CFA Society Chicago 30th Annual Dinner

135What a night!  It isn’t every day that we get to hear Cliff Asness speak and watch the Chicago Cubs become the World Series champions.  Who could ask for more?  The annual dinner is a time to celebrate new Charterholders and the vitality and diversity of our industry.

Old friends and new acquaintances greeted each 049other over the cocktail hour at Chicago’s iconic Navy Pier’s Grand Ballroom.  The festive mood continued during the dinner as more than 900 attendees sipped wine and enjoyed fillet mignon, cod and dessert while waiting in anticipation for our keynote speaker.

Doug Jackman, CFA, Chairman of CFA Society Chicago, welcomed the crowd and congratulated the staff and the 026Annual Dinner Advisory Group on planning such a large and successful event.  As our society celebrates its 91st year, he recognized present and past boards outlining how our society along with the Boston and Philadelphia society formed the CFA Institute in seeking education, excellence in practice and integrity.  Jackman thanked our generous sponsors and moved on to a critical part of the evening – recognizing the 170 new Charterholders who were all “smiles”.  Jackman reminded us that obtaining the CFA charter does not happen in a vacuum. He acknowledged the immense amount of time, effort and dedication it takes.  He also acknowledged those who supported the new Charterholders during their arduous journey.  As an example, the fiancé of a new Charterholder at my table reflected on the team effort required and how she had quizzed her partner on formulas and concepts.

Richard Ennis, CFA, and George H. Norton, Jr., CFA (Posthumous) received the Hortense Friedman, CFA Award for Excellence.  One of the most prestigious awards in our industry, recipients are leaders chosen for their commitment to excellence and contributions to the investment profession and their communities.  Norton was noted as being a founder of the CFA Society of Nebraska.

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Michelle Seitz, CFA, introduced Cliff Asness and quipped that as evidenced by the robust attendance, careers take precedence over the Cubs game.  Seitz commented that as we gathered, we were celebrating excellence as competitors.

An icon in our industry, he is the Founder, Managing Principal and Chief Investment Officer of AQR Capital Management.  His stellar resume includes receiving five Bernstein Fabozzi/Jacobs Levy Award from the Journal of Portfolio Management, the James R. Vertin Award from CFA Institute and three Graham Dodd awards from the Financial Analysts Journal.  In his spare time, he serves on the editorial board of the Journal of Portfolio Management, the Governing Board of the Courant Institute of Mathematical Finance at NYU, the Board of Directors of the Q-Group and the Board of the International Rescue Committee.   Anyone who has read Asness’ 2009 letter to President Obama in response to criticism of hedge funds for not gobbling up Chrysler bonds in 2009 know that to call Asness dynamic would be an understatement.  We experienced this as Asness engaged us through an interview exchange with Doug Jackman.

046As mathematician, Asness has firm roots in academics and is one of Eugene Fama’s star pupils.  Jackman joked that Fama thinks Asness is one of the most gifted of his former students because of his superhero tattoos.  We don’t know if Asness has any tattoos but we do know he is a powerhouse who has moved the needle in the world of quantitative investing.

When asked how the University of Chicago impacted him, Asness responded that he felt 093he had a fair amount of luck and that Fama’s open mindedness was amazing.  He felt lucky to be in an environment where Fama supported his students.  Fama encouraged him to write his dissertation if the data supported it – even if it contradicted Fama’s theories. Fama was dogmatic but would change his mind if shown the data.  Asness wrote most of his thesis while working 90-hour weeks at Goldman Sachs and having two sets of twins that were eighteen months apart.  He joked that this was a “gross failure of risk control” which drew chuckles from the audience.  He commented on how the process for his dissertation was what we would now consider slow, sending versions of his work back and forth to Fama via Fed Ex. The interview migrated to hotly debated topics in the industry.

Jackman broached the active versus passive debate, an ongoing hot topic – especially for exchange-traded fund providers.  Asness ascertained that active managers provide liquidity needed in the market.  Active management is needed and has a vital place in free enterprise.  In terms of smart beta and a factor trade, he noted that it all comes down to what factors you believe in but data mining is a concern that we need to be aware of as investment professionals.

Robo advisors are another significant topic.  When asked where he thinks they will be in ten years, Asness answered that he really didn’t know the answer but believes that they will favor indexing and lower fees.  He went on to say that the dislocations in the technology world will embrace more factor and smart beta investing concluding that this could force our industry through a bad period for a short- or medium-term period and the growth will not be linear.

217When asked to weigh in on career advice and baseball, Asness stresses to go for something you are passionate about and if possible, lucrative.  When asked about Cubs versus Indians, the Yankees fan who rooted for the Cubs as a University of Chicago student clearly chose the Cubs.  Always a mathematician, he told us a story about how improbable it has been for the Cubs not to win the World Series for over 100 years.  If you compare this 110to the NHL model and the New York Rangers losing streak, there are n teams so a there is a 1/n chance of winning.  With less teams in the NHL, there was a 50% probability of the rangers not winning compared to a 33% probability of the Cubs not winning. The data tells the story.

We thanked Asness with thunderous applause and exited either to enjoy the post-dinner reception or to rush to a venue where we could watch the Cubs and their historical win.

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Putting Investors First

DSC_2831Each May, CFA Institute and local societies join together to create awareness around placing investors interest first. This event reminds us of why we work in this industry – to best serve our clients.  Moderator Darin Goodwiler guided panelists Jonathan Boersma, CFA, David Hershey, CFA, and Brian Thompson through a discussion on the current regulatory and ethical environment investment professionals are navigating. The panelists provided insights from CFA Institute, the SEC and consulting and investment management disciplines.

Most of the discussion covered the Department of Labor (DOL) rule and its impacts. Given the goal of DOL is to provide objective advise to investors, 93% of 1400 surveyed want the law and 51% think the law is already set up to meet this objective. Broker dealers will be impacted the greatest and it is likely that security sales will be a differentiated title from what we have known as advisors. As the DOL regulation progresses, we can expect to hear a unified message from the SEC and FINRA via social media and other communication channels.  All who give advice to clients are be held to the same standards and it was noted that CFA charterholders, candidates and members have long been held to a very high standard of loyalty, prudence and care. Due to this, no change is expected for this group.

One thing DOL won’t help with is people behaving badly. Culture and management play a role. Ethics training and regulation can help but regulation backward looking is implemented because we learn from our mistakes and play “catch-up” from innovation. Thompson commented that ethical decision making plays into awareness like yoga does into moods and breathing. Panelists felt that best practices are using GIPS and having a strong and visible Chief Compliance Officer.

This event was part of CFA Institute’s annual ethics initiative. For those wanting to practice ethics by role play in an interactive environment, please see http://cfa.is/1WTtG0G to access on-line programs offered by the CFA Institute.

 

Building My Brand: Soft Skills for Success

DSC_2838What is the difference between our social selves and professional selves and why would it ever be bad to be social? What do we need to be successful financially and professionally? Melissa Ford, a business and life coach helped us develop an outer focus leading to success and better outcomes.

DSC_2841The social self is the self that is created as we grow up. It is likely created by authority and is reactive, self-focused and needy; sometimes even to the point of being creepy. It represents the inner fear and doubt we might feel when our manager indicates they want to talk to us or when we are in a new group and want everyone to like us. Our professional aura concentrates on serving, contributing, being confident and creative. At the center of the professional self we find power, focus and energy. We are the creators of our professional selves.

So if the professional self is better for success, how do we shift to it and what should we be aware of? It is a doing versus being problem. Tips that can help us get into this mindset and stay there are as follows:

  1. DSC_2842Work on active listening skills. Move out of broadcast only mode.
  2. Put yourself in situations with people who are in professional mode.
  3. Work on empathy and give yourself a break. This may take time and practice.
  4. Notice how you feel and when you catch yourself in social mode, move to professional mode.
  5. Roleplay your professional self and then make adjustments based on feedback.

Melissa told us that the best thing is to just “flip the switch” and turn on the professional. We will know that we are in our professional mindset when we start overriding pre-programmed responses and we can do this easily on difficult days like Monday mornings. It’s all about getting out of the comfort zone.

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Distinguished Speaker Series: Mario Gabelli, CFA , Chairman and CEO, GAMCO Investors

Nicknamed “Super Mario” by financial media pundits, Mario Gabelli, CFA , Chairman and Chief Executive Officer of GAMCO Investors, Inc., presented his ideas on shareholder activism to a sold out crowd at the University Club on Aug. 12, 2014.

The idea that activists are catalysts was center to this Charterholder’s presentation. Teeing up that idea, he gave us insight into the philosophy and investment thesis that GAMCO follows with several quotes: “If you drink it, we follow it, and if you watch it anywhere, we follow the content”.  What and who have influenced him?  He noted Graham and Dodd and Security Analysis as being the definition of value investing and Roger Murray, his professor at Columbia Business School as having a large influence on his decision to go into investment management.  Gabelli’s unique sense of humor bubbled through as he compared Mount Rushmore to the four professors who created value investing.

Given these influences, his investment process is very similar to what Graham and Dodd taught in the 1930s.  So, what twist does Gabelli put on value investing?   He looks at private market value – intrinsic value plus a control premium with a catalyst.  Catalysts bring underlying value to the surface and include regulatory changes, industry consolidations, death of a founder, share repurchases, division sales, management succession and finally, shareholder activism.

Activist hedge funds net asset inflows were 5.3 billion in 2013 with 59% of activist objectives achieved in 2013.  Gabelli walked us through various models of shareholder activism touching on big names and big results such as Carl Ichahn, Jeff Ubben, George Hall and David Einhorn.  He pointed out that Carl Ichahn’s model works because there is demand for it.  When discussing shareholder rights and the “poison pill”, Gabelli advocated that GAMCO votes against it per their Magna Carta of shareholder rights. After all, it is all about the shareholders who own the company.

The presentation wrapped up with a discussion of companies in our own Chicagoland backyard who have either split and created value or have the potential to create value with a split.  As a final nugget of wisdom before the Q&A, Gabelli recommended The Graduate as an important movie because as you watch a young Dustin Hoffman receiving advice on what he should do with his career, you realize this is defined the attitude of people in the ‘60s or ‘70s.  What movie will define the times we are living now?