Over the past thirty years institutional portfolio management has gone from being “in the bag” to being “risky business.” Those portfolio managers who took care of their clients during both the good times and the bad were true winners. But the ones who never give up were something much more.
In the 1960s, when defined-benefit pension plans were transitioning from bonds to stocks, portfolio managers had a relatively easy time selling the idea of a “buy and hold” strategy. Large banks had the reputation and the manpower to handle this transition with minimal disruption. Moreover, there were few competitors who offered a trustworthy investment option.
By the mid-1980s, however, plan sponsors were being inundated with a variety of new investment strategies and techniques that challenged traditional portfolio management. At the same time, the explosion in stock prices coupled with a rapid increase in pension-plan assets contributed to a boom in the number of firms offering investment-management services. The emergence of modern portfolio theory in the 1970s and the related academic role in portfolio management accelerated the trend away from large, conservative banks to other investment-service providers. All of a sudden, institutional portfolio managers were losing accounts as plan sponsors began to experiment with new investment techniques.
As an institutional portfolio manager, I have had the experience of losing accounts — and it is no fun. More often that not, losses were due to a competitor’s superior marketing presentation, one that implied better results than I had produced. Every time I lost an account I would get that sick feeling in my stomach, and I soon found myself suffering from various forms of anxiety and depression. (Such events are one reason why institutional portfolio managers don’t get paid the minimum wage!)
Back in the 1980s, when I supervised a number of top-notch institutional portfolio managers at a large financial-services firm, I came across an older portfolio manager by the name of Jerry. Whenever we held an investment meeting and someone challenged Jerry about his investment prowess, his response was: “Hey, I have never lost an account!”
That act was a tough act to follow.
Well, Jerry eventually had his comeuppance. One day in the hallway I crossed paths with a different Jerry: His face was red and he was undoubtedly angry. I asked him what happened. Tom, he said, “I lost my first account.” I said, “Jerry these things happen; it won’t be the last.” But Jerry wouldn’t stand for it. “I’m going to get that account back,” he said.
Jerry was different from other portfolio managers. He was what I call a “Jack Russell” portfolio manager. A Jack Russell is a small dog that is characterized by its tenacity, and Jerry had the tenaciousness to never give up. He wouldn’t accept the possibility that someone else was better than he was at his job. His commitment to clients, tenacity in retaining clients, and pride in portfolio-management accomplishments — coupled with some interesting marketing skills — produced remarkable results. About eighteen months after our hallway encounter Jerry walked into my office and, with his eyes blue and beaming, proudly announced he had got the account back.
Unfortunately, that is the only story I have about a Jack Russell-level portfolio manager. In my thirty-six years in the investment business I have not supervised one other portfolio manager who had an attitude that reflected Jerry’s belief in himself and his investment-management skills. Maybe there are too many portfolio managers out there who just don’t believe in what they’re doing. Maybe most don’t really care. If most did care, there would certainly be a lot more “Jerrys” — people who don’t give up that easy. This includes me: I’m a lot more like my two golden retrievers than a Jack Russell.
– Thomas E. Nugent is executive vice president and chief investment officer of PlanMember Advisors, Inc. and principal of Victoria Capital Management, Inc.