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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29TH ANNUAL DINNER

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Financial speakers don’t come with a higher profile than billionaire Mohamed El-Erian, whose resume lists a staggering body of achievement: Chair of President Obama’s Global Development Council, Chief Economic Advisor at Allianz, former Co-CIO and CEO at PIMCO and Bloomberg columnist and author.

As attendees milled around the large meeting hall of the Streeterville Sheraton, our annual Society dinner began with soft jazz in the background and steak and salmon slowly finding their way to tables. Experienced investment executives and new Charterholders alike shook hands and networked while dining, excited about the prospect of hearing from one of the preeminent minds in the investment world.

Kerry Jordan, CFA, current Chairman of the CFA Society Chicago, opened the proceedings with a video message from Paul Smith, President and CEO of the CFA Institute, who explained the genesis of the CFA Society Chicago to commemorate our 90th anniversary as an organization. This was no ordinary annual dinner; it was a milestone for our organization and an occasion to celebrate our past and look towards our future.DSC_2216

Each attendee also received a book published by the CFA Society Chicago titled “Celebrating 90 Years” to take home with them. The book, which the Society’s Communications Committee spent over a year preparing, shares biographies of our pioneers, financial news articles from years past and photographs of important places and people who helped shape our organization’s history. As Co-Chairman of the CFA Society Chicago Communications Committee, I’d like to extend my gratitude to everyone who worked on the history project and helped make it happen: many thanks to all of you who spent long weekends in various libraries researching and crafting this excellent book.

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New Charterholders being recognized at the 29th Annual Dinner

 

Kerry Jordan, CFA thanked Paul Smith for his remarks and switched gears to honor the four individuals marking their 50th year as Charterholders. The new class of 177 recently-minted Charterholders was also toasted, with Jordan reminding the audience just how difficult it is to pass all three exams and the massive amount of time and effort expended to earn a CFA Charter. Jordan reiterated the benefits and reach of the CFA Charter, stating that there are now local societies in 71 countries, with over 300 universities globally incorporating the CFA curriculum into their programs.

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Priscilla Perry – Hortense Friedman, CFA, Award for Excellence

The Hortense Friedman, CFA, Award for Excellence was presented to longtime Harris Bank analyst Priscilla Perry. Perry’s biography mentioned that she needed to pass all 3 exams, not just 2, as some Charterholders were given the CFA designation with only two passing exams earlier in the program.

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Priscilla Perry & CFA Chicago Past Chairmen

Jordan then discussed her own personal journey towards becoming Chairman of the CFA Society Chicago. She quipped, in reference to former Chair Heather Brilliant, who had been recently promoted to CEO of Australasia at Morningstar, that she liked the trend of recent CFA Chicago Chairs receiving a ‘Chief’ in front of their job title.

“We’re getting to you Mohamed, just a couple more things,” Jordan said to laughs in the audience as she listed off the event sponsors and graciously thanked them for their kind support.

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Left to Right: Chris Vincent, CFA, Kerry Jordan, CFA, Mohamed El-Erian

Immediate past Chairman Christopher Vincent, CFA was asked to introduce Mohamed El-Erian. In his introduction, Vincent mentioned the parlor game that he likes to play with other company leaders of “who has the most CFA Charterholders” but that he usually prefers a per capita measurement, which favors William Blair.

Dressed in a dark suit and a blue tie, El-Erian made his way to the stage amidst thunderous applause, pausing to take a few pictures with Christopher Vincent, CFA and Kerry Jordan, CFA.  The format for the presentation was a one-on-one chat, a la a Charlie Rose interview. Questions from CFA Society Chicago members were solicited ahead of time, with Jordan to act as the interviewer while she and El-Erian sat in armchairs on the Sheraton ballroom stage. Jordan mentioned a few of the questions that had been tossed out, including “How crazy is Bill Gross…really?”, to which El-Erian stared straight ahead with the slightest smirk on his face, wisely declining to offer any thoughts around his old boss at PIMCO.

Given El-Erian’s vast array of job, media and government responsibilities, how does he spend a typical day, a CFA charterholder wanted to know?

While at PIMCO, he would rise at 2:45 AM to compensate for the 3 hour time difference between California and New York, but now El-Erian sleeps in…until 3:30. The audience audibly gasped upon hearing this, realizing that building a net worth of $2.3 billion doesn’t always come with a lot of sleep.

After an early wakeup, El-Erian does some of the same things we all do. He looks to find out what is going on in the world, takes his dog out and makes his daughter breakfast. Sometimes when he lies down at 9 pm to sleep (he aims for about 6.5 hours of sleep a night), he starts tossing and turning and obsessing about how many hours of sleep he’ll get if he can’t fall asleep promptly at 9 pm. Then, El-Erian said, he might begin calculating his 3 day sleep moving average and his 5 day sleep moving average, to chuckles in the financially-oriented audience.

El-Erian has been a fan of the Mets since 1968 and said he was a bit worried about presenting in front of a room full of Cubs fans shortly after his team knocked the North Siders off in the NLCS. “Well, about 20% of you are on my side,” he said, referencing the much smaller Chicago White Sox fan base.

The nature of the conversation shifted as Jordan moved the conversation to the Fed’s decision on whether to raise rates in December. “What are the odds?” Jordan asked.

“High,” El-Erian responded. “But why are we obsessing with 25 basis points?”

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Keynote Mohamed El-Erian

El-Erian had three observations on the current Fed watch:

  • We’ve been living in a non-normal world and we are addicted to the Fed’s help. The Fed has had some missteps in communicating with the market about its plans, and this will likely be the most gradual tightening in Fed history.
  • The Federal Reserve probably won’t raise rates during every meeting and will stop raising rates well below the historical average seen in previous tightening cycles.
  • The world has become a very asymmetrical place, with the ECB moving in a different direction than the Fed and many central banks are out of alignment with respect to their monetary policy. This will likely lead to more foreign exchange and equity market volatility and higher interest rate differentials going forward.

“The Fed is dying to get off of 0%,” said El-Erian, “and the longer they are unconventional with monetary policy, the lower the benefits and the higher the costs.”

Over the past 10 years, society has bet on a growth model with finance, seeing it as an engine of prosperity for the economy. Countries like Iceland greatly expanded the size of banking within their economies with the belief that you can grow a lot with an expanding financial center. “Finance,” said El-Erian, “just got too big.”

Another observation El-Erian made was that the global political system was not stepping up to its economic governance responsibilities. In his mind we need a political system that steps up and a financial system that serves society as a whole to counter the effects of volatile markets and uncertainty around interest rate increases.

He talked about a recent investment he made in a firm that provides credit for very low income individuals, stating that “credit card debt can ruin you.” Technology is changing everything we do, and behavioral finance is now being used to help improve access to credit. The new generation of millennials expects “interaction anytime, anywhere” and companies need to build their strategy around this fact. In 10 to 15 years, Millennials will comprise the main customer base for most firms. El-Erian mentioned peer-to-peer lending, seen on platforms such as Lending Club, as part of the disruptive force currently taking place within finance, enabling individuals to interact in ways that would previously require an intermediary such as a bank. Technology has given rise to a broader trend of individual empowerment, and firms that ignore this change will find themselves rapidly disrupted. El-Erian used the example of the Hilton hotel chain taking a century to build 700,000 rooms while Airbnb accomplished this in a few years. “Starwood is being disrupted by people who never built a hotel in their life,” he said.

Jordan then turned the conversation towards the topic of student loan debt. Over $1.4 trillion is owed by students and this amount has tripled in just a few years, making many consider the student loan market to be the next subprime-like domino waiting to fall. As El-Erian explained, the return on higher education has gone down as the costs have increased, with an increasing household concentration of educational debt. Some options to fix this situation include broader use of community college, an earlier start for financial literacy programs and increasing the transparency around the student loan market, which El-Erian described as very low. “When you have a debt overhang, it impacts everyone,” El-Erian stated, saying that the options of bailing out delinquent borrowers or having an entire segment of society of being crushed by student loan debt are both highly unpalatable.

In El-Erian’s mind, one of the best ways new charterholders can prepare for a successful career would be by learning the languages of emerging economies, particularly Mandarin and Cantonese. The emergence of a much larger global middle class also points to an increased need for financial advice. Another less positive trend El-Erian highlighted was the “hollowing out” of the middle class in the West, resulting in a barbell-style society of poor and rich with few in the middle.

In terms of the investment landscape, El-Erian said it is no longer about products, it’s about solutions. You can’t expect to lob an array of diverse products at consumers and hope for them to construct a solution, the investment industry needs to build solutions for them.

One attendee wanted to know El-Erian’s views on the topic of active versus passive investment. In El-Erian’s mind, there shouldn’t be a debate because there is room for both approaches. Passive investment can be problematic in some asset classes, which El-Erian detailed in an example from earlier in his career while working as an emerging markets bond portfolio manager. At the time, Argentina represented 20% of an emerging markets index, but PIMCO made the decision that the country wasn’t a good credit risk and decided not to allocate any of its capital to Argentine bonds. Some commentators characterized this decision as irresponsible because it was such a large holding in the index and its exclusion would inject a huge tracking error into the PIMCO emerging market fund. Over time, PIMCO’s decision not to invest in Argentina turned out to be a huge success as the country defaulted in 2001-2002, and the exclusion of its bonds in PIMCO’s fund led to strong benchmark outperformance. For this reason, when default and liquidity risk is high, active management is very important. But in some asset classes, active management doesn’t really add much value, El-Erian opined.

Liquidity drives many investment decisions in fixed income and this risk factor has grown in importance as the buy side has increased market participation as sell side participation has declined, resulting in what El-Erian termed “the delusion of liquidity” currently going on in markets.

El-Erian listed three items he would expect economists to name as top initiatives needed to drive economic growth, including structural reform, the fundamental imbalance between the will to spend and the size of the wallet (“Germany has the wallet but not the will, Greece has the will but not the wallet”), and reducing what he sees as excessive levels of debt in the financial system. Publicly-traded markets are especially prone to manipulation by Fed policy, and El-Erian continues to move assets from public markets to cash and private markets as new index highs are reached.

Lastly, Jordan asked El-Erian about what he thinks of the future of finance. El-Erian laughed and said “They always say be afraid of the last question”, stating that he had recently created a Twitter account and was amazed by that platform, and that the future is generally very hard to predict.

To view 29th Annual Dinner pictures online please visit: http://edwardfox.pixieset.com/guestlogin/cfachicago/

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CFA Chicago Annual Dinner: 28th Annual Dinner

CFA Chicago Annual Dinner Keynote: Governor Jon Huntsman, Jr.

CFA Society Chicago celebrated a class of 140 new charterholders during the CFA Chicago 28th Annual Dinner held at the Navy Pier Grand Ballroom. The festivities commenced at 5 p.m. with networking and drinks. Prior to the start of dinner, entertainment was provided by the City Lights Quartet.

CFA Chicago Chairman Christopher Vincent, CFA, opened the proceedings by welcoming the new CFA charterholders and thanking the dinner underwriters. There were 53 corporate sponsors (45 bronze, 2 silver, 8 gold, 4 platinum and two premier sponsors) for this event.  The premier sponsors were Harris Associates and UBS Global Asset Management.  Each new charterholder attended gratis, courtesy of CFA Chicago.  The event greatly benefited from the organizing efforts of Doug Jackman, CFA and Stephen Moy, CFA who lead the Annual Dinner Advisory Group.

The winner of the 2014 Hortense Friedman, CFA, Award for Excellence was Ralph Wanger, CFA.  This award honors a CFA Chicago Founder and prominent institutional investor.  Ralph Wagner began his investing career with Harris Associates in Chicago in 1960.  He is currently Head of Columbia Wagner Asset Management, L.P. and is an Advisor to the Acorn Fund.  In his brief remarks, Wagner reflected on his long career and the people in Chicago he met along the way.

The evening continued with a keynote address by Governor Jon Huntsman, Jr.  Gov. Huntsman has led a life devoted to public service.  He was twice voted Governor of Utah (2005-2009), and was U.S. Ambassador to China (2009-2011).  In 2012 Huntsman ran as a candidate for the Republican Nomination for President.

In an era of increasing ideological paralysis in politics, Gov. Huntsman stressed that bipartisanship is the only way to move forward to solve the problems of the United States.  He now serves as co-chair of No Labels, a citizen’s movement of Democrats, Republicans and others dedicated to promoting a new politics of problem solving.  In his opinion, the major challenges facing the US can be summarized by the following four issues; 1) Entitlements 2) Budget Deficits 3) Energy Security and 4) Jobs Security.

He stressed the importance of the mid-term elections and the fact that 42% of voters are now calling themselves unaffiliated. He predicted that the Republicans would gain control the Senate; however this did not mean that the ideological paralysis would go away.  Dissatisfaction with incumbents has skyrocketed because no viable solutions are being offered.

In the short Q&A following the event, Gov. Huntsman commented on the state of the Republican Party, and the role of China and the US in the global economy.  He fears that the Republican Party has lost its connection to its Lincoln, Eisenhower and Reagan roots.  His opinion is that in the global marketplace it is China who takes the long view, while the US is more focused on short-term results.  His best example of a leader in the world today is Alan Mulalley former CEO of Ford, who led his company through trying economic times.

Following Gov. Huntsman’s keynote address and Q&A, there was more opportunity for networking. Drinks, coffee and cookies were provided to attendees who wished to stay after dinner.

 View Photos from the 2014 CFA Chicago Annual Dinner

Thank you to our Premier, Platinum, Gold, Silver and Bronze Sponsors.