CFA Society Chicago welcomes keynote Bill Browder at the 33rd Annual Dinner

A sell-out crowd of 1,100 attended the 33rd Annual CFA Dinner on November 7th at the Sheraton Grand Chicago hotel. In his after-dinner remarks, Daniel Kastholm, CFA, chair of CFA Society Chicago, welcomed and thanked all for coming to the event honoring this year’s Hortense Friedman, CFA, Award for Excellence recipients and new CFA charterholders. He recognized the work done by the Annual Dinner advisory group in planning the event, as well as all advisory group volunteers that helped plan events throughout the year.

His advice to all 5,000 members within the CFA Society Chicago:

  1. Go to other events and encourage others to go along (outside the Annual Dinner)
  2. Volunteer for Advisory Groups that shape CFA Society Chicago Society
  3. Get involved if you’re a subject matter expert, to promote our local Chicago talent

Finally, Kastholm and all dinner attendees, congratulated the 140 new CFA Charterholders who passed all three levels of the CFA exam and completed four years of relevant work experience. The exams require hundreds of hours of study, with candidates sacrificing a significant amount of time, energy and effort.  Becoming a CFA charterholder demonstrates initiative, leadership and commitment to professional excellence in the investment industry.

The first Hortense Friedman, CFA, Award for Excellence award was given to Alan M. Meder, CFA, currently senior managing director and chief risk officer at Duff and Phelps. Kastholm highlighted Meder’s experience since receiving his CFA charter in 1988 including his service on multiple advisory groups, serving as chair of CFA Institute’s Board of Governors and service as a CFA exam grader for 23 years!

Taking the stage, Meder thanked Kastholm and the audience for the humbling introduction and award.  He reminded the attendees of the award’s namesake, Hortense Friedman, CFA, the brave woman who worked tirelessly to show others the way. He highlighted Friedman as a “beacon for others” and noted she was one of the first women to earn the CFA charter, in 1964. Meder left the attendees with wise words on how to continue the inspirational work of Friedman. “Bring more balance into the room…Invite women…and all to join the analytical ranks to become charterholders. “You cannot be what you cannot see.”

The second Hortense Friedman, CFA, Award for Excellence was awarded posthumously to Thomas N. Mathers, CFA. Mathers began his investment career at Northern Trust, founded Mathers and Company in 1961 and managed the Mathers Fund, his no-load growth mutual fund, from inception in 1965 until 1982. He was a past president of CFA Society Chicago and was involved in numerous foundations throughout his career. Kastholm described him as a “counselor of high integrity and a leader in the movement to bring professionalism to the field of investments.” Though his passions lay within investments, he always believed the most important thing in life was family. Mathers’s daughters accepted the award on his behalf as the crowd recognized his great accomplishments.

Bill Browder, CEO of Hermitage Capital and author of the best-selling book Red-Notice, was the keynote speaker of the night. Kastholm shared Browder’s background and qualifications over his career in investing.  Growing up in Hyde Park, Browder attended the University of Chicago. After graduating from Stanford Business School, he got involved in emerging markets investing, focusing on Post-Soviet Russia. As Kastholm noted, Browder’s record demonstrates how markets can be inefficient and how there remains value in active management (met with applause). Through his fund, Hermitage Capital, Browder became the largest foreign investor in Russia until 2005, when he was denied entry into the country largely for exposing corruption in state-owned entities. In 2009, his lawyer and friend, Sergei Magnitsky, was killed in a Moscow prison after exposing a $230 million tax fraud.  After his death, Browder was instrumental in passing the Magnitsky Act in 2012, allowing the U.S to sanction individual human rights abusers by freezing their assets and banning entry to United States. After the brief introduction, Browder took the stage to share his unique and influential life story.

With a warm welcome from the audience, Browder thanked CFA Society Chicago for the opportunity to share his story and expressed delight at seeing a number of friendly faces. He jumped right into his story in the summer of 2018, when he was invited by the chief anti-corruption officer of Spain to give evidence of Russian money-laundering. Before his meeting in Madrid, he was stopped by the hotel manager accompanied by two Spanish police officers. “You’re under arrest – INTERPOL Russia”, said the police officers.  Worried for his safety, he sent out multiple tweets and even contacted his Spanish lawyer while in custody. Browder recounted this memory to reiterate to the audience why he was truly “delighted to be here”. 

Born in Princeton in 1964, Browder was raised in Chicago in a pro-communist family. His grandfather was a labor union organizer in Kansas and ran for president on the communist ticket in 1936 and 1940. During his rebellious teenage years, he recalls asking himself “What is a good way to rebel from a family of communists?” After graduating from Stanford in 1989, he discovered the perfect answer while evaluating post-graduation options: “to become the biggest capitalist in Eastern Europe”. With the Berlin Wall collapsing in 1989, he moved to London and eventually took a position on Salomon Brothers’ Eastern European banking team. On an influential client trip to Russia, he advised a fishing fleet on a privatization project. Performing analysis on the ships, he determined the fleet was approximately worth $1 billion. The disconnect? The government was selling 51% of the fishing fleet for $2.5 million. At that moment, he realized he should be investing, not advising, on the Russian privatization program. 

In Russia’s transformation from communism to capitalism, a voucher privatization program transferred assets to Russian citizens to create owners of assets. With vouchers trading in the secondary market for approximately $20, the sum of vouchers would amount to around 30% of total Russian capital. Assuming a population of 150 million, the entire country of Russia was assumed to only have a $10 billion market capitalization. “This would be the single most compelling investment opportunity that’s ever existed in the history of financial markets,” he concluded.  After ensuring these privatization deals were widespread, he went back to London and recommended that Salomon Brothers stop what they were doing and invest in Russia. Eventually, he impressed a senior partner in New York and received $25 million to invest.

Seven months later, The Economist wrote the 1994 article “Sale of the Century” and a wave of investors entered the thinly traded Russian equity markets. The markets went up 500% in three weeks, and Browder’s $25 million investment turned into $125 million. With all the success, he traveled back to London to raise outside money for his fund, but bureaucracy among other difficulties caused him to leave Salomon and start the Hermitage Fund in April 1996. His fund was one of the most successful until 1998, when the Russian government defaulted on its bonds. The currency decreased 75% and his $1 billion fund lost $900 million. Terribly ashamed, he was determined to not leave his investors with losses. He invested in mostly oils and metals companies, on the theory their share price should go up if revenues (in dollars) were stable and costs (in rubles) were decreasing. 

Dealing with oligarchs who broke every rule in the book proved to be a hindrance to this investment theory, however. He resorted to becoming a shareholder activist. Through diligent research and some “stealing analysis”, he spotted asset stripping, transfer pricing and embezzlements on an industrial scale by the oligarchs. They poisoned the psychology in Russia over a 10-year period, when the richest in Russia went from 6 to 250,000 times richer than the poorest in Russia. One “stealing analysis” shared with news agencies was that Russian oil and gas, Gazprom, was trading at a 99.7% discount per barrel of hydrocarbon reserves to Exxon and BP. After further shareholder activism, Vladimir Putin, President of Russia, entered the picture. Up until 2003, Browder and Putin’s interests were aligned against the oligarchs, using the principle of “Your enemy’s enemy is your friend.”  However, this alignment quickly reversed, and in November 2005, Browder was deported back to London from Moscow as a threat to national security. Eighteen months later, and after the fund’s liquidation, the Hermitage Fund had been raided by Russian police and re-registered under the name of an ex-convict in Russia.

Sergei Magnitsky, a Russian tax lawyer, was hired to investigate the raid and stop what was happening.  He discovered two parts of the scheme, with the latter being successful:

  1. Steal Hermitage Fund’s assets, of which there were none
  2. Receive a government tax refund for $1 billion in capital gains earned by Hermitage Fund

The largest tax refund in Russian history, $230 million, was paid out on Christmas Eve. Magnitsky testified to the Russian government and was subsequently arrested by the police. After being placed in a pretrial detention, he was pressured to rescind his testimony but refused. For Magnitsky, his integrity was the most important thing he had. He was sleep-deprived, placed in cells with no heat or windowpanes, and moved from cell to cell in the middle of the night. This was done to get him to withdraw his testimony and sign a false confession. The torture continued to get worse and he eventually required medical operations for his health issues. Remaining adamant in his integrity, he was transferred again to a maximum-security prison (without a hospital). His health conditions spiraled downward, and he was repeatedly refused medical attention. On Nov 16, 2009, Magnitsky passed away at the age of 37, leaving behind his wife and two children.

From this point on, Browder made a vow to devote all his time to pursue justice for those who killed Sergei Magnitsky. Using Magnitsky’s meticulous complaints to the Russian government during his jail-time, this would become one of the most well-documented cases of human rights abuses in 75 years. Since there was no justice to be had inside Russia, Browder decided to get justice outside Russia. The oligarchs tended to keep money outside of Russia in London real estate, Swiss banks, etc. His solution was the Magnitsky Act, which allowed the U.S. to sanction individual human rights abusers by freezing their assets and banning entry to United States. As legislation similar to the Magnitsky Act passes around the globe, Putin and others have been unable to park their assets outside of Russia, which is a growing frustration for abusers. In his departing remarks, Browder stated a desire to continue giving Magnitsky a legacy: that his death wasn’t meaningless, and there are new ways and technologies of going after killers in the world. He remains vigilant in furthering Magnitsky Act legislation globally.

CFA Society Chicago thanks the following organizations for helping to make the 2018 Annual Dinner a success!P

Invesco QQQ
Northern Trust
UBS Asset Management

Fitch Ratings
State Street Global Advisors
William Blair

Thank you to all our Gold, Silver and Bronze sponsors as well!

CFA Society Chicago 32nd Annual Dinner

The CFA Society Chicago Annual Dinner was an event devoted to honoring the 148 new CFA charterholders and the recipient of the Hortense Friedman, CFA, Award for Excellence.  The evening also featured Heather Brilliant, CFA, past chairman of CFA Society Chicago and Keynote Speaker Richard H. Thaler, 2017 Recipient of the Nobel Memorial Prize in Economic Sciences and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business.

The newest charterholders were congratulated for passing all three levels of the CFA exam, and having the required four years of relevant work experience required to qualify for the charter.  Honoring their commitment to completing the program, a crowd of 1,050 attendees gave them a standing ovation. It is estimated that preparation for the exams requires nearly 1,000 hours of study. The newest charterholders now hold a professional designation that is recognized worldwide as a symbol of excellence in their profession and a commitment to uphold the highest ethical standards.

Heather Brilliant, CFA is currently vice-chair of the CFA Institute Board of Governors and a managing director at First State Investments.  She addressed the “State of Disruption” in the financial services industry.  Brilliant identified two disruptors: the rise of passive investing and the increasing influence of technology.  She viewed both as positive developments that will in the long-term serve client interests.

The changes these disruptors cause will need to be harnessed by CFA’s.  Active managers will face more consolidation and robo-advice will be more prevalent.  However, it is difficult for machines to empathize with clients.  Brilliant stated that the CFA Institute will offer more continuing educations support and continue to advocate for fiduciary duty.

Brian Singer, CFA was honored as recipient of the Hortense Friedman, CFA, Award for Excellence.  The award honors a member of the Chicago-area investment community who has demonstrated initiative, leadership and a commitment to professional excellence. Singer is the head of William Blair’s Dynamic Allocation Strategies team, as well as its lead portfolio manager.  In expressing his thanks for the reward, Singer spoke of the great experiences he had earlier in his career in working with Gary Brinson and Gilbert Beebower.  They collaborated on a seminal article published in 1991 entitled: Determinants of Portfolio Performance II: An Update.

The keynote speech took the form of a question and answer session between Richard Thaler and Thomas Digenan, CFA, chairman of CFA Society Chicago. The questions from Dinegan covered a wide variety of topics and took advantage of Professor Thaler’s expertise in decision theory.  The Q & A unfolded as follows:

Guess a Number between 0 and 100
The number guessed must be the closest to two-thirds of the average guess of people attending this meeting. After some calculations, you arrive at a mean of 25.4, two-thirds of that mean is 16.93. Professor Thaler made an initial guess of 17 without having to go through the calculations. He was hopeful that charterholders would arrive at a number close to the correct answer.

Outlook for the Chicago Bears
Professor Thaler states the due to the NFL salary cap; successful team must have players that perform at a level greater than their salary. This favors teams with good draft picks and teams that find good players that other teams don’t want. The Bears were forced to pay defensive lineman Khalil Mack a market value salary for the next four years. This acquisition does not bode well for the Chicago Bears as Mr. Mack must be highly compensated.

Lottery Ticket Purchase?
Given the $1.6 billion payout, Professor Thaler would have purchased a ticket. He called it a “smart dream”. Interestingly, of 14 people asked to sell their machine number generated $2 ticket for $4, 11 would not do so. Once you have something, you don’t want to give it up.

Health Care Options for Employees and the Role of “Nudge”
Employees routinely make bad decisions with respect to which health care plan is best for them. These decisions include paying $2,800 for reducing your deductible by only $2,000. Professor Thaler characterized the desire to go to a smaller deductible as a “negative nudge”. He co-authored the global best-seller “Nudge” in 2008.

During open enrollment, there is no action required if you want to keep the same plan as the year before, however if you want to change you are forced start over (go to zero). This leads to what he termed “status quo bias”. Few employees understand their health care options, which can be a bigger decision than what type of 401K you have.

An Example of “Sludge”
People who sell things need to nudge. Bernie Madoff nudged, however he nudged people for evil. It must always be our intention to “nudge for good”.
When trying to access a review in a British journal, Professor Thaler ran into a paywall. The paywall asked for only one pound of payment to access the article; however he was required to give them his credit card. After an initial period you were automatically renewed at the market rate. To stop the subscription, you were required to give 2-weeks’ notice via telephone. This is a prime example of what Professor Thaler views as “Sludge” (making it difficult to get out)

What is Life Like after Winning a Nobel Prize?
Professor Thaler has noted that he has encountered more “Sludge”. He is the third recipient of the Nobel Prize on the floor he works on at the University of Chicago, so after about a week everything returned to normal.

Thoughts on “Surge Pricing”?
Professor Thaler warned that surge pricing can be a huge blunder. This is especially true when it becomes too prevalent. Most customers are resentful when a hardware store raises the price of snow shovels during a snowstorm. During a snow storm in New York, Uber commenced surge pricing. He noted that Home Depot does not raise the price of plywood after a hurricane. Home Depot, by not implementing surge pricing, is promoting a long-term relationship with their customers.

How do you guard against over-confidence?
It is important to eliminate hindsight bias. You must distinguish between bad decisions and bad outcomes. In a football analogy, Professor Thaler stated that attempting to score a touchdown on fourth down with one yard to go for a touchdown early in a football game is a smart decision. If you are not successful, you give the ball over with no points scored. However this is not a case of overconfidence by the head coach. This is an example of good decision with a bad outcome. It is difficult to do, however it is better to evaluate the decision, not the outcome.

In his concluding remarks, Professor Thaler criticized point forecasts by analysts and advocated confidence limits. A $2.34 point forecast can be contained in $2.15-$2.50 confidence limit. It is also critical to be able to look back at forecasts to track errors. Forecasting is an important part of what people do and the more feedback you have the more you will learn.


CFA Society Chicago would like to thank the following organizations for helping to make the 2018 Annual Dinner a success!

Northern Trust
UBS Asset Management
William Blair

First Trust Portfolios, L.P.
Mesirow Financial

Thank you to all our Gold, Silver and Bronze sponsors as well!

CFA Society Chicago 31st Annual Dinner

The Chicago Cubs didn’t win the World Series like they did during last year’s Annual Dinner but the 31st CFA Society Chicago Annual Dinner was yet another terrific evening honoring 163 new CFA charterholders and two recipients for the Hortense Friedman, CFA, Award for Excellence. We also had fantastic keynote speaker, David Rubenstein, founder of The Carlyle Group.

During the evening, our newest charterholders were acknowledged for making substantial investments in their careers by passing all three levels of the CFA exam as well as completing the four years of relevant work experience required.  Earning the CFA designation requires a significant investment of time, energy, and tenacity demanding for most nearly 1,000 hours of study.  The new charterholders are joining an exclusive club of investment professionals that possess both a high level of investment aptitude and a commitment to uphold the highest ethical standards.

Congratulations to all the new charterholders!

CFA Society Chicago Chairman Marie Winters, CFA

On behalf of the Society, congratulations to all those who met the rigorous requirements to become a CFA charterholder. After acknowledging the new charterholders, two individuals were honored for the Hortense Friedman, CFA, Award for Excellence.  This award is presented annually to individuals who have demonstrated initiative, leadership, and a commitment to professional excellence.

Larry Lonis, CFA, and Marie Winters, CFA

Larry Lonis, CFA

The first award recipient was Larry Lonis, CFA, who has worked in the industry since 1989, first for JP Morgan and more recently for Bank of America’s US Trust wealth management group where he served as the lead portfolio manager for a REIT equity strategy. Currently, he serves as the COO for the specialty asset management unit specializing in direct investments in oil and gas, farm, commercial real estate, timber, and private business assets.  In Larry’s speech, he was most thankful for being able to have a career where he is paid to learn every day as well as work alongside the incredibly bright people that he has had the opportunity to work.  As his father would always remind him, the most valuable asset each of us own is our name, which we must uphold to the highest standard along with the industry and the CFA designation.

Robert Harper’s son, Blake Harper, accepts the award on his behalf.

The second award went to Robert Harper, CFA, (posthumous) who grew up on the north side of Chicago, attended the University of Illinois where he studied Finance, and earned his MBA from Northwestern University.  He started his career at Stein Roe & Farnham where he became a senior analyst and Partner.  He later spent 22 years at Harris Associates, where he was the first director of research and the first institutional portfolio manager.  Mr. Harper was known for his contrarian views and was actively involved with the Investment Analysts Society of Chicago, known today as the CFA Society Chicago.

As the Friedman awards concluded, David Rubenstein took the stage and captivated the audience with a collection of videos of himself, including commercials, one in which he was running a young girls lemonade stand in which he suggesting bringing in LP’s and taking the company public or an outright sale through an LBO, in another video he was out-lifting bodybuilders in the weight room and another, showcasing his rapping ability while promoting his firm, The Carlyle Group.  After several laughs, Mr. Rubenstein talked about how he started his private equity firm, The Carlyle Group, which led to a review of how his success at Carlyle lead him to contribute philanthropically to our society, and finally a list of predictions for the economy over the next 12-18 months.

Rubenstein grew up in Baltimore, the son of a blue collar Jewish family whose father worked at the post office and never made more than $7,000/year.  In hindsight, it was a great advantage to have the unconditional love of two parents that didn’t have a lot of wealth – you know you’re going to have to do something on your own to create your own success.  Rubenstein attended Duke, where his initial calling was into politics after being captivated by John F. Kennedy’s first inaugural address given on January 20th, 1961.  This is the speech when JFK famously said, “Ask not what your country can do for you, but what you can do for your country.”  Continuing with his passion for politics, Rubenstein subsequently pursued law school at the University of Chicago where he graduated from in 1973.  After law school, he went to work for the man who wrote JFK’s speech, Ted Sorensen, who saw Rubenstein was interested in politics, but that he didn’t have the skills to be a terrific lawyer.  From there, he worked as chief council for Birch Bayh, a former US Senator from Indiana, who dropped out of a political race 30 days after David joined leaving him without a job.  Rubenstein then found a job working for Jimmy Carter at a time when Carter was a 33 point favorite to beat our Gerald Ford.  President Carter later won by only one point.  One of Rubenstein’s jobs while working for President Carter was to fight inflation, and if you remember back to this time inflation rose as high as 19%!  Quite the contrast from several economists today more worried about about deflation in today’s environment.  President Carter later ran against a much older Ronald Reagan and lost, putting Rubenstein yet again out of a job.  Without your party in power in Washington, it’s safe to say it’s very hard to find a job.  “If you want a friend in Washington, go buy a dog.”

Reconsidering his path in politics, Rubenstein read a blurb in the newspaper that changed his life.  The article highlighted Bill Simon whom started an investment firm which performed a “leveraged buyout” in which it bought Gibson’s Greeting Cards from RCA for $1 million and made $80mm in two-and a half year period.  He had the ambition and entrepreneurial spirit to start the first private equity firm in Washington DC and recruited the CFO of MCI and an executive from Marriott to be his partners.  They named their firm “The Carlyle Group” after a hotel in New York, for which ironically none of them had ever stayed.  The first four investors in their fund collectively contributed $5 million, or $1.25 million each.  The first deal was Chi Chi’s, a fast food Mexican food company that was looking to go private after being a public company.  The investment turned out successfully and today Carlyle Group has grown to one of the largest private equity firms in the world.  Rubenstein attributes the tremendous success to the creation of numerous styles of funds: a small buyout fund, a growth fund, a mezzanine fund, a debt fund, an institutional fund, and last but not least a family of funds among others.  He and his partners then took this idea of a multi-faceted fund structure and globalized it.

At 54 years old, Rubenstein came across a second newspaper article that also had a significant impact on his life.  This time it was an article of the wealthiest men in the world according to Forbes magazine, where he was featured for creating a very large fortune.  After living two-thirds of his actuarial life, Rubenstein signed a pledge to give away nearly all of his net worth—donating his fortune to educational institutions, medical research firms, and volunteering his time by serving as Chairman of Kennedy Center, Lincoln Center, and The Smithsonian.  A few years later, a THIRD article changed his life, this time coming in the form of an advertisement.  Flying home from London to New York, he read an invitation that an official copy of the Magna Carta was being auctioned off, of which there are currently 17 copies of around the world.  Ross Perot had bought one in 1981 and had since decided to sell it.  Rubenstein prevailed in the auction and has now donated it to the United States National Archives.  He continued purchasing historical documents that had significant to our country’s founding including the Declaration of Independence, the Emancipation Proclamation, the Thirteenth Amendment of the Constitution, rare copies of the constitution, and the first map of the United States.  After acquiring these meaningful documents, he has put them in places where Americans can see them so Americans can be inspired to learn more about the history of our country.

Rubenstein left us with quick yet informative bullets on his forecast for the economy and private equity industry:

  1. We are not going to have a recession anytime soon.  We are likely to have the longest growth cycle in the post WWII era
  2. New Fed Chair Jerome Powell will continue the Federal Reserve’s rate increase trajectory. Expect a 25bps rate increase in December
  3. US unemployment rate will hold steady and we will stay near full employment for the near-medium term
  4. Core inflation will stay below 1.5%
  5. NAFTA will be renegotiated but we will not withdraw
  6. We will have a tax cut bill.  Corp tax rate will go to 20%.  AMT / Estate tax will go away and repatriation will occur.  401k, SALT taxes will be preserved.  Expect tax cuts to pass early next year
  7. US Dollar will strengthen as the US economy continues to strengthen
  8. Europe will grow GDP nearer 2%; China will slow down to 5.5% – 6%
  9. Middle East conflicts won’t get resolved anytime soon.  Expect us to still be in Afghanistan 5-10 years from now
  10. Don’t expect a military confrontation North Korea
  11. Brexit will occur, however it won’t unduly kill the British economy
  12. Global climate change regulation will stay in place and actually will be enhanced
  13. Cyber warfare will continue to be the most important issue, and threat, to our country today
  14. Life expectancy will continue to rise globally as emerging markets catch up to developed world
  15. Private equity returns will drift down, but still beat index returns; United States private equity will outperform globally
  16. Sovereign wealth funds will continue to be increasingly important to the industry
  17. Government will allow retail investors to invest in private equity
  18. The largest private equity firms will continue to increase market share and grow globally

Concluding on Rubenstein’s philanthropic effort, he left us with “If you can make your mother proud, that’s where you’ll find real happiness is in life.”  For all the great deals that Carlyle had done and even after going public, he never received a congratulatory call from his mother.  He did however receive a call every time he donated his money and time to a worthy cause.  Even though many of us in the room won’t have the wealth that Rubenstein has created, you can still dedicate your time and skills to help make the world a better place.  Go out there and “Do something that will make your mother proud!”









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