CFA Society Chicago’s 2016 Annual Business Meeting

DSC_2952Beginning with a cocktail and appetizer hour, CFA Society Chicago’s annual business meeting was held at the Virgin Hotel on June 20th. Chief Executive Officer, Shannon Curley, CFA, led off with a summary of this past year which he labeled under the major theme of “Building the Base”.

The four major activities of focus were:

  1. Redesigning the website
  2. Working with CFA Institute to rebuild the CRM database
  3. Improving outreach to local universities and employers
  4. Preparing the office move to 33 N. LaSalle Street, Suite 910, Chicago, IL 60602

Following Curley’s remarks, Chicago Chairman Kerry Jordan, CFA, highlighted some of the accomplishments of this special 90th anniversary year:

  • The Society hosted over 130 events (with 9 sellouts!)
  • Record attendance at the 2015 Annual Dinner
  • Membership is up to 4,524 total members

Jordan complimented the invaluable contributions of the Advisory Group Co-chairs, and made special mention of the increased program offering of the Professional Development Advisory Group.

Examples of new or expanded initiatives include:

  • Creation of a new task force to determine how the CFA Society Chicago can be more helpful toward advocacy:
  • Launching of the CFA Women’s Network
  • The financial literacy program
  • Education of pension trustees
  • Branding campaign
  • Community service

Jordan then spoke about a few global initiatives involving the CFA Institute. Paul Smith, CEO of CFA Institute, has scheduled visits at over 140 local societies across the globe and was in Chicago to attend the regional and global finals of the CFA Institute Research Challenge.  Over the past year the CFA Institute has redesigned how local societies can receive funding for building brand awareness.

Jordan participated in the global brand campaign as part of a committee including six other charterholders to discuss the charter, what it means and how it can be made more prominent in the future.

Jordan then concluded by thanking the CFA Society Chicago staff and Shannon Curley, CFA, for his effort to grow the Chicago Society.

Marie Winters, CFA, Treasurer of CFA Society Chicago, was introduced next. Her remarks were brief, but included the society’s current financial standing including reserves sufficient enough to cover 14 months of operating expense. Recently we have used reserves strategically to upgrade technology and quality of programming.

After the 2015-2016 executive committee was thanked, Doug Jackman, CFA, was introduced as the incoming Chairman.

In the business portion of the meeting, the by-laws were approved, as well as the new slate of directors and officers for CFA Society Chicago.

Awards for amazing service were given to Justin Shepard, CFA, and Chris Vincent, CFA, and a special thanks was given to Larry Cook, CFA, who is departing as the Education Advisory Group co-chair.

Finally, Jackman was introduced as the next Chairman of the Board of Directors. Jackman spoke about not having a personal agenda, just his privilege to oversee the overarching agenda to build a strong Society which thrives on its volunteer system. Toward this goal CFA society Chicago plans to invest in upgrading systems and generating more active participation by members and member firms.

CFA Society Chicago is open to any ideas on how the Chicago society can further strengthen its brand and reputation.

The evening concluded with a reception that was a great opportunity to reconnect as well as meet new and interesting members.

Leadership: Managing Talent and Comp in the New Era

Exhibiting investment leadership, establishing a winning culture, building high performing investment teams – are all intertwined.

On Wed., May 27th at the Hotel Allegro, Jim Ware, CFA presented from the new white paper from Focus Group Consulting “”Investment Challenges: Remaining Relevant through Compelling Value”. The 35 people in attendance were given terrific insights into what it will take for investment management firms to be successful in the post-financial crisis era.

Unlike many talks and studies of the success criteria in the investment industry, Jim’s material did not dwell on a benchmark beating strategy or how to become better at marketing. Rather, through the right kind of investment leadership, winning firms will be successful at hiring the right people and developing a strong culture. Improved talent retention and decision making will directly lead to the success of the firm.

Strengths, weaknesses, and inattention to blind spots were discussed. Leadership in the investment industry has tended to fall onto driven, smart individuals with exceptional technical skills. However, developing talent, collaboration and self-awareness tend to be not so strong in traditional investment leaders, yet these areas are most important for creating success in the new environment.

Through audience polling attendees were able to directly provide feedback based on observations within their own firms, and the results were compared to averages compiled by Focus Consulting Group in similar talks both within and outside the U.S.

Regarding leadership, Mr. Ware made an observation that only perhaps 50% of an investment management firms success relates to performance. The other 50% is based on relationship, thus the intangibles that were at the heart of the discussion. He cited a firm that had 7 consecutive years of relative outperformance yet had not grown assets under management due to neglect for the culture and leadership concerns.

A few best practices that were highlighted include that good leaders will get curious about a weakness, not defensive. This requires creating a good feedback channel. Modeling good behaviors, and considering culture and values in employment decisions were also of importance.

In conclusion Jim left everyone with a Checklist for the New Era which is a scorecard of 10 important factors that should be assessed by all senior members of a management team and evaluated on a strongly agree – strongly disagree scale. For more information on this please contact the CFA Society Chicago office.


CFA Exam Study Group Kick-Off Party & Open House

For the 11th consecutive year, signaling the start of another exam preparation season, CFA Chicago and the Candidate Services Advisory Group, along with Kaplan Schweser hosted a Study Group & Exam Preparation Party at the Standard Club on Dec. 11.DSC_1499

The reception gave chance for approximately 60 candidates comprising all three exam levels to mingle over light refreshments.  Patrick Hager, CFA, began the formal agenda with a description of how the Study Group program works, timeline for formation of groups and application for exam scholarship. He emphasized the importance and benefits of the CFA Charter and becoming a candidate member in the Chicago Society. Benefits of membership include the chance to participate in mock exams as well as two scholarship opportunities offered by offered by CFA Chicago.

An important exam reminder shared was to bring a passport to the exam, because a driver’s license is not accepted as a form of identification.

Dr. Tim Smaby, CFA, FRM, who heads the CFA exam DSC_1504section for Kaplan Schweser, gave an informative overview of the CFA Level 1 exam, while also acknowledging the nuances of Levels 2 and 3. He believes it is important for candidates to support one’s preparation by emphasizing practice and performance. In his opinion, too many candidates over-prepare yet under-practice answering questions. Smaby’s advice is to take advantage of the volume of practice questions available once the core readings are completed and to simulate game day conditions in taking practice exams.

Following Smaby’s talk, a Q&A session was held. CFA Chicago members and charterholders Jim Meixner, CFA; Rebecca Smith, CFA; and myself fielded questions from the candidates. After an introduction and each panelist giving their key tip for success, questions were asked regarding exam and study strategies including how to best approach structured response questions on the Level 3 exam.

Learn more about exam preparation and discounts.

Distinguished Speakers Series: Rob Arnott, Chairman & CEO, Research Affiliates

A provocative presentation entitled Conventional Wisdom and Pseudo-Science: Are we Blinded by Theory? took place in front of a sold out audience of 176 on June 19 at the Metropolitan Club. Rob Arnott, Chairman & CEO, Research Affiliates was the speaker who generously shared his unconventional thoughts in debunking several core theories of finance.

His objective was to take us on a whirlwind tour of areas where conventional wisdom can often lead one astray. The premise of Arnott’s talk is that much in the world of finance masquerades as science, but is not. When theory and data conflict the standard reflex is to dismiss the data.

In assuming that theory is correct, one must tacitly assume that all assumptions are correct. Unfortunately, assumptions are oftentimes incorrect, and is the cause of the fissures between theory and reality.

Almost every popular theory of finance can be debunked in some way based on a flaw in the assumptions required to make the theory work.

Efficient Markets, Miller-Modigliani, Modern Portfolio Theory, CAPM, Black Scholes, Cox-Ingersoll-Ross, Behavioral Finance, etc.  –- they all can be taken down in an imperfect world where reality does not cooperate with the assumptions.

An easy example to refute the efficient market theory in the equity markets considers empirical data involving the Top Dog in a sector.

The Top Dog is ranked #1 by market capitalization in a sector, a market, a country, or the world.

To get to Top Dog status requires outperformance. Over the preceding 5 year period, the Top Dog in the US outperforms the broad market by 20%. A global Top Dog outperforms the average stock in the world market by an even more impressive 40% in the 5 years leading up to becoming the Top Dog.

Going forward one might expect equal performance by the Top Dog according to the Efficient Market theory. However, reality suggests underperformance. And not just a modest level of underperformance, data suggests the Top Dog underperforms the market vastly in the ensuing 5 year period. In fact, the entire gain that got them to Top Dog status is often given up as the Top Dogs generally deliver less than bonds and cash. Is this a peculiarity? Or simply evidence that markets are not as efficient as theory suggests?.

Arnott suggested that history could taken a different course. What if, instead of advancing efficient markets in 60’s, there was a promotion of deranged markets. The market is always missing and trying to mean revert?  It would explain anomalies.   What if a DAPM (disorderly asset pricing model) involving mean reversion was advanced? The Nobel Prize might have never been granted to William Sharpe for CAPM and his extension of Markowitz’s portfolio theory.

Refuting CAPM was an easy target as the theory assumes everyone on the planet can borrow or lend at the risk free rate while ignoring taxes and a host of other real factors.  If all of the CAPM assumptions rang true, the theory proves you cannot beat a cap weighted market. Because the assumptions are not true, the conclusion of CAPM theory must be taken as only an approximation of fact.

Working backwards, the assumptions allow for the mathematics to work out. Do not make the mistake of believing the theory proves that is how the world ought to work. Rather, the theory is totally expected given the assumptions. When empirical gaps exist between data and theory, do not automatically assume the data is wrong or bend it in order to justify the theory. Just as important as knowing the theory is to perform a judicious search for gaps in the assumptions.

In summary, Arnott left the audience with a prudent message. Theories are wonderful, and it is not necessary to disregard theory. However, please do not confuse theory with fact. It is not.