End of Passive @ Klausen Burger
I am in Cluj, sitting at Klausen Burger—a restaurant perched on the fourth floor of the building that also houses Cluj Hub co-working, a mall, a café, and a cluster of diverse shops. This is almost point zero of the city, a stone’s throw from the 1902 Matthias Corvinus statues sculpted by János Fadrusz. From this rooftop, in the heart of the Transylvanian capital—the land that gave the world János Bolyai and non-Euclidean geometry—you can’t miss the beauty of the skyline or the hum of ambition rising with the summer heat.
I’m here for an “End of Passive” lunch meeting. Asset managers love the title and align with my revolution: fighting on their behalf a war they once thought they had lost.
At a market cap near USD 100B, with rising purchasing-power parity, deepening technology penetration, home-field advantages, accessibility to the European market, and a CAGR north of 20%, Romania is pulling off the improbable—becoming the fastest-growing emerging market, with a recorded population of roughly 20 million. It is an important center for firms like Alstom, Evalueserve, Endava, Cognizant, Emerson, Bosch, Vienna Insurance Group, Accenture, and homegrown champions like UiPath. Momentum compounds.
I have always lost money when I failed to believe my own forecasts. Hence my golden rule: never bet against yourself. I’ve forecast greatness for Romania for the next fifty years, and I’m not going to bet against it. It amazes me what a relatively small population, paired with an educated, enterprising youth, can do. The more I establish here in Cluj—building a search engine and expanding into Central and Eastern Europe—the more I’m surprised by what becomes achievable when you cultivate technological entrepreneurship.
No wonder they call it the Silicon Valley of Europe. As I get ready to travel to India, my Romanian experience sharpens my Indian strategy and clarifies why some of my younger Romanian peers aren’t as optimistic. Many simply haven’t lived through enough crises to understand that markets are complex beings; they don’t extrapolate neatly from today’s information. You can never take today’s data at face value to predict tomorrow. Often, information only works when you’re the only one holding it—and believing in it. I was alone when I first came here in 2004; some of these young people were toddlers then. Having lived and worked in India, and having studied its 1990s balance-of-payments crisis, I saw in Romania of the early 2000s an echo of India in the 1990s.
Romania is a story of slow resilience. I watched it evolve as I expanded west to London and Toronto. There are benefits to being a global citizen: you begin to see the world holistically. Romania’s geopolitical position, its role on a critical NATO boundary, and its millennial demographics make it as consequential as its Polish peer. A condo here can be as expensive as one in Toronto—parity that would have sounded audacious not so long ago.
My thoughts buzz as I wait for my fellow portfolio managers, MM and NR. They walk in with a friendly ease that took me years to earn. It seems Romania has one of the highest concentrations of CFAs per capita. Sharp minds like theirs always find ways to bring liquidity—and true fungibility—to the capital markets.
Their eyes light up when I hand over fresh copies of my book. There is no question why End of Passive: The Story of a Hidden Bias feels like a ray of hope. A seasoned active manager doesn’t need to be told why passive should be questioned; it’s a known nemesis. Seeing the case made plainly on a cover can feel like vindication for professionals who’ve watched the onslaught of passive for decades.
NR: How’s business, Mukul?
MP: It’s good. We’re focusing on repurposing mutual funds. There’s inevitable attrition in the industry—funds get closed, merged, or languish due to performance or asset-raising issues. We step in, revisit the mandate with the asset manager, model and simulate the new approach, and assist in relaunching the fund. It’s scaling well.
I walk them through our validations, mandates, outperformance, and the road map ahead. After some chit-chat, the conversation turns to methodology.
MM: I understand the broad strokes of your approach. But you know I’m a value investor. Parts of it are still unclear to me.
I give him the classic pitch again, yet the “aha” signal doesn’t arrive. I try a different angle.
MP: Let me try again. Winner’s bias—think market-cap-weight bias—is not perpetual. It cannot always lead. Selections drift in and out of winner’s bias. Markets are dynamic, and the best handle on that dynamism is statistical. Factors and investment styles live under the laws of statistics.
So value investing isn’t at odds with quantitative methods. You can’t subtract probability from value. Like everything else, value reverts to the mean—that’s when you see outperformance—and it can also drift lower or persist in a value trap: locked value.
MM: I agree statistics can’t be ignored, but the real question is: when do I get out of the value trap?
He’s being honest. He wants effective insights and solutions to outperform. The quest never stops.
MP: Active management is a noble profession because human insight must be put to work in selection. There’s a desire for impact—but the job hazard is forgetting the laws of probability because it’s hard to look beyond the plain, immediate information. Selection without statistics isn’t enough.
Though MM and I worked successfully together for years, the endless customization made me throw in the towel. I was building systematic engines; MM was part of a larger asset-management machine, endlessly repackaging to fit themes, differentiation, and relentless compliance. The buy-in for machines that could augment outperformance was incomplete.
MM later admitted that, since we parted, delivering outperformance has been hard. A part of me felt vindicated; another part felt sad. Both of us wanted the collaboration to work, but we needed to grow further—on both sides. Openness has to be complete; the marriage of quantitative with fundamental or technical needs to be thorough, not patchwork. I finally felt a sense of closure—and the possibility of a way back. Still, I ask myself: how foolish does a founder have to be to off-board USD 250K in revenue, a number that could have grown to USD 1M in a few years? Founder mistakes can be limitless when they travel through milestones of ego. I wasn’t egoless, and it was a painful lesson in failing to strengthen a partner and giving up. You don’t land a USD 4B group every day.
MM: So, Mukul, tell me—when will my value drift up?
MP: Since we agree statistics doesn’t compete with fundamentals, even a pure value portfolio faces two forces: one pulling it into a trap and one letting it drift toward outperformance. They’re hard to separate. Call them the poor getting poorer and the poor getting richer. The only way to answer “when” is through dynamic rankings. If you can’t see movement—true dynamism—you can’t know which parts of your portfolio are rising and which are stuck. That “map” gives you more insight and helps you avoid exiting just when a portion of your value is ready to break out.
Over lunch, NR and I talk through systematic asset allocation. MM nudges me for market forecasts. I resist—I no longer believe in purely subjective viewpoints. I believe in augmented, quantifiable perspectives. We discuss mandate drift and how to monitor it.
Then MM asks, almost gently, “I still don’t know why we stopped working together.” I smile. It’s a generous invitation to end the lunch with clarity, maturity, business sense, relationship-mindedness, egolessness—and a simpler message that can be fully understood.
I promise MM I’ll help build deeper insights into his value portfolio. We shift to NR’s cross-country biking on the Transfăgărășan, to bears on the trails, to life beyond work and family. It’s a pleasant lunch—one part End of Passive, one part the resurrection of active.
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