On September 12th, CFA Society Chicago hosted its Industry Roundtables event at The Chicago Club. There were ten tables that focused on different sectors of the investment industry and participants chose three topics they wanted to learn more about. Each round lasted 30 minutes and gave attendees the opportunity to engage in face-to-face interaction with colleagues in a small group setting. Here’s a recap by Richard Schiller, CFA, Rida Iqbal, and Susan Zeeb of some of the featured tables!
Equity Research: RJ Bukovac, CFA, CPA – Partner & Equity Research Analyst, William Blair
Bukovac is a partner and equity research analyst at William Blair focusing on Large and Mid-Cap US consumer companies. His team focuses on tech companies like Amazon, Tesla, Facebook, Netflix etc. They focus on market share value add against alternatives. Bukovac highlighted some of the qualities that are required for this nature of work:
- Knowledgeable – Understand Accounting & Finance;
- Inquisitive – to add value on top of management forecast;
- Risk-taker – Willing to take a risk and bet on the company’s performance;
- Convincing – Ability to sell it to clients to take investment actions.
He briefly discussed Netflix valuations in response to table participant inquiries which enabled him to demonstrate the everyday work challenges.
Fintech: Jim Daley, CEBS, CFA, CFP® – Project Manager, Morningstar
Fintech is one of the most popular discussions in the industry but also a very broad one that further understanding by the market participants. Jim Daley, CFA, shared his experience working for the Retirement Planning team at Morningstar. He was associated with Ibbotson Associates and continued to work with Morningstar as a project manager after Morningstar’s acquisition of Ibbotson Associates.
Daley introduced the table participants on basic branches of Fintech: Block Chain; AI Lending; and Machine Learning. He emphasized on the efforts in this area and that CFA Society Chicago is planning a series of events on the topic and how this is becoming a part of the CFA curriculum.
Daley is engaged in the retirement planning platform which is based on robo-advisor model which serves retirement planning (401K plans) by automating the investment strategies for discretionary plans like savings plan allocation of funds, quarterly rebalancing etc. This platform is capable of deploying both active and passive investment strategies. He explained how the traditional process of investment strategies has eliminated a sizeable amount of human interaction which now is only needed to review fund portfolios. Although Morningstar is currently offering a very limited Fintech related service, this current robo-advisor model could be replicated and expanded to Morningstar IRA planning accounts and retail. Fintech appeals to an age group of 30+ with some accumulated assets but the scope is growing constantly as people develop a greater understanding of how Fintech can serve the markets. Daley noted that Programming/Developing Languages, Statistics and Product Management skills are highly sought for in this area of industry and people with Engineering backgrounds and knowledge of C++, R, Python may do well in this field.
Fixed Income – Research: Rick Tauber, CFA, CPA – Senior Vice President, Morningstar
Tauber described his experience for the group which included roles as general credit analyst, high yield analyst, bank loan analyst, private placement analyst, and corporate bond analyst. He explained how his role at Morningstar evolved from credit research to the corporate bond rating agency at the firm where he also covers industrials and manages the corporate team.
Tauber explained the different dynamics between buy side research, sell side research and agency research. Fixed income research on the buy side is usually team focused and the client is the portfolio manager/trader. Sell side fixed Income research is marketing and publishing oriented, with the client being buy side bond investors. Agency research is highly regulated with no conflict of interest as ratings are unsolicited, uses a committee process and is focused on the filing documents. Tauber explained the different research techniques between hedge funds and long-term investors, where hedge funds would be potentially looking for short-term volatility trades such as capital structure arbitrage trades or bond issue covenant violation trades. Long-term bond investors would focus more on long term fundamentals of the bond issuer and where the bond could potentially move if it was upgraded, for example.
He was asked if quantitative analysis methods were used in his position and he noted that Morningstar’s corporate credit uses four pillars to evaluate credits including business risk (which includes Morningstar’s Economic Moat analysis), a cash flow cushion, a solvency score, and distance to default. Tauber noted that the analysts conduct due diligence interviews with companies that issue bonds.
Investment Consulting: Chris Caparelli, CFA – Vice President, Marquette Associates
Caparelli has 9 years of investment consulting experience serving primary consultant on several client relationships. His company is mid-sized with 50bn in AUM with 80% clients in the Midwest and competes with companies like Mercer, Aon etc. He discussed the structure of his organization with distinguished fee structures as being contract based retainer fee as against the popular performance based fee.
He pointed out that apart from research and analytical skills, sales and marketing skills are effective in dealing with clients and more of a consultant’s time is spent on such activities as the individual progresses. He discussed his day to day activities including quarterly client meetings, manager selection process etc. He advised the table participants to read extensively and to focus on behavioral finance for self-correction and client correction/dealing to be successful in this field.
Manager Due Diligence: Daniel Harris, CFA – Principal, Borealis Strategic Capital Partners, LLC
Harris reviewed his background in the investment consulting, fund of funds, and manager due diligence segments. His current firm is focused on providing seed capital to top tier, early stage investment talent in return for direct economic participation in their growth and success. Harris led a discussion of the hedge fund industry and manager due diligence. He noted that manager due diligence includes reference checks of managers/teams, a thorough track record analysis, and several interviews with managers/teams. It is very important to have an aligned fee structure at the outset and that managers should know their operational level or break even AUM (assets under management). He also noted that it is somewhat more difficult to evaluate quantitative managers but he would focus on their R&D efforts, or what the next alpha signal will be, for example. There are typically several warning signs that put managers on watch lists, including team turnover, AUM size (too big for the strategy), distrust issues, and knowing the reason that managers have sold their business, either to cash out or to get working capital to growth the business.
Harris said that 3 year performance track records are very important and are typical minimums for foundations and endowments for example. Patience is also required. His firm will help hire a CFO and investor relations person if necessary. A manager should also typically have personal money invested in the strategy and/or a large percentage of his net worth in the business, which speaks volumes in terms of alignment incentives. Harris noted that one skill required in manager due diligence is diligent note taking; logging all notes and discussions with individuals and in background interviews. Manager due diligence also includes networking within the industry.
Real Estate: Jimmy Georgantas, CFA, CPA – Assistant Vice President, Asset Management, Boyd Watterson
Boyd Watterson is an asset management firm with a real estate portfolio invested primarily in office assets with over $2.0B in total assets. Boyd operates through three funds with the largest holding $1.5B, or 75% of total real estate assets under management. After a round of introductions, our roundtable discussion started with disruptions that we’re seeing in the real estate market. What many think of as a stable, low volatility, technology-light asset class, real estate is actually being massively impacted by technology. Companies offering shared office space such as WeWork, TechSpace, and Regus are taking large blocks of space in the office sector and then releasing space to smaller users for space ranging from as large as 1kSF to single offices and even just a membership plan offering access to a shared workspace. This dramatic change in the demand profile begs the question what the future of office leases will look like and further what will the tenants demand of their workspaces? What we have seen is that leases rates are getting shorter on average and as a result we’ve seen far less build-to-suit requirements.
The conversation shifted to a very topical retail sector and more specifically shopping malls which have been severely impacted as a result of ~15% annual growth in e-commerce sales. We delved deeper into the what is negatively impacted the sector and we concluded that market sentiment is overly bearish while the majority or retail real estate is experiencing steady occupancy with increasing rents particularly in well located areas. It is also important to realize that not all retail real estate is created equal. Grocery supported retail is still performing phenomenally well while the suburban big box malls in the tertiary markets are struggling. Smaller strip centers in well located areas remain fundamentally sound with the colloquial saying “you can’t get a haircut online”.
Finally, we wrapped up our conversation briefly talking about the commercial mortgage backed securities market (CMBS). This is particularly topical in today’s environment because these securities are typically written with a 10-year term and if you remember the peak of the market before the Great Recession was back almost 10 years ago (2007). Several of the CMBS’s that were issued in 2007 are looking to refinance with their debt coming due in 2017. So far with credit spreads near lows and increasingly low interest rates versus what the market offered in 2007, debtors are able to refinance these loans without much market interruption. To conclude, we can all agree that real estate is relatively illiquid asset class which makes the business a very personal business. Relationships with key leasing and investment sales brokers along with the tenant representatives can be the difference in finding success in this growingly complex marketplace.
Wealth Management: Brad Summers, CFA, CPWA, CRPC, Financial Advisor, Wells Fargo
Summers reviewed his background in the investment banking and capital markets before he eventually moved into wealth management. Summers noted several takeaways with regards to why one may consider a career in wealth management including 1) your client base is your own and will generally follow you to another firm if you make a switch, 2) there is flexibility on how to build your client base, 3) there is flexibility on what you do for clients in terms of investing strategies, 4) your career path is as long as you want to keep working with your clients. Summers stated that there are a variety of firms in the wealth management business and fee structures vary as well. A large reputable shop would provide compliance monitoring while a smaller registered investment advisor you may have to perform that role as well. There are also different tasks involved in wealth management including marketing and seeking out new clients to build your base, relationship building with existing clients so they are satisfied and would potentially give you referrals, and staying up to date on industry trends and continuing education. Estate planning is not typically covered in CFA exams but is covered in the CFP, so that would be one area where you would need to learn. There are also additional designations such as CRPC (Chartered Retirement Planning Counselor) and CPWA (Certified Private Wealth Advisor) that can help you differentiate yourself as well. There is no typical day in the job as the diversity of tasks is large but once you are established you will likely spend the majority of your time focused on what you like to do the most. Summers noted that the career path requires very hard work for up to five years until you have built up a big enough book of business to be stable. If possible, starting your career with a private bank or wealth management firm or working with another advisor would give you good exposure to the holistic client management model.
FEATURED TABLE TOPICS & HOSTS
- Equity – International: Bill Fitzpatrick, CFA, Investment Analyst, Manulife
- Equity – Research: RJ Bukovac, CFA, CPA, Partner & Equity Research Analyst, William Blair
- Fintech: Jim Daley, CEBS, CFA, CFP®, Project Manager, Morningstar
- Fixed Income – PM: Brenda Langenfeld, CFA, Portfolio Manager, Nuveen Asset Management, LLC
- Fixed Income – Research: Rick Tauber, CFA, CPA, Senior Vice President, Morningstar
- Investment Consulting: Chris Caparelli, CFA – Vice President, Marquette Associates
- Manager Due Diligence: Daniel Harris, CFA, Principal, Borealis Strategic Capital Partners, LLC
- Quantitative Analysis: Shaheen Iqubal, CFA, Senior Quantitative Analyst, UBS Asset Management
- Real Estate: Jimmy Georgantas, CFA, CPA, Assistant Vice President, Boyd Watterson Asset Management, LLC
- Wealth Management: Brad Summers, CFA, CPWA, CRPC, Financial Advisor, Wells Fargo