities that we can go and take them to do.
And we would have spent 20 or 30 minutes in the morning kind of debating and guessing like what it is that we're going to do during the day. And now we have an email that basically tells us like, this is what we're going to do during the day. And here's a couple of options to supplement some of the free spots that we have.

Chris Perret: Amazing. Well, Mike, want to thank you for joining today. This is incredibly insightful and we appreciate you joining the podcast today.

Mike Toman: Thanks again.

Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced October 2026.

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