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I LOVE this fixed income presentation!

“Bonds should be boring.” That’s what one head of fixed income of fixed income used to tell me. But that doesn’t mean that fixed income presentations should be boring.

Northern Trust has published the most enjoyable fixed income presentation I’ve ever seen. It’s called “Fixed Income: Almost A Bedtime Story.”

What’s so great about this post?
— Simple message, plain language
— Uncluttered pages
— Sense of humor — Oh my goodness! Northern Trust wrote an amusing disclosure on slide #23. “Psst: Fixed income may also be volatile in the future.”

These are characteristics that you can strive for in your presentations, though humor is a bit tricky. I think you need lots of experience grappling with compliance to find the laughs in slide #23’s disclosure. 

I would like to shake the hands of the team that created this presentation. It’s amazingly good. If it spawns imitators, that’ll be a great development for the folks who currently snooze through deadly presentations.

Investment management job outlook for 2010

There are glimmers of hope in the investment management hiring outlook for 2010, especially for job applicants who help to generate revenues or who are in an area where cuts have been too deep. That’s what I gathered from exchanges with three observers, Michael Kulesza, managing director of Horton International‘s Boston office; Bob Gorog, partner in CT Partners’ Boston office; and Michael Evans, president, FUSE Research Network in Boston. This updates my 2008 posts, Three recruiters talk about hiring at investment management and mutual fund firms” and “Who’s hiring CFA charterholders.

“I do sense an uptick in hiring for 2010,” said Kulesza. “Many companies scaled back heavily, so now they and are planning to add people to their organizations.” That’s particularly true in the areas of sales, new business development, mutual fund wholesalers, and advanced sales support, he said.

Smaller firms hiring to grow market share 
Small- to medium-sized firms are hiring more aggressively than bigger firms, added Kulesza. They’re taking advantage of large-company layoffs to upgrade their staff and to increase market share. 

Given the big banks’ involvement with mergers and TARP funds, some smaller banks see an opportunity to expand their  high-net-worth businesses. “Customers are gravitating toward more local or regionalized high-net-worth services,” he said. 

Aside from these sales and marketing opportunities, Kulesza believes there may be additions to investment research and analysis. “Back office operations will stay lean,” he said. 

Privately held and mutual companies are freer to take advantage of hiring and market share expansion opportunities, said Kulesza, because they aren’t answerable to the stock market. Meanwhile, it will take four to five years before investment management hiring returns to its previously high levels, he predicted. 

Some niches offer more opportunities  
“The better firms are coming back into the market,” said CT Partners’ Gorog. On the investment side, he sees more searches for international equities than for domestic equities. Opportunistic hiring is also happening in fixed income areas such as credit and distressed debt.

Some hedge funds are beefing up their distribution. They’re trying to upgrade their clients to include institutions as well as the high-net-worth, fund-of-fund, and family office clients with whom hedge funds typically launch. Funds that have survived three years and delivered decent relative performance over that period figure they have a good shot at expanding their client base. 

Hiring in product management
Fuse’s Evans shared the hiring outlook uncovered by the firm’s recent research report on product management at asset management firms. His comments are reproduced below with his permission.

Increased Activity – Two areas in which product leaders anticipate increased activity is improving web content and capabilities, and hiring of additional staff. A review of firm websites indicates that much of the research and marketing content is dated. In terms of the actions listed, improving web content and capabilities was among the least time-consuming and least expensive actions firms could take, but its impact could be great in that it would signal to advisors and investors that the firm is moving forward.

In terms of hiring, firms indicated a strong desire to add back staff. Fully 50% of respondents indicated that they plan to hire in 2010. When asked the areas to which they planned to add staff, responses included:
·  Product managers
·  Marketing managers
·  Associates/analysts
·  Junior product managers
·  Manager research/due diligence

This suggests that firms may be feeling the burden of carrying out new organizational initiatives using skeleton staffs. Recent analysis by Russell Reynolds Associates concurs that hiring should resume in 2010; particularly on the sales and marketing sides of organizations, as these were among the hardest hit in terms of headcount reduction.

For wealth managers and financial planners 
Wealth management professionals and employers should check out Bill Winterberg’s “Your Next New Hire: By Providence or Planning?” Bill lists some resources that may help both job hunters and those who are looking to hire. He also links to some trade publications suggesting that hiring in this arena will pick up in 2010.

By the way, Winterberg hopes that operations hiring is more robust than Horton International’s Kulesza suggests. “If anything, firms need to support additional capacity ahead of growth, rather than hire after growth exposes bottlenecks in operations.” 

Good luck to all of you job hunters out there!

JAN. 12 UPDATE

If you’re willing to be interviewed by a reporter–and you fit the criteria mentioned below–please contact Emma Johnson at the email address she provides.

“Hey Wall St., what’s the job market really like? For a story, looking for those currently or recently employed in finance to comment on job outlooks. Anonymous sources OK. emma@emma-johnson.net

Recovery will be stronger than consensus, says Barclays Capital chief U.S. economist

“U.S. economic growth is recovering robustly, receiving the usual cyclical boost from housing and inventories,” said Dean Maki, managing director and chief U.S. economist of Barclays Capital in his “U.S. Economic Outlook” presentation to the Boston Security Analysts Society (BSAS) on December 8. 

Maki said the U.S. economy will recover strongly, as it typically has done following past recessions. He disagreed with the many pundits who say “This time is different” and that the economic recovery will be drawn out because tight credit will keep consumer spending weak. Credit is always tight following a recession, Maki said. “In these strong [economic] recoveries of the past, we haven’t needed strong credit growth,” he added. 

Maki discussed the following drivers of strong economic growth:
•    Production is set to grow much faster than final demand.
•    Housing is starting to rise because of its greater affordability.
•    Business has cut too much during downturn, so companies must boost spending soon to grow profits.

Some predictions
•    Real GDP will hit 5% by the first quarter of 2010 and stay at or above 3% in 2010.
•    Unemployment has peaked and will fall to 9.1% by the fourth quarter of 2010.
•    Inflation–and the fed funds rate–will remain low. However, the Fed will raise rates in the second half of 2010.

A couple of unexpected developments could derail Maki’s predictions, he said. One is a sharp fall in the stock market. The other is a sharp rise in commodity/energy prices as a result of global economic growth. 

Do you agree with Maki’s predictions? Please comment.

Dec. 11 update

If you’re a member of the BSAS LinkedIn group, you can join a conversation there about Maki’s talk.

Which wealth managers have the highest profit margins?

People are always curious about who makes how much money. That’s probably why I zeroed in on the profit margin comments made by investment banker Elizabeth Nesvold, managing partner of Silver Lane Advisors, when she spoke about “Trends Amid Turmoil in the Wealth Management Business” to the Boston Security Analysts Society on November 18.

Because multi-family offices (MFOs) deal with wealthier clients than financial planners, I was surprised to learn that their margins are lower than financial planners’ in typical market scenarios, ranging from 10%-30% vs. 20%-35% for financial planners and asset allocators. However, the difference made sense when she explained that MFOs get hurt by “scope creep.” It’s expensive to service a multi-generational family as compared to an entrepreneur who just sold his or her business, Nesvold said.

Here’s the hierarchy of margins under typical market scenarios, in descending order, according to Nesvold.

  1. Hedge funds, 50%-70%
  2. Hedge funds of funds, 25%-60%
  3. Traditional institutional, 30%-70%
  4. Investment counsel, 25%-40%
  5. Financial planning/asset allocation, 20%-35%
  6. MFOs, 10%-30%

Do these margins sound realistic to you? 

The best private equity opportunity in generations

“Our database tells us we’re in a multigenerational opportunity to be a private equity investor,” said Martin Grasso, CEO of Pearl Street Capital Group, a private equity fund-of-funds manager. He believes that investors with longer time horizons can get above-benchmark returns without significant volatility. Grasso made his comments as a panelist on “The State of Private Equity: Opportunity Through Crisis,” presented to the Boston Security Analysts Society on November 5.

Data suggests that capital growth and buyout private equity get the highest returns in years with the lowest levels of EBITDA leverage, said Grasso. That’s the situation we’re in now.

It also pays to invest with the best, according to Grasso. Top quartile and top decile private equity fund managers show much higher levels of persistence than long-only public securities managers. In other words, top performers in private equity have a greater tendency to remain top performers. The difference in performance between top and bottom quartile managers is much greater in private equity than among public equity managers.

Implications for advisors:
* Access to top firms is still difficult, so go with a fund-of-funds to gain that access.
* Invest in 10 vintage years and consider some secondary offerings, which are available now that some investors can’t meet their funding obligations as limited partners.
* Best private equity opportunities now are in small-medium companies where there’s less competition and where private equity managers are more inclined to partner with management to “accrete value” and make minority investments.
* Diversify across geography and sectors.


The last two paragraphs of this post were revised on Dec. 7, thanks to some clarifications by Martin Grasso of Pearl Street Capital Group.

If you’re marketing to RIAs…

…email should be your top method for communicating with them. That’s the message I took away from “Marketing to Today’s RIA: What Every Asset Manager Should Know,” a webinar and report from Morningstar Advisor and Swandog Strategic Marketing. Their webinar and report are based on an online survey of 500 financial advisors that was supplemented by interviews.

Their research suggested some lessons that may apply to everyone marketing to registered investment advisors (RIAs), even though the Morningstar-Swandog report focused on RIAs’ interactions with asset managers. 

Lesson 1: Stay in touch via email rather than heavy-handed personal contact or expecting RIAs to visit your website. The graph on p. 13 shows a strong preference for email communications over web access, wholesaler visits, and phone calls.

Lesson 2: Tailor your marketing materials to RIAs rather than using materials for registered reps. RIAs fall between registered reps and institutional investors in their sophistication. The Morningstar-Swandog webinar quoted one RIA saying, “Give me substance!” RIAs want meatier content than registered reps. Another telling quote: “Most info from investment managers is propaganda. Real objective analysis is rare and valuable” (p. 7).

Lesson 3: Get your company’s thought leaders exposure in  arenas that confer apparent third-party endorsements. Print publications used to be the best method for this. But now, as moderator Leslie Banks pointed out, you can use Facebook, LinkedIn, and Twitter to push out your content AND get it endorsed by people whom RIAs respect.

Take the time to read the report and watch the webinar on Marketing to Today’s RIA: What Every Asset Manager Should Know.” I’ve barely touched on their content and each covers slightly different content.

Private equity job hunting tips from four professionals

Don’t bring me a resume. Bring me a deal,” said Daniel Meader, founder and managing partner, Trinity Advisory Group. Meader offered his advice during the Q&A following “The State of Private Equity: Opportunity through Crisis,” a sold out presentation to the Boston Security Analysts Society on November 5.

Other advice from panelists:

  • In New England, the best job prospects are in venture. The corporate growth and buyout styles of private equity are stagnant locally, said Martin Grasso, CEO, Pearl Street Capital Group.
  • It’s good to have consulting experience as well as investment expertise, according to Scott Stewart, MS in Investment Management Faculty Director, Boston University School of Management.
  • Get operating experience in turning around a distressed company, suggested Norman Rice, partner, ConsensusCapital Group.

Do you have more tips for private equity job hunters? Please add them in the comments.

Fixed income viewpoints from CFA Institute conference

Here are opinions on currency and CDOs that grabbed my attention at the CFA Institute’s Fixed Income conference last week.

If YOU were at the conference, I’d be interested to learn what surprised or intrigued you. 

“The New Currency World Order”
Ron Liesching of Mountain Pacific Group, LLC

The U.S. dollar cannot be replaced as the world’s reserve currency, but its role will be profoundly altered.

It’s time for investors to consider
*  Hedging their U.S. dollar risk
*  Active currency management
*  Active long commodity allocation
*  Long commodity currencies
*  Strategically long emerging market currencies
*  Global is the new core

“The Pricing of Investment-Grade Credit Risk during the Financial Crisis” 
Joshua Coval, Harvard Business School

There’s evidence that ratings agencies bent their standards to bestow too many AAA ratings.  They rated 75.5% of CDOs’ capital structure as AAA, when the rating agency model allowed 63.4%, according to “Did Subjectivity Play a Role in CDO Credit Ratings?” by John Griffin and Dragon Tang. Thanks, Prof. Coval, for sending me the link to Griffin and Tang’s article!

The collapse of structured products will impact the economic recovery to the extent that cheap credit is less available. The U.S. consumer had been the engine of U.S. GDP growth thanks to cheap credit.

Related posts:
* Dan Fuss: Bond investors have learned from experience…not

Dan Fuss: Bond investors have learned from experience…not

In some ways, famed bond investor Dan Fuss is pleased by how far the bond market has come during the last year. October and November 2008 made for a “horrific experience” he said. Since then, bonds have made an incredible recovery. However, their rebound has also brought back some of the behavior that fed their problems, said Fuss to the Fixed Income Management 2009 conference of the CFA Institute on October 1. Fuss is vice chairman of Loomis, Sayles & Company and co-manager of a number of institutional separate accounts for the firm’s fixed income group.

Fixed income’s bleak months in 2008, when it was difficult to get bids for even the highest quality investments left an impact on Fuss. On paper, October and November offered a fantastic buying opportunity. He spoke of a “50-year opportunity in bonds”  in November 2008. Unfortunately, instead bond funds struggled last autumn to sell in response to mutual fund redemptions.

As a result, now Fuss pays more attention to liquidity of his investments, even if it means that “I’m fighting the last war.” Compared to 18 months ago, “I’ll give up something to buy something more liquid,” he said.

Until a few months ago, Fuss thought he wouldn’t see a repetition of the risky behavior that he illustrated with his fable of Colossal Corporation, the world’s largest maker of “colossals,” a product Fuss made up for the purpose of his story. Colossal Corp. began by dabbling in hedging the price of ore and the Australian dollar, and then went heavily into the carry trade. Eventually, it got burned by the credit crunch and decided to give up its speculative ways.

For awhile Fuss thought that the Colossal Corporations of the world had learned the lesson that they should stick to their business rather than speculating in financial markets. “I thought that was all history,” he said. However, over the last three to four months, he observed that “By God, this thing is starting to replay…. The people who skate on thin ice when they shouldn’t are starting to skate on thin ice again.”

Speculation is reviving because of the steep yield curve, said Fuss. There is an enormous incentive to go out the yield curve to pick up yield. He discussed a risky new product that made its debut in Japan in March 2009. The Japanese product is being copied by others. “I can’t believe this is happening,” said Fuss.

Recently, traders at Loomis Sayles told Fuss that he should act quickly if he’d like to get in on a B- credit that would pay a special dividend. “I thought it was a joke,” said Fuss. But it was not.

What does GIPS verification mean?

I’m an amateur when it comes to understanding investment performance standards. So I was surprised when a speaker at the CFA Institute’s GIPS (global investment performance standards) conference speaker said verification does NOT verify that firm’s composite numbers are correct or that firm is compliant. Huh?

As I understand it, verification simply means the firm has the right processes to be compliant and to calculate performance accurately.

If you’ve got questions about this topic, I suggest you mosey on over to the Investment Performance Guy’s blog, which includes a post on “Verification verifies compliance…not!” Blogger David Spaulding, president of The Spaulding Group, Inc., looks like a valuable resource for your GIPS and performance questions. Back in March 2009, I enjoyed writing “Fixed income attribution falls short” about his talk to the Boston Security Analysts Society.

Related posts:
SEC’s update to CFA Institute’s GIPS conference
A quant’s guide to detecting a future “Madoff”
Top 5 tips for investment performance advertising