On February 4, 2020, CFA Society Chicago welcomed a packed audience at the Palmer House to hear from two of Crain’s top women in finance in a fireside chat featuring Stephanie Braming, CFA, partner and global head of investment management at William Blair. The discussion was moderated by Patricia Halper, CFA, former CIO at Chicago Equity Partners, where she oversaw equity products as well as the equity portfolio management team and quantitative research groups. By way of background, Stephanie Braming has been the global head of investment management at William Blair (WBIM) since 2017. Prior to leading WBIM, Braming was a portfolio manager for the firm’s International Growth and International Small Cap Growth strategies. She joined William Blair in 2004 as a portfolio specialist where she was instrumental in both portfolio construction and design across the firm’s global equity capabilities as well as the development and enhancement of the firm’s systematic research tools.
The panel started off with a review of the past decade–risk assets have performed extremely well with the Federal Reserve maintaining accommodative monetary policy on the backdrop of continued earnings growth in the US. More specifically, 2019 was a fabulous year for risk assets, driven largely by multiple expansion, and the expectation is that earnings growth will follow in 2020. However, in the second half of 2019, Purchasing Managers Index (PMIs) across the globe started to deteriorate marginally, particularly in China and Japan, which were negatively impacted by global trade tensions that have since eased. There are two potential paths forward from here: earnings growth in 2020 and PMIs start to improve, or earnings growth comes in below expectations, which Braming believes would drive a reversion in multiples back to historical averages. The coronavirus epidemic has added complication to the economic data points, and it remains to be seen if it will be a transitory issue or a longer-term structural headwind. Braming did note, however, that data from historical outbreaks has shown that after the peak diagnosis period, equity markets have historically shifted back to focus on economic fundamentals. Another wild card in 2020 is that it is an election year, where market sentiment will shift both based on who the Democratic nominee is expected to be, and on President Trump’s reelection prospects.
Looking back on the past decade within the investment management industry, the biggest shift in investor preferences was the move from active management to passive products. In fact, last year in the U.S. was the first time we saw more assets in passive funds then in active. However, on a global basis, active funds continue to dominate the market in terms of assets under management. Braming expanded upon this structural shift noting that the Great Financial Crisis drove two things: first, a preference to find the cheapest fund structures available regardless of alpha generation, and second, a hunt for yield and enhanced returns. In this competitive landscape, active managers need to constantly be thinking of new ways to innovate and deliver alpha to clients. As the regulatory burden continues to grow in the investment management industry, there will be continued consolidation, and only the firms with the best investment performance will garner more assets over time. Thankfully, William Blair has the track record to thrive in this environment, with 90% of William Blair’s strategies outperforming their respective benchmarks since inception.
As mentioned earlier, Braming was a portfolio manager who aided to the above mentioned track record for William Blair’s outperformance, which was a nice segue to the importance of diversity and how Braming found her way into the investment business. Interestingly enough, before Braming became the global head of investment management many of William Blair’s job descriptions required a Bachelor of Finance. Braming herself wouldn’t have been hired at William Blair because her undergraduate degree was in English literature, while her MBA was in finance and economics from the Chicago Booth School of Business. She graduated during a difficult economic period and in her search for a job, she landed an interview at the Federal Reserve of Chicago. The interviewer simply asked, “Why should I hire you?” Her response was, “Because I am different than everybody else that has walked through this door. I have an English literature background, I love to read, I know how to write. I can communicate effectively even though I’m 22. I understand economics, accounting, and statistics.” It worked. Braming was hired at the Federal Reserve Bank of Chicago. As you can imagine, a finance major is no longer a requirement under Braming’s leadership at William Blair. William Blair prioritizes people who can think outside the box and have a deep passion for investing. Being able to communicate effectively and having the data science skills to be able to understand a company and its industry inside and out is increasingly critical for investment team members. At William Blair, Braming loved being a portfolio manager—it was her dream job. She loved the intellectual rigor, learning new things, and trying to connect drivers across industries. In her new role, she misses meeting management teams and analyzing companies; however, when John Ettelson (CEO) asked her to take the role, she unequivocally said “yes.” This was a new and exciting opportunity to drive the strategic direction of the firm. The position has challenged Braming in a completely different way from her time as a portfolio manager, and for that she loves it. What Braming didn’t realize at the time was how much her accepting this role as the Global Head of Investment Management at William Blair would impact other aspiring women within the industry.
Halper talked about gender diversity in our industry and how the numbers are disappointing. There are 32,000 CFA charterholders across the globe and just 19% are women. In Chicago, the gap is even wider: out of the 4,500 CFA charterholders, only 15% are women. Braming brought up the point that it is the responsibility of the entire industry and starts with the education system. The firm has asked, “How do you build a diverse team, when your pool of applicants is not diverse?” There is a responsibility for CFA Institute, the Societies, and all of the leadership of the asset management industry to make the asset management industry an industry of choice—and that starts with attracting more gender diverse students into the investment industry. At William Blair, over the last two years 37% of recent hires have been racially or ethnically diverse and 36% have been women. For the first time last year, William Blair partnered with organizations such as “Girls who Invest,” which brings in women between sophomore and junior year of college who go through a structured curriculum over several weeks and then embeds them into the organization on the investment teams. William Blair is trying to find diverse talent every step of the way. The second thing William Blair has done is start to measure. For example, Braming asks, “Where are the areas in our recruiting process where we’ve consistently lost diverse candidates?” “How many resumes do we receive? “How many first round interviews are conducted, how many second round interviews are conducted, and how many ultimate hires are made?” For every formal search that William Blair does, they require at least one diverse candidate in the final round. If the final candidates are not diverse, there should be a good rationale as to why not. “Take the intent, and move it to execution. Set the tone at the top and make sure you have women in leadership positions,” says Braming. “It’s in everyone’s best interest to have an industry made up of both men and women, that’s culturally and racially/ethnically diverse. By attracting the best and brightest, William Blair can deliver on its purpose, which is to deliver strong client results.”
Looking to the next decade within the industry, Braming believes we’re in the state of flux where we don’t yet know how technology will manifest itself in terms of how we interact with each other. Investment firms need to constantly be reevaluating their technological edge; however, they also can’t be scattered and chase every changing trend. “You need a core value system in place which serves as the foundation of what you believe in—whether it’s your mission or your purpose or your vision for the future—that will be critical for firms in the coming decade,” says Braming. Lastly, focusing on how the industry interacts with clients, prospects, management teams, and even employees will all be critical to each firm’s success.
When William Blair looked at their long-term vision, it was clear that they wanted to grow, in addition to protecting their core and collaborating, and as part of that strategy, it meant increasing the firm’s capabilities through external acquisitions. Most recently, William Blair completed an acquisition of an Emerging Markets Debt team, adding to their investment capabilities. It not only underscores the firm’s vision, but also drives alpha across the entire investment platform. William Blair’s existing teams will benefit from having an EMD team, and most importantly, so will existing clients. As for additional potential acquisitions, William Blair is always looking for teams that have an investment rigor with a strong collaborative structure that have delivered alpha for clients over time. Having the same value system in place is critical and so far the Emerging Markets Debt team’s integration has been a big success. With the investment landscape much more focused on the hunt for yield, the Emerging Market Debt team is a perfect niche to serve this demand with their long history of delivering significant alpha generation.
Finally, to close, Braming is an avid reader in her free time. During the Q&A segment, a member asked Braming for her three favorite books on team building. Without hesitation, she mentioned The Five Dysfunctions of a Team by Patrick Lencioni, On Leadership by John Gardner, and Brene Brown’s Dare to Lead.