DECEMBER 2014 CALLAN INVESTMENTS INSTITUTE Ask the Expert Everybody has to start somewhere, including investment managers. Even the largest firms with broad name recognition and substantial assets were once emerging firms. Emerging managers generally include smaller and newer investment managers, poten- tially with atypical ownership structures. While smaller asset pools can work against them in some cases, it can also work in their favor, enabling them to access opportuni- ties that larger, more established investment managers cannot. Many U.S. institutional investors have long track records of dedicated investments with emerging managers while others are just starting to examine the space. Emerging manager programs are becoming more commonplace, particularly at public pension funds, as investors recognize the potential portfolio gains that can be achieved through investing with the diverse and entrepreneurial investment managers that make up the emerging manager space. Callan has long recognized the value that diversity of professionals and firm size can bring to investment outcomes. Our founder Ed Callan was instrumental in launching Progress Investment Management more than two decades ago. In 2010, we launched Callan Connects to expand our universe of emerging manager and minority, women, and disabled owned firms. In this interview, Uvan Tseng talks with Lauren Mathias, who oversees Callan Connects, about trends and issues in the emerging manager arena. A Conversation with Lauren Mathias, CFA, Vice President Interviewed by Uvan Tseng, CFA, Vice President Emerging Managers Small Firms with Big Ideas
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DECEMBER 2014Callan InvEstMEnts InstItutE
Ask the Expert
Everybody has to start somewhere, including investment managers. Even the largest firms with broad name recognition and substantial assets were once emerging firms. Emerging managers generally include smaller and newer investment managers, poten-tially with atypical ownership structures. While smaller asset pools can work against them in some cases, it can also work in their favor, enabling them to access opportuni-ties that larger, more established investment managers cannot.
Many u.s. institutional investors have long track records of dedicated investments with emerging managers while others are just starting to examine the space. Emerging manager programs are becoming more commonplace, particularly at public pension funds, as investors recognize the potential portfolio gains that can be achieved through investing with the diverse and entrepreneurial investment managers that make up the emerging manager space.
Callan has long recognized the value that diversity of professionals and firm size can bring to investment outcomes. Our founder Ed Callan was instrumental in launching Progress Investment Management more than two decades ago. In 2010, we launched Callan Connects to expand our universe of emerging manager and minority, women, and disabled owned firms. In this interview, Uvan Tseng talks with Lauren Mathias, who oversees Callan Connects, about trends and issues in the emerging manager arena.
Lauren not necessarily; it often depends on the asset class. there’s not one aggregate number that says emerging
managers beat established managers. In general, smaller managers tend to outperform, but the capacity
constrained asset classes are really where they add the most value. smaller managers have the poten-
tial to outperform more established managers because of their nimbleness. Capacity constrained asset
classes are where smaller managers have more agility when investing versus larger firms with greater
assets under management.
CallanConnects
We launched Callan Connects in 2010 to expand our universe of emerging managers and minority, women, and disabled owned (MWDO) firms. We reserve one day each quarter to meet with emerg-ing managers with less than $3 billion in assets and MWDO firms with less than $10 billion to intro-duce their firms to Callan. We hold meetings in major U.S. cities to minimize travel for firms in or near these locations. Since inception, 196 firms have participated in Callan Connects.*
*A complete list of participating firms is available at www.callan.com/datatools/connects/
Lauren Investors have a couple of options. The first is direct investment with the emerging manager. This method
is sometimes challenging for large plans because the dollar amount they want to invest tends to be too
much for smaller managers to take on. to work around this issue, a large plan could create a portfolio of
several emerging managers, essentially creating an emerging manager program. this program allocates
smaller dollar amounts to multiple emerging managers. Investors that take this approach often have sub-
stantial internal resources in order to evaluate the emerging managers prior to investing with them and
manage the program over time.
Investors that don’t have the resources to research, evaluate, and monitor emerging managers directly can
look to managers-of-managers for access. These firms create multi-emerging manager strategies—essen-
tially custom portfolios for the investor. Manager-of-managers firms have the experience and the resources
to dedicate to these portfolios on behalf of the investor.
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Uvan Beyond meeting with manager-of-managers platforms and attending a Callan Connects typeprogram, are there any actions that you would recommend for emergingmanagers tomarketthemselves?
Lauren this is an incredible challenge for emerging managers, because the professionals that are managing the
firm have to wear multiple hats: portfolio manager, CEO, trader, marketer, etc. It’s hard to find the time
to establish marketplace familiarity with the firm. Conferences are great places to meet with prospective
clients and consultants as an introduction. several emerging manager organizations exist that help par-
ticipating firms learn more about industry trends. Emerging managers can directly contact consultants, as
well. For example, Callan encourages emerging managers to attend a Callan Connects meeting, or directly
email or call someone in our research group. Emerging managers can also directly contact potential cli-
ents, as well.
It’s important to understand your audience before marketing a strategy. Institutional investors and con-
sultants are short on time, so the emerging manager needs to know exactly what they have to offer,
whether or not that strategy appeals to the institutional investor or the consultant, and package that in a
Lauren It varies by investor, depending on whether or not they have an emerging manager program. If they like
the manager, in most cases I’ve seen clients find a space for them within their general lineup. Investors
with a dedicated program essentially have a certain asset allocation earmarked for emerging managers.
If a manager within that program no longer meets that definition—they have been successful and have
grown their business beyond the assets dictated by the emerging manager definition—then they typically
will not be a part of the program anymore. If the fund wants to continue to invest with this manager, then
it is most common for them to move out of the emerging manager program to be classified with the rest of
the fund’s managers.
But if the investor doesn’t have a defined emerging manager program, then there isn’t necessarily a need
for graduation; the emerging manager just becomes established and perhaps is given more assets in the
overall plan.
GetConnected
there is no fee to participate in Callan’s database. Information about our online question-naire can be found on our website (www.callan.com) under Manager Questionnaire.
To submit your firm to Callan’s Manager Database, please send the following information to [email protected]:
1. Full legal name of the firm and mailing address of the main office.
2.Contact information for a business/marketing individual and a database/questionnaire individual.
3.name of the strategy to be included in the database.
4.strategy’s quarterly returns and vehicle type.
We will respond with a manager questionnaire login once you have submitted this information.
Lauren E. Mathias, CFA, is a vice President and u.s. equity investment consultant
in Callan’s Global Manager Research group. lauren is responsible for research and
analysis of u.s. equity investment managers and assists plan sponsor clients with
u.s. equity manager searches. In this role, lauren meets regularly with investment
managers to develop an understanding of their strategies, products, investment poli-
cies and organizational structures. lauren also oversees the Callan Connects pro-
gram, launched in 2010, which enhances Callan’s coverage of emerging managers
and minority, women, and disabled-owned firms. Lauren is a shareholder of the firm.
lauren joined Callan’s Client Report services group as an analyst in October 2004. Prior to Callan, she
assisted an independent financial planner in preparing financial plans for individual investors.
lauren graduated from California Polytechnic state university, san luis Obispo in June 2004, Magna
Cum laude with a Bs in Business administration, concentrating in Financial Management and Enterprise
accounting with a minor in statistics. she has earned the right to use the Chartered Financial analyst
designation.
Uvan Tseng, CFA, is a vice President in Callan’s san Francisco Fund sponsor
Consulting office. Uvan works with a variety of fund sponsor clients including corpo-
rate defined contribution plans and corporate and public pension plans. His respon-
sibilities include client service, investment manager reviews, performance measure-
ment, research and continuing education, business development and coordination of
special client proposals and requests. He joined Callan in 2008 and is a shareholder
of the firm.
Prior to joining Callan, uvan held positions as a Research analyst/associate Portfolio Manager at armory
advisors and as an associate Portfolio Manager at Fan asset Management. Prior to that, he was a Financial
advisor with Morgan stanley. uvan began his career at Franklin templeton in the corporate management
training program.
uvan earned an MBa in Finance from santa Clara university and a Ba in Business Economics from the
university of California, santa Barbara. uvan has earned the right to use the Chartered Financial analyst
designation and is a member of CFa Institute and the CFa society of san Francisco.
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AboutCallanAssociatesCallan was founded as an employee-owned investment consulting firm in 1973. Ever since, we have em-
powered institutional clients with creative, customized investment solutions that are uniquely backed by
proprietary research, exclusive data, ongoing education and decision support. today, Callan advises on
more than $1.8 trillion in total assets, which makes us among the largest independently owned investment
consulting firms in the U.S. We use a client-focused consulting model to serve public and private pension