Transitions Techniques

From back-office roles to a decision-making roles

How to make a transition from a back-office, support role to a decision-making role in investment management was the topic of discussion on November 18th for a panel with real experiences in making just such a career move. Moderated by Eric Schweitzer, vice president at Challenger Gray & Christmas, the panel featured three charterholder members of our society:

  • Vincent Baxter, CFA – Associate Equity Portfolio Manager, Northern Trust Asset Management
  • Jackson Finks, CFA – Analyst, Dearborn Partners
  • Oday Tillawi – Associate/Desk Analyst – Investment Grade Credit, Allstate Investments

To begin, Schweitzer asked the panelists to describe both their current roles and the support positions they had transitioned away from. Finks joined Dearborn Partners in 2013 after a year in trust operations at US Bank. His first role at Dearborn was in trade support and operations, but after a year he was able to move up to analyst in support of the firm’s rising dividend strategies.

Tillawi began at Allstate in the Financial Planning and Analysis team responsible for the financial planning and reporting for the business unit. He shifted from there onto the fixed income portfolio management team within the past year where he both assists the senior portfolio managers directly and conducts fundamental research on investment grade credits. He passed the Level III of the CFA exam this year.

Baxter, has been a portfolio manager for tax-aware quantitative equity strategies at Northern Trust Asset Management for the past year. He moved into that position in stages, from back office, and middle-office roles supporting asset management.

Schweitzer then dove into the meat of the discussion by asking the panelists to focus in turn on three steps to the transition process: Preparation, Targeting, and Interviewing. Although they might not have been aware of these steps, of necessity they had to proceed through them to reach their goals.

Preparation

Finks led off by saying he realized very quickly that his introductory position in trust operations would not lead to something he aspired to. The positions of higher responsibility he would be able to advance into from his starting point held no allure for him. So, he immediately enrolled in the CFA exam series and began networking at other firms. One such networking meeting led to a job offer in trade support at Dearborn.  While this was a lateral move in terms of the role and responsibilities, he saw a better chance at advancing into a more desirable role at the smaller firm than he could see at US Bank.

Tillawi also relied on the CFA program to open doors for him. Inside Allstate, the competition for openings in asset management was high, so he realized he would need to be aggressive from the start, and working toward a charter fit the bill. He also sought out a mentor on the team he was targeting and found that not only did that relationship help him get recognized when an investment-related position opened, it also was beneficial in studying for the exams.  He made a habit of writing a summary of each meeting with his mentor to have a record of his suggestions.

Regarding mentoring, Baxter mentioned that while in his middle office role he was seated in close proximity to the portfolio managers he supported. That allowed for opportunities to educate himself by questioning the experts he supported, effectively making them unofficial mentors. Tillawi recommended being assertive and asking respected people to serve as a mentor, especially if working at a firm without a formal mentoring program. In his experience, many people are very willing to mentor a junior colleague who shows initiative. He also suggested preparing a career development plan as an aid to maximizing the benefits of a mentor.

In response to Schweitzer’s question about skills the panelists developed to enhance their chances for advancement, Finks and Baxter agreed that enhanced communication skills were critical keys to success in their new roles where they had to communicate regularly with sales and client service professionals and sometimes clients. Finks strongly endorsed networking skills. All three panelists strongly supported enhancing Excel skills. Even in a world of ever more prevalent modeling and analytical systems, Excel remains a prime tool in asset management and many people do not know how to use its full potential.   Finks said he became the “go to” authority on Excel in his office and provided assistance to colleagues, which only enhanced his chances for advancement.

Targeting

As two of the panelists had transitioned internally, only Finks could provide comments on the second step of Targeting. He cast a large net while networking because he needed to change firms to improve his chances at his hoped-for position. He employed personal and business contacts to land an introduction at Dearborn Partners. He advised people to maintain strong contacts with anyone in their networks who are most likely to be influential in hiring and promoting in the areas one aspires to join. 

In response to Schweitzer’s question about the importance of company culture, Finks thought that he was too early in his career to give that much importance. He was more concerned in the role first. However, Tillawi, also early in his career, pointed out that we typically spend half our waking hours at work so getting the correct cultural fit, at least at some point, will be critical to career success as well as personal happiness.

As for networking, which Schweitzer considered a part of targeting, all three panelists had pointed observations. Baxter noted that it’s easier to do in a large company, simply because of the larger pool of co-workers, but he recommended making a personal connection with new contacts to make yourself more easily remembered.  Finks and Tillawi both recommended attendance at the Society’s events for easy, and well-targeted networking. Tillawi said he had success sending cold e-mails to people he thought would be especially helpful. Social media, especially LinkedIn, can be an invaluable tool. Schweitzer pointed out that it is now the first screening tool used in candidate searches, and also that research at Challenger has shown that new hires are most frequently second-degree connections with the key decision makers in the search.

Interviewing

Schweitzer then moved on to the final step, Interviewing. Baxter had perhaps the most insightful comment to make on interviewing. As a candidate seeking to move from the middle office into a front office investment role, he assumed he would not have the best qualifications on paper relative to other candidates already within the investment decision making chain. He made up for that by demonstrating his passion for investment management. That paid off for him in time. Tillawi was surprised at how little he was asked in interviews about technical information. Rather, he described more of the questions as situational or behavioral. Others with the same aspirations should be prepared for them.

In final wrap-up comments, Finks advised patience. Recognize that the transition process will play out slowly and take longer than expected. Baxter said having a definite idea of the target role is critical, while Tillawi added it should be a goal that one can write down to help maintain focus.

Vault Series: Counting Cards in Biotech

No EBITDA, no revenue, no product. What’s not to like?

Despite being fraught with risk, investing in biotech stocks can be highly lucrative. Michael Caldwell, a portfolio manager at Driehaus Capital Management led a highly interactive discussion with a roomful of captivated attendees. Caldwell has been at Driehaus since 2007 and has a BS in biomedical engineering, which he opined wasn’t necessary in order to do his job, but certainly helps with understanding the vocabulary within the biotech world.

“People think that biotech is a black box, a gamble,” Caldwell said. This is because success for companies is often binary with respect to the drugs they develop. The extreme outcomes coupled with the complexity of the science involved make investment analysis very difficult. The odds of creating a successful product are quite stark indeed: Caldwell estimates that 90% of the drugs the biotech industry creates fail to reach the consumer market. With such a high rate of failure, how can investors in this lucrative, yet little understood asset class give themselves an advantage? As Caldwell put it in his presentation, “If biotech is a gamble, then let’s count the cards.”

There is currently a biotech renaissance taking place, in part driven by a precipitous decline in costs for DNA sequencing, and the biological insights that result. Scientists had first sequenced the human genome in the early 2000s and initially it was incredibly expensive to do. Since then, firms such as Illumina have helped provide mass availability for biotech firms seeking to sequence DNA and produce drugs.

Caldwell explained that DNA (which he termed “the software on which life runs”) encodes RNA, which in turn makes proteins. In order to create a viable medicine, specific proteins inside of our bodies are targeted. Right now, only ~600 proteins are targeted by approved medicines out of a possible 20,000, so the runway is long. Disease can occur when one of these proteins does something wrong.

Given the incredible potential for high returns within biotech stocks (Caldwell cited several successful investments including Loxo Oncology), how would one go about analyzing the companies and selecting the best ones? Caldwell presented a checklist of metrics Driehaus looks for including strong intellectual property, robust biological rationale, safety and dosing schemes, competition, market size, timeline and management. This is the method they have found creates the most value given the complexity of the space.

Caldwell then discussed some of the points in finer detail, including assessing intellectual property (IP). The IP biotech firms own represents a barrier to entry that can offer a strong shield against competition, depending on what the patents are based upon. He explained that the molecule composition is seen as the highest form of intellectual property. Driehaus aims to invest in companies that utilize what Caldwell described as “good biology”. He talked about the biological cascade, a series of biochemical reactions that often begin with a single gene mutation; these single gene diseases – termed monogenic – can be examples of “good biology” because the biological cascade of disease is often characterized.

Bad biology would refer to companies that focus on the correlation between a mutation and disease with an absence of causation, as an example. One area of intense research is Alzheimer’s disease. Nearly every Alzheimer’s study has failed because the disease still isn’t well understood.

Array Biopharma was another biotech company mentioned that Driehaus researched and ultimately invested in. Caldwell said that the biology was good, its clinical strategy favorable, and the drug had a strong market potential. They decided to invest in fall of 2017. There was a colorectal cancer trial that Driehaus expected would work.  The stock traded sideways for over a year, until good results from the trial were released.  Shortly thereafter, Pfizer announced their intention to acquire Array, generating a huge return.

A key area of focus for Driehaus is what Caldwell termed “precision medicine”, which can be described as an approach to healthcare that allows doctors to select treatments that are personalized to each patient’s genetics. This technique can be applied to all disease areas but has mainly been used in the realm of oncology. Usually when a Driehaus analyst hears about a precision oncology strategy their ears perk up and they tend to do more research. Precision medicine is typically used by smaller biotech firms, and much less frequently by larger multinational pharmaceutical companies. This is because the types of products created by precision medicine methods often target ailments that wouldn’t generate enough revenue to move the needle for a massive international pharma firm but can still be good businesses that create billions in market value.

How risky will the 2020 elections be for biotech investors? Caldwell said that they think about it, but it might not be as bad as the headlines lead you to believe. Right now, the United Kingdom is the stingiest healthcare sponsor in the world when it comes to paying for expensive drugs. If the US were to go down a similar path, that would hamper sales for some of the higher volume drugs. But, as Caldwell pointed out, if you can locate truly life-changing drugs and invest in the companies making them, there is still significant value to be created and captured. Regulation is another ever-present risk, as is competition.

This was a very comprehensive and interactive introduction to the exciting, impactful world of biotech and investors will likely be increasingly interested in the space as advances in science continue.