Dakota 2021: Platform Panel Interview

If you missed the 2021 Dakota Conference (or you just want to revisit some of the great discussions that were had), don’t worry. In addition to full, streamable videos, we’re sharing the transcripts of some of our panels so that you can read them at your own pace.

In this article, we’re sharing the full transcript of the Platform Panel discussion. During this panel, we discussed how Bank and Broker-Dealer platforms have evolved over the past 20 years. The panelists will discuss where their platforms have been, where they believe they will be in the coming years, and how investment firms can benefit from this growth.

By the end of the article, you’ll have a clear understanding of the Bank and Broker-Dealer landscape.

An interview with Jennifer Baker Khan, Steve Bower, and Greg Trinks

S1: 00:00

Some might say we've saved the best for last. We have lined up for you, and we're thrilled about the conversation about to have with three of the leaders of what we think are some of the most influential platforms out there today that we all need to know. And we're going to hear great insights and current thinking within each of these firms. So without further ado, we have Chris O'Grady that's going to be moderating our panel. And first up from Morgan Stanley, please help me in welcoming Miss Jennifer Baker Con. All right, let's hear it for. From UBS, Mr. Greg Shrink's. All right, let's get a warm welcome here from J.P. Morgan, Mr. Steve Bauer. 

S2: 01:34

It's been a long day, everybody. Thank you for your patience. Thank you for your attention. Dan made up-- I'm trying to think-- I'm trying to kick this thing down. Dan made a point to save the best for last. Everything's been great, but in the horse parlance, maybe this is the feature. But they've all been great races today, and we're going to conclude with a lot of information from three transformative allocators we should all know. And Jennifer, I'll start with you. Just give us a brief intro of yourself and just kind of brief intro what you do at Morgan Stanley.

S3: 02:05

Sure. Thanks for having me. This is my first conference in forever, so it's nice seeing you all. So I run distribution for alternative investments at Morgan Stanley. I am a native Michigander, so not from the Northeast. And grew up actually in wealth management, so my grandmother, mom, stepdad, sister are all in the industry, which is makes me the black sheep because I'm not an advisor, I'm an alternative. So I feel like that's double down, and being the black sheep. Been at Morgan Stanley for about 10 years. Was at the predecessor firm, Sidney Smith Barney for about 10 years before that. Pretty much the whole time in alternatives. I've had a couple of different stints in a couple of other parts of my career, but really came into the industry because I thought it was the future.

S2: 02:57

Alternatives have been topical, and we're going to love to hear what you have to say. Greg, brief intro.

S4: 03:03

Thanks, Chris. Great to see everybody. Also my first event in 18 months. It's great to be here. So I've been at UBS for 19 years. I did live in Michigan for 18 years as well, so I've got some Michigan roots. So I'm responsible for our long only traditional shelf, which includes manager research. So all of our SMAs in the mutual funds that we cover under manage research and in the general shelf for mutual funds and ETFs and other products such as UITs and closed end funds. So really responsible for the gate, keeping and on ongoing researching due diligence efforts for the long only shelf for UBS.

S5: 03:42

Great. Hello, everybody, Steve Bauer. I feel like my back is to a lot of room here, so I'll try and turn a little bit. But I'm here from JP Morgan. I head up our US Better Solutions team, focus on from a due diligence standpoint. Running the team that managed our global fixed income solution set. Been at the firm since 2004, spent the early days of my career there in our strategy and portfolio construction team. And since 2010 have really been with manager solutions, doing due diligence, started out doing equity, due diligence and the equity part of the team. Now, a little bit more focused on fixed income. I actually too, I was born in Ann Arbor, Michigan, so we've got a trifecta up here. And so if you are an Ohio State person, just don't call me from like December to January. It's not a good time usually for us, Michigan fans.

S2: 04:39

Nope. Michigan or Michigan State?

S3: 04:41

I actually went to Purdue.

S2: 04:43

Okay, great. An engineer. Michigan State. I wasn't going to know that. No, that's great. So in our written music hometown of Bob Seger in Arbor, Michigan, since music is a big part of these conferences. All right, a lot's changed. We've talked about this last panel was great, just given us so much information. We're going to keep that momentum going. Greg, we're going to start with you. A lot has changed since COVID, but even in that 18 months, a lot would have changed anyways. If COVID accelerated certain things, whittling down the approved list, changing how salespeople interact. Kind of a loaded question. I'm going to go around the horn, and will start with you, Greg. Talk about those things that have changed, that have accelerated and us as sales professionals probably need to be aware of.

S4: 05:27

Sure. So I mean, at the risk of stating the obvious, I think we all know what one of the biggest changes. We've certainly seen in our industry a very sort of, I think, a polarizing approach to how we're all going to continue to work, right? And so you have some firms that are very much, let's be in the office. Other firms that are very much focused on flexibility, such as our firm. Pre-COVID, even when I joined the managed research team three years ago, it was a big focus for us to have better flexibility, work-life balance and working from home where the opportunities arose. And so now I think it certainly has accelerated that. We also saw those sort of behaviors with our financial advisors. You saw a lot of telecommuting. And I think so what it's done is really moved, I think, progress, it probably would have taken five years up in about a year's timeframe. That's number one in terms of people engagement. I think number two is we've also been able to really be honest about parts of our process and we're conducting research and due diligence and being honest about what we need to do versus what was nice to do. And so I think the days of us jumping on a flight and going to San Fran for an hour on site and then coming home, or maybe seeing a branch office while you're out there are probably long gone. And so I think we've figured out ways to do things so that we can remain comfortable in our process that don't necessarily require the same degree of in-person interaction, and certainly don't require the same degree of corporate spend in order to get there.

S2: 06:44

Yeah, I know there's obviously if you could tell their stories about what they save by not spending on attending conferences, etc., in the last 18 months. But it is good to get out and about. A little addendum to that question. I don't know when the height of the chaos was. It was a march or April, but equities got severely underweight. So a lot of flow into equities. Your team probably had to make some pretty expeditious decisions that you accelerate those decisions. Does that quick response, will that maybe be something going forward, "Hey, why do we have to wait so long to do diligence if we find something we really like?" Can we act a little bit more quickly as your team probably did?

S4: 07:21

Yeah, I'd say that's pretty accurate. I mean, I come from any-- prior to joining research, I spent 18 years in capital markets. So I tend to have that mindset in terms of risk management and speed to market. And I think that the kind of reaction time that we saw through March and April of last year is, I hope, here to stay when it's warranted. But we don't always need to behave like that. And so last March and April, it was extremely intense, long days and long nights when you're sitting atop 5,000 different products on a platform across all asset classes globally in many different wrappers. They need to be on top of that. Let's just say you don't really sleep, right? But the ensuing sort of cleanup that we did to address some of the broken glass that we found on the floor as a result of the market gyrations. I think those are things that we wanted to focus on and we were working on focusing on those, and then it just simply accelerated it. So I think we got a lot done over the course of a year that frankly, if it weren't for COVID, it might have taken us another two years to do it. So it's nice to have that stuff behind us.

S2: 08:26

It's great. I think COVID accelerate everything. I know the rules of engagement of 7:00 in the morning to 5:00, 6:00 at night have become almost 24/7, become weekends, and whatever. And obviously not to be too intrusive. Steve, I'm asking the same question. Obviously, I'd like to factor we have alternatives, we have equities, we have fixed incomes. So we have all the major food groups covered here, but talk about what has changed from JP Morgan, your perspective. And obviously, the fixed income side for about five minutes was really under stress until TALF saved the day, but you probably had your own war stories as well. But talk about the acceleration, what's changed at JP Morgan?

S5: 09:00

What's changed as a result of COVID? I think the quality of due diligence members wardrobes definitely declined unfortunately. The length of people's hair and facial hair has been a more positive correlation with the amount of time we spend working at home. Although I think some of that has been addressed in other barbershops are back open. Look, I think I agree with what Greg pointed out. I do think there's going to be some persistent behavioral changes going forward. We are definitely going to be in an environment where going forward, we're not going to come in every day, whether at JP Morgan or UBS or Morgan Stanley or wherever you all work. I'm guessing that you're much more flexible today than you were before. I think in terms of onsight, it's been a huge change. You know, we haven't been able to do on on site. I do think there's still value to on sites, but it's sort of good, better, best. Phone call, virtual meeting, and then on site in terms of the quality of the interaction. And I think the quality of the interaction you can have in a virtual meeting is much better than anybody ever anticipated. And so I think we can do a lot with those meetings. One of the things from my perspective that I think is great is I think historically, you tend to get access maybe to a lead PM, the senior person. You don't necessarily broaden out your exposure across the team, meet more folks across the research engine and do things that maybe were a little bit more difficult. Maybe that person's not flying to New York to do meetings with due diligence teams and things like that. So I think it opens up the opportunity at very minimal cost to improve the interactions, the breadth of interactions, the quality of interactions, the consistency of interactions with folks. I think we've seen some of that already, and I think we'll see that continue to be the case. And I agree. I mean, I think we're rethinking frequency of onsite requirements and all those things that certainly-- or perhaps relative to the amount of time, effort, and cost, not getting the same degree of benefit.

S2: 11:01

Yeah, the one thing we always wrestled with reaching out to analysts as yourselves, the decision makers get a lot of emails, get a lot of calls hoping to get the attention. Now we have to be sensitive. You might be Zoom at 8, 9, 10. I mean, obviously Zoom fatigue is probably a term that everybody used last 18 months, but we always have to be sensitive. But you've probably pretty stacked up in terms of your virtual commitment, and I would think with global fixed income, really big brands, big AUM, name brand managers. A little more difficult to kind of bring a boutique idea to you and your team or no?

S5: 11:39

Look, I mean, it's not difficult. I mean, we want to see all ideas. We definitely need to differentiate our platform and the work that we do as a due diligence team, as a wealth management firm. And so we are definitely very willing to look at boutique solutions. The challenge is just how are you going to differentiate? How are you going to add value in a way that's different or better than some of those larger shops? A little bit less of a natural set of factors that would lead towards an advantage in fixed income, given that scale is maybe a little bit less of a headwind than it would be on the equity side from a capacity standpoint. But 100%, we want to have interaction with boutique strategies, with strategies that are truly unique and differentiated, whether it's fixed income, equity alternatives or whatever the case may be.

S2: 12:32

And obviously, private credit seems to be occupying the new conversation in fixed income. So pivoting to alternatives. You've been on the distribution side, so probably engaged with more financial advisers that I'm sure they were celebrating diversification of portfolios, I would hope when all hell was breaking loose. But talk about the transition, what your team is doing and how you addressing?

S3: 12:58

Yeah. So I'm getting flashbacks of March of a year ago and oh, my goodness. Yeah, we had funds that focused on the different government programs, and then we had a dislocation fund happen. And trying to fundraise in the middle of that was like the craziest bananas thing I think I've ever been through. Trying to get a hold of advisors. We had paper docs, which with alternatives like some people, are still in the dark ages, newspaper documentation. And yeah, FedEx. And 300-page PPMs that clients had to print at home. Like it was just shenanigans. But I think what we figured out and what we pivoted towards was obviously more of an adoption to technology, thank goodness. We actually had a pretty good technology platform relative to alternatives. But what we also found out we had the ability-- when you had good relationships, as I'm sure you're all experiencing right now. If you had good relationships, it was super easy to get in touch with an advisor. Like you had their cell phone number anyway, that was fine. But the people that you always goes to your-- or maybe were just a little bit less eager to get a hold of, the terminology, the gatekeeper is real. I mean, people cannot be found if they don't want to in this environment. So I think I really have a profound respect for people that were able to still get in touch with their clients and their advisors in this environment. I think what that pivots towards for us is thinking to your point about traveling, like we're not going to travel just to kind of, "Hi, how are you?"

S3: 14:34

We really need to think about the next level of the sales process. So it's no longer the conversation of I'm just going to go meet with a whole bunch of FAs and talk to them about this to fund. It's we need to have that preliminary conversation. The advisor has to get comfortable with it, and then we need to be at the next level, which is the client, because we're just not going to travel the way we used to. Nor do we think the advisors need us to travel the way that we used to. So I think that was the biggest pivot for us was embracing the technology. I mean, you still have clients who don't have a t shirt on when they show up or Zoom when you've got to figure that out. But I think we're going to be able to continue to pivot, and I think it could actually accelerate sales. If you think about our ALKS business, historically, we have a three-month sales process. And if we can start accelerating that to meet with clients virtually, advisors virtually, we're going to be able to also close a lot quicker than what we used to be able to do.

S2: 15:29

So from a point of leverage, and we always like to find leverage as a sales professional, the research team. We know your research teammates. You were out there as an advocate for strategy, so does it make sense for sales professionals to establish a relationship with you and your team, as well as the research folks? Because when you're out there marketing the strategy of the FA teams, you really want to understand what's you know other than the structural needs, current thinking, current opportunities. So does it make sense for folks to reach out to you and your team and get to know you as well?

S3: 15:59

Yeah, absolutely. I mean, you should definitely know our team. I think the leverage point for us is we're the compare and contrast of all the different products we have on the platform. We're a leverage point. We're an amplification of a voice, but we're not the only leverage point. And I think that's really important too, is when you think about the branch network and our sales management process that we have. We've really expanded that network and sales has been integrated on the ALK side there. That also is a good and messaging point. You probably already happened on the traditional side, but knowing that that part of the business also is partnering with ALKS now too.

S2: 16:32

Well, we're going to get to this later in the conversation, but we're going to want to know what's moving inside of Morgan Stanley. That's just great intel. We always go this part of conversations. What's the win look like, Steve? We're going to start with you. I'm probably being repetitive from the morning's panels, but it's a question we all have to ask. And us as sales professionals, when a strategy is chosen, the path it takes to absorb assets inside of an organization. So we get you on your team, you get your teammates and other asset classes on. You do the due diligence, select list, models, an OCR, an endowment foundation team. Just walk us through for those who may not be as literate with JPMorgan.

S5: 17:12

Yeah, well, the challenge in answering that question is that a win can look very different in different circumstances. So there's lots of ways to win, and understanding both what's the path to getting on to one of our platforms, as well as what that takes to succeed once you're on a particular platform, is really critical. So when you think about our organization, we've got to do-it-with-me, the do-it-for-me, and let's-do-it-together. So the brokerage type solution, the advised solution, and the fully managed or fully discretionary solution. And our business happens to be very sizeable in all three. I think oftentimes one of those solutions or another might dominate in a particular franchise. We happen to have a number of different legacy businesses, whether it's J.P. Morgan advisors, more sort of the Waterhouse model. Chase Wealth Management, more of the obviously a branch-based banking model or ultra high net worth global private banking franchise. And each of them have their own platforms. Each of them have their own paths to onboarding. You either can be onboarded through our full qualitative due diligence, which covers the spectrum from ETFs to funds to hedge funds and private investments. Or we have a path to the platform for our more choice-driven programs, like a JPMorgan Advisors program, like a PM or PA program. Though that is more of a systematic onboarding where you go through a systematic investment due diligence review coupled with an operational due diligence assessment that supports a broader solution set to get on to the platform. So in terms of a win, first win you have to have is to get onboarded through one of those two mechanisms either our qualitative or our systematic investment due diligence process.

S5: 19:04

And then the next stages, all right, which part of the business am I going to be targeting? What's the solution set? What's the vehicle? Why am I there? How am I going to get in front of the business? Who in the business to which sales channel do I need to get in front of? And that's something that you need to sort of work through in detail, given the complexity of the organization. Something that we can be advocates in that process and be a way to amplify the message and make sure that we're directing you towards those opportunities to have had that next level of success once you're on the platform.

S1: 19:36

Yeah. So it's understanding where it fits in a portfolio. It might be a great strategy, but just not the right time. Even timing seems to be-- patience and timing seemed to be pretty essential from a sales perspective. So I was reiterate that. Jennifer, right to you same question in terms of what's the win at-- I mean, the fact that you're out there advocating strategies is a win. How do we get there? How do we, as a salesperson, get to the point where you and your team are out there talking about a selected strategy?

S3: 20:02

Yeah, I think there's it's a good representation here too, of you get somebody on the platform and they're like, "That was a lot of work. And I got through diligence." Like high fives. It's like we just started. So I think that part to me, the win, whether it's $20 million of a raise or $500 million of a raise in alternatives. To me, the win is when an advisor tells me that their client call had their neighbor call because they were so excited about this deal. And that kind of referral source and the growth of alternatives to me is a win. And I think that in terms of partnership means, yes, you have engaged with our platform. You made a commitment to invest time to develop advisors, non-users of alternatives, and then it's the execution. And I think the other thing that people assume is if we do a super fast raise and we raise a bunch of money and we just close in 24 hours, they also think that's a win. And for me, that lays a lot of money on the table. In terms of the sales process of how much time we spend educating people, if you can spend the time being the platform, developing the relationships, create the education, that's a home run. You have people that are talking about you, they're talking about your brand. And they're waiting for the next vintage because you also support them on the after sales component, which I think is a really important. All of those pieces are going to be super important to get the double high five, I think, for the win.

S2: 21:32

And patience once again-- Greg, I'm going to ask you the same question. With the premise that being aware that a lot of platforms have been culling down their lists. So you've got a lot of sales professionals calling on you to want to get shelf space, to want to get advocacy in the headwind of we have X thousand strategies. We're going to 40 percent of X thousand strategies. So talk about that reality with, "Hey, look, we only have so much bandwidth on our team. We still want to look at good ideas if we choose you. This is what happened." So walk us through given current conditions.

S4: 22:06

Yeah, I mean, I'd like to start out just by sort of saying that we don't have a quota or goal to have in terms of the size of our platform. I mean, we obviously have a very mature and full platform generally speaking, but we're not necessarily looking to grow or shrink it by a certain amount. What we're looking to do is just continue to have the right strategies on our platform that resonate with our client base and that are relevant for the times ahead. And so a win looks like, I think, a number of different things. Obviously, you want to raise assets, right. And we all know the obvious example. We rated something earlier this year. We included it in an internal publication that is effectively like a select list, and it certainly garnered attention in. The asset manager came to us and said we've raised $150 million in this product since you've placed it on the platform and placed it more prominently on the platform. But I would also offer that it's not just about what we do. In fact, there are plenty of products that we have placed prominently from a select list item or something that we might put in a publication internally that garner no assets at all. And that's really unfortunate because we spent a lot of time and effort to go through, as everybody in the room knows, to conduct the underwriting process and to identify opportunities. And so then we ask ourselves, "Where did we fail? Why did this not gather assets?" And what we typically find is one of two things. The ecosystem that surrounds that, whether it's the sales desk, whether it's our portfolio advisory group, or whether perhaps it's something going on at the boutique where they're not providing the type of service that we might need to have to sort of navigate 6,200 FAs across the country. There's been a breakdown there, right? And so there has not been support of that particular strategy, regardless of the conviction that we have. And so that's very interesting. I think it speaks to the importance of being able to articulate your story succinctly and quickly and have a differentiating attribute to what you do that stands out because it is a very crowded field.

S4: 24:03

And I think even more so now, given the environment in the way we're going to continue to operate going forward in terms of sort of person to person interaction. It sort of changed the game in terms of what we need to deliver and have that story stand out. And so I think a win means understanding how to navigate our sales organization. We have a partnerships team that I'm sure some folks in the room are familiar with. We try to be very transparent about what we do and how to navigate different resources. But also what a salesperson can do, I think, is only going to go so far. I think there needs to be confidence in the organization as a whole that they can support a large engine like a UBS group of financial advisors in our client base.

S2: 24:44

I'm going to pick up on that question. I just want to just jot down a thought, rapid fire around the horn. Any AUM or track-record restrictions to be looked at on the platform?

S3: 24:55

Yeah, I just have to say, salespeople can do everything. What do you mean? I'm just kidding. In terms of success on the platform. But what I would say is we do have some hard and fast rules. Audit and track record is important, so it can't be a pro forma necessarily. But it needs to be kind of a segregated account, aN SMA.

S2: 25:18

It has to be certain, a year or two years, three years?

S3: 25:20

Three years, depending on kind of legacy or hierarchy there. If you're in a larger shop that we've looked due diligence at. So three-year in audi and track record. AUM depends. I mean, I would say that that's not as hard and fast rule as much as it is about concentration and being a bank and investing in something that's illiquid. And we don't want our assets to be that high of a percentage relative to your fund. So then you look at it economically, how much can we raise and have capacity and start that whole tanker process of getting this going and communicating nationally to advisors?

S2: 26:02

So anything you want to? Like, you want to venture, you want to-- I can't think of what you wouldn't do.

S3: 26:06

Yeah, I mean, two guys in a garage starting up a fund we won't do. But I think if you can show, and I assume you all are going to say something similar. I mean, you have to be able to show segmentation of responsibilities, and you need to be able to show independent service professionals. So admin, audit, legal, all of those things have to be separate and distinct functions. I mean, that's probably going to be the biggest hangup for the smaller shops for us.

S2: 26:33

Great. Greg, how about you in the platform? Any hard and fast rules?

S4: 26:36

Yeah, I mean, we have traditional guidelines, and I like to call them guidelines as opposed to rules. The previous panel mentioned emerging managers, and we certainly have ways of of gaining comfort with emerging opportunities. And so to take a word from the previous panel, whether you're stitching together a history, whether you're at a prior firm and you're starting out now, we too don't want to see two guys in a garage. There is actually an index provider in a large city on the West Coast. I won't say who it is, but we think it's actually an individual in a garage. And so the ETF associated with that is not on the platform, but that's the sort of thing that we are looking out for. And that's not to say that we won't-- we're going to go through and do our due diligence, right. We're going to go through and do the research that we think is necessary if we think there's really an opportunity there and something is unique and differentiated. We can find a way. It just takes a lot of work and rigor to get there. If you don't meet the guidelines of three-year Track, X number of hundreds of millions of dollars in a particular strategy, and x number of billions as a firm because we are looking for that next sort of rising star. We're looking for that individual who left the big firm and wants to go out and start their own company. And so that does resonate in our system, which resonate quite a bit in our system. And so we do what we need to do to try and sift through all those different opportunities to try and find a handful of them that can work.

S2: 28:00

I mean, obviously, we have a lot of sales professionals. Every sales professional here. We want to be persistent. We don't want to be annoying, but in a way, I would think you have screening abilities. But calls from us can hopefully lead to an interesting idea once in a while, and that's obviously our job to understand that idea. And then finally, do you see the same question in terms of hard and fast rules?

S4: 28:23

Yeah, I mentioned our systematic approach, that's pretty hard and fast rules-based. You got to have to have at least three years and a few other binary criteria. When we would our qualitative assessment of managers, one of the things we've had a lot of success doing innovating is leveraging capabilities from one geography to another, from one similar related product to another. So we try to have some flexibility around that to enable us to innovate, to enable us to move forward with teams and strategies that we have high conviction in. But at the same time, we're going to want to see on a track record of something that's substantive similar proof of your skill, ability and success in managing within a particular part of the market and a true differentiated solution set in order to sort of make that exception to the typical rule of wanting to see that three plus years of track record. In terms of assets, look, we don't have a hard rule. Look, given our size and scale, I'm sure you all run into this as well. In order to have an impact on the bottom line, you need to be able to raise a meaningful amount of money. If you're not going to raise two or three hundred million dollars. In a strategy, it's a lot harder to justify the time and effort and get in front of the queue to display something else that we can be spending our time and effort on. So I say generally in terms of solutions, unless it's something truly niche and differentiated that we think has a different benefit from just pure revenue. And the other thing that's important to note in the US registered space, we generally are going to want to be a big percentage of a particular--

S2: 30:02

Yeah, what percentage would that be?

S4: 30:04

Yeah, we're generally trying to say a 20% or so or below that. We're really predominantly worried about affiliate risk there that we both have a negative impact on the fund itself, as well as potential impact for us and our distribution of that strategy and what we need to do to meet our obligations with our clients.

S2: 30:26

I mean, Greg take what you said. You obviously did this work. You found this great manager, and you just didn't get the follow through in assets. And we have to realize as sales professionals that you only have so many minutes in the day. There's only so much you can work on, and you have to pick-- you could see a really great idea and say, "I'm not hearing this in the field. You know what? Sorry, great strategy." But invest all these man hours, woman hours, people hours into a strategy, and if it doesn't garner assets, it's probably not a great outcome for you and your team.

S4: 30:55

Yeah, I mean, there is one example in particular that it turns out that the reason this was a strategy that we put on a dual contract platform and the reason it didn't gain traction was simply fees. The manager's view on what they thought their value was and the value for money just was off base and they couldn't attract any assets, and it's a very obvious one. But we would have liked to have thought that perhaps their view would change. And so I mean, there could be any number of reasons. But importantly, we go through and we dissect those situations. We want to understand what went wrong and what could we have done differently. So we learned from that in the future. It's not a good use of our time, not a good use of your time. And to your point, there's literally two years worth of requests that we have today across ETFs, mutual funds, and separate accounts that we're being asked to look at between our financial advisors and asset managers. So we had no new request today. We would have two full years with work of underwriting work to do. So we want to make sure we're using that time wisely. I think your point about concentration as well as both points, I mean, I would totally echo that. I mean, what we look at within the 40X base, that is a very important component too. And it's frustrating for a lot of folks. We understand that. It's frustrating for us, too, right? I mean, great strategy, love to use that-- we're hindered by that. So we'll grant our fund if we have to, and it's frustrating for our face. But get out there and get that fund to grow so we can we can continue to be a part of it.

S2: 32:21

Access to portfolio managers. Jennifer, your team. Do you ever travel with portfolio managers through offices? Obviously, your research team. Is it a little tricky in COVID? But we're opening up again and perhaps travel will occur, but essential just to have that connectivity with you and your team, your research colleagues to those decision makers. No disrespect to client portfolio managers, which are essential professionals in our business. But the decision maker, I'm going to go around the horn for that same question.

S3: 32:54

Yeah, I was joking about salespeople being essential and at the end of the day, nobody tells the story like the investor. And it's no disrespect to me, and if somebody asked me if they can get a PM on the phone instead of talking to me, like it's okay. And I think that is true across the board. And when you're dealing with our research team, when you're dealing with our sales team and the financial advisers, they're are always times when PMs can't tell the story. They're just super duper smart, but maybe they're not as eloquent with being able to communicate. And that's okay, too. And you can definitely have an investment specialist, or we kind of have portfolio specialists normally as our terminology, that can be a proxy. But what I would say is if the PM is available, that signals to us an investment in our platform. And that's most important. We don't necessarily have to have the PM at every single meeting. And for that matter, we shouldn't. We should be able to do our jobs. We should be able to cover most of it. But when it comes to the investment that we need, knowing that the PM is engaged is going to be super important, and that's going to be a big key to success for us.

S2: 34:09

You know what happens, and I don't want to speak for Greg and Steve, but you invest with managers for a long period of time. You get to know them. Oh, we knew you when we had 50 million. Now we have 500 million, and we've grown for the last 10 to 12 years. And there is such a familiarity which it has to start from the beginning. Greg, same question. Traditional side, probably got some mega investments with some managers you've known for a long, long period of time and that connectivity is always there. But coach up those in the front end and say, "Hey, by the way, if you really want to have a transformative allocation, UBS, these might be ideas you want to share with your PM team.

S4: 34:48

Yeah, I mean, the short answer is yes. I mean, we need access to the PMs, right? I think good point in the CPM yesterday. We did a virtual on-site with a boutique that's been on our platform for four years, and the CPM ran the show. One of the PMs was on for a period of time as other members of the organization were. And so we just sort of we run the gamut, right? And generally speaking, depending on the relationship and our knowledge dictates how much we might need to pull that PM in. And it depends on how long the analyst has been covering that particular strategy and knows the team. But generally speaking, we want to get that knowledge and comfort level in relationship built. And then once that's ingrained, then sometimes we can perhaps back off a little bit and we don't want to-- we don't want to engage people just for the sake of it. We want to do what we think is necessary and not abuse anyone's time, right? But at the same time, there are situations where we need that access. I would say that last year during the crisis was a really good example of a situation where we had a manager that operates in more of the securitized debt space that we couldn't get access to as quickly as I particularly wanted it. And we were told we would need a couple of days, and we ended up having them on the phone within three hours. But we were one of the largest investors. And so and from that point forward, for the next month and a half, we had nearly daily interactions. And so sometimes it's just a matter of like, "Hey, let's just remember what we're all doing here, right? And I'm not going to waste your time but I need 15 minutes, and I need it like nearly immediately." And that was a period when everyone's hair was on fire. And so sometimes you have to do that.

S2: 36:19

Yeah, Howard marks of the line that he has a friend that was a pilot, and he goes, "Hey, we're very similar." And the pilots like, "You have a lot of money. I'm a pilot." And he goes, "Yeah, but our jobs are similar, where its hours of boredom sprinkled in with moments of terror." And those moments of terror, you want to be able to have that connection and put everybody's needs. Steve, your viewpoint?

S5: 36:43

Sure. Yeah. This question reminds me I got home last night, and I had one of those evenings you ever get home and your spouse just sort of like hands you the child. So I have a six-year old child. She can't really physically hand me her anymore, but she's like, "You deal with this one." She was doing her math homework, right, and was extraordinarily frustrated. And one of the things she was frustrated about is why do I have to show my work, right? I have to show how I got the answer that I got. I know the answer. Why do I have to show it? Look, how do I know that the teacher doesn't know how you got the answer just because you got the right answer this time. If you didn't get there the right way, you're not going to get the right answer the next time. So the access to PMs, the access to decision makers, is trying to understand how they do their work. And not the what the outcome was, but how they got there to be anticipatory about how they're going to respond to the next environment, how they're going to react to the next March 2020. How they're going to behave in different market environments. How they got to the thinking around how they got into a position, and whether they took the right steps to lead to future success. And so that's really the art of what we do. That's why we ask for access to PMs. In those moments of terror, we want access to PMs for information, but we also want to be cognizant that job number one is getting the assets managed for our clients. And so I agree wholeheartedly with Greg's comments. We may need some information, and it's helpful to get that quickly and promptly when things are going awry. But at the same time, we want to make sure that PMs can keep their eye on the ball. And the more we invest in the front end and understanding and having past experience and lived through markets and had conversations about how people think about the world ahead of time, the less we have to ask them and the less time we need in those moments of terror to take them away from markets and take them away from managing the portfolio. So really critical to get that access.

S5: 38:48

I will say from from our perspective at JPMorgan, critical to get that access from a due diligence perspective. Not necessary to get that access from a distribution perspective. It's great when we do get it, it definitely amplifies the message. Some PMs are amazing, and it's a game changer to have them as part of that dialogue. When we do, we try to be as efficient with their time there as well. And probably in the future will have a lot less roadshows where they're getting on the plane and going everywhere around the world and leverage technology a lot more. But it's definitely great to have that access from a distribution standpoint. That's the gravy, but the meat potatoes is having that access from research and due diligence perspective.

S2: 39:30

I don't want this to be a search question, but I'm excited about this question because fixed income, there's a yield conundrum. Equities, active versus passive concentrated, a lot of competition, and then alternatives. I mean, that's all we've been talking about all day. So starting with you, Steve, what's interesting in your purview of fixed income? What managers seem to be really interesting. But I want this to be a search question, I want this to be like just how your mind's working in this 135 world of a tenure note that who knows when it's going to change?

S5: 40:06

Yeah. Well, I think the Fed is continue to succeed in pushing people out the risk spectrum. We're talking about reimagining the 40 in the 60-40 portfolio, and in order to get any sort of positive carry, you really have to go out the risk spectrum or give up liquidity and take some different risks. And so we're doing that. We're encouraging our clients to do that in a prudent, measured way and looking for different pockets of opportunity. So if there are areas that you think would be of interest, we're definitely happy to hear hear about those. One of the things that I think is a big challenge is right now this traditional 60-40 is evolving, that 40% has typically been the risk anchor and portfolios. And so it's really a significant change the dynamic of a portfolio in a stress situation if you start to stretch for yield. And so one of the things that is really hard to find and would love to get ideas about is defensive solutions that can play that position of protecting you in an equity drawdown, but that have a positive carry. That's a really difficult thing to find in today's market. Definitely something that we would love to have more of. A few other things that just we're spending our time on outside of the fixed income space: thematics have become increasingly significant part of our business. So more predominantly on the equity side. Finding unique thematic solutions, boutiques solutions where you have a real particular expertise or skill set at a firm or franchise, differentiated perspective and access to a particular secular opportunity that we think has legs over the longer term is really resonated with our clients. So I'll pause there. I could go on, but I'll let my colleague absolutely take it.

S2: 41:59

Ni, absolutely. Take it from the equity perspective, I mean, one of the most competitive areas on Earth in anything is equity managers and a mutual fund separate accounts. So what you look at this, the passive-active debate fees. Talk about how you can really-- I mean, we've heard today sector specific funds. We've heard China, we've heard Asia X China, etc., but talk about what may be occupying.

S4: 42:24

Yeah, I mean, equity income, income in general. I mean, three or four months ago, everything was all about inflation. I mean, these will continue to be areas of importance and specifically within fixed income. We continue to do work on securitized debt, emerging market, fixed income opportunities, but also Steve, to your point, semantics are a big one. Sustainable investing consumes a lot of our time. We're doing work on strategies that help mitigate and address those who have concentrated equity exposure within their portfolios, perhaps it's a legacy or a family that owns significant wealth due to that. And so we're looking at strategies that help mitigate that. And lastly, we spend a lot of time on diversity initiatives. In the beginning of 2019, we formed a working group to put together an approach and integrate this into our research process. And as a result of that, we've also spent a lot of time providing transparency around diversity that's in our platform, both with the people who manage strategies, as well as focusing on strategies that, and I won't call it a theme. It's something that we think is important to find strategies that can also help drive social equality in this country. So a portion of the S in ESG, if you will. And so the traditional size and style box approach is to things, I mean, we are so chock full in the traditional space. It's more about what resonates with clients because of size and style box investing does not resonate with people that are not inside this room. We've got to be honest about that, right? But what does is sustainability and investing with people that I can associate myself.

S2: 43:59

We're going to build on that's the next question. I'm going to start with you, but I'm gonna finish with Jennifer because I asked earlier what's moving in the alternative team? So what's moving in the alternative team when you're talking to financial advisors?

S3: 44:14

Yeah. I had a little bit of history, too when we think about our business and how it's progressed. I started with a group, we we're focused on hedge funds and private placement hedge funds, QP status $250,000 minimums. And our business was feeder funds. So getting access to the big private equity managers in the feeder fund structure, like I remember with UBS. Like it would be like who could get him? And it was so like, "Can we get our feeder fund up first in terms of competition?" And I think what we found and how the industry has changed to today to get to your question is when I look at sales. The majority of it is for interval funds or the structure that is a 10 99 vehicle. Income producing, I think when we look at our top five, three to four of them, depending on where you are in the United States, are income producing lower investor eligibility products. So when you think about 100% of our business with QP private placement to today, I mean, in terms of operation of sales, it's flipped on its head.

S2: 45:26

Yeah, the democratization of private equity, private structures, the 10 99, the 3C1 opportunity. Smaller investments aren't nimble. We're starting to see that show up in defined contribution, harbor best firms like that. So it's really kind of going to everybody has the ability to access it. The question we have to ask, and I loop in ESG and diversity inclusion, which is incorrect. Let's talk about the mutually exclusive. Gregory and go right back to you to recoup that train of thought you had, because I know that's a big initiative for everybody. So talk about UBS if you want to talk about diversity, inclusion. If you want to talk about ESG, that's all right as well. I'm going to go around the horn.

S4: 46:07

Sure. And I'll keep it quick because I know we're up on time. But we've demonstrated to the industry the importance of this is we've included a line of questioning around the people behind the strategy, those who have decision making abilities. But also more about the culture at the firm, right? What are you doing from an education standpoint? How involved are you in changing the DNA of your firm? And in particular, if you're not there and you're not even answering these questions, why not? Right. And so that's number one. Number two, again, providing transparency. Giving our financial advisors the information about the folks that are managing the strategy. And then number three, part of the telegraphing and indication of the importance to us also then leads us to a place where we cannot go out and seek out investment content again, specifically designed to address some of the inequalities in the country that we've had. And so this is an ongoing effort for us. It's not a theme, and it's not something that I would say that we find three products and it concludes our search. We're going to continue to look for opportunities there.

S2: 47:08

And Jeff, I would go back to you. We've seen a lot of real assets. We knew a large platform is looking for diversity, inclusion, real asset portfolio. We've seen it with, well, we'll have Steve address fixed income, but other private equity alternatives, things like that. Talk about the diversity and inclusion approach at Morgan Stanley, and then talk about ESG as well from the prism of the optics of alternatives.

S3: 47:32

I think the bigger firms within alternatives have made managing their portfolio companies in a ESG governance table stakes. So that almost becomes a question then or the second evolution is in looking at diversity and what they've done with inclusion in portfolios as well. But I think the ability to manage companies in an ESG framework is something that I can say almost universally, all the big companies do that now, which I think is fantastic. I think we'll continue-- and I don't know how you all feel, but I feel like this is an evolutionary process with our advisors of teaching them to ask the question. I don't think that we necessarily have them knowing that that's something that we're doing or necessarily how to talk to their clients about it. So when you think about it from alternatives, there's a component of yes, portfolio companies underlying are being managed in ESG fashion. Then there is the diversity and inclusion question. We have managers who have that mandate specifically. And then I think lastly, it becomes a question of how clients are asking for it. And I would love to say all the clients are asking for it, but I'm not sure that we've gotten there. I feel like that's still a big hurdle we need to overcome.

S2: 49:02

Seems there's needs to be an education gap, there's an information gap. And I think from asset managers supplying that intel will be great. I think we'll go to 5 or just 10 more minutes a little extra time. We're going to have Steve finish this question, please. Any questions from the audience. We're going to leave 10 minutes for questions. I have plenty of questions, but we want to hear from the audience. But Steve, we have some friends in the audience that are ESG fixed income. There's diversity inclusion. Same question to you from the optics of fixed income.

S5: 49:32

Great. Yeah, look, it's a shame that we're running low on time. I think we probably could have done an hour-long panel on this topic alone in terms of both how the industry is evolving, as well as probably what we collectively as significant players in the due diligence space are doing. I'll segment it to sort of two components, right. You've got the diversity, equity and inclusion initiatives, and then you've got the sustainable investment or ESG initiatives. I think from a from a DEI perspective, I think there's a few things that are notable from our perspective. We're now every year requiring the completion of annual surveys with each asset manager that we work with to give us information about the diverse nature of their organizations, as well as a broad set of questions around the topic. We're going to have a more rigorous and consistent evaluation metric for solutions on our platform with respect to diversity, equity, and inclusion. And so it's something that we want to make sure that we see people practicing what they preach, and we also want to make sure that we are fostering capital formation with diverse managers. And whether that be a diverse portfolio manager, a diverse owned asset management firm. And so we want to make sure that we're intentional about doing that. We are making every effort to when we do a search or an underwriting to canvass that particular space and make sure that we've considered diverse managers in that particular search. So trying to have discipline, consistency in doing that more broadly at the firm outside of the due diligence. We've got an initiative at the asset management side of the shop called Project Spark, which is you all know how we talked about it earlier, how difficult it is to get a new fund off the ground and get that new capital raise. Even more challenging for a diverse portfolio managers to do that. And so we're funding with JPMorgan dollars venture into diverse owned and managed asset managers. So we've got really a pervasive culture where we're incorporating DEI across the entire organization is really critical, and becoming a more consistent, big and intentional part of our process.

S5: 51:58

The other side of the coin in terms of sustainable investments, we're seeing a significant increase in demand there. I think typically leads the way in terms of demand, but we're starting to see that in the US as well. And we've made significant strides to have SI or ESG dedicated multi-asset solutions for the first time. If you walk into our franchise, you can get a fully managed portfolio across equity fixed income with ESG or thematic investments as the underlying across the portfolio. So we've worked very hard to make sure that we've got a robust lineup to meet the need for that portfolio. We've got a number of targeted separate account solutions that we've onboarded and worked, whether it's thematic in the climate space or whether it's focused on diversity, equity and inclusion. We did a multi manager private equity raise with a firm that's dedicated to only investing in diverse managed firms. So we've got really a very broad focus on this. The last thing I'll say is, I think, to move the ball forward in this sustainable space, we really have to show, and I think when you look at EMI, I mentioned before, the SFDR regulation is showing this and it's coming to a theater near you. I don't know if you all or more US focused, but it is coming to the US, proving that you are having an impact, proving that you're incorporating ESG, not just saying it is becoming a higher hurdle, higher bar. And measurement and disclosure is going to become a much bigger and more prominent item, I think, across the industry. So you're seeing that already, we actually went out recently and made an acquisition of a firm called Open Invest. It's a small firm who's dedicated to gathering data and reporting on ESG and ESI factors. So that's really something that we are going to use. I think about it as almost like attribution. You're evaluating equity strategy and you guys can send us your attribution, but we want to do our own, right.

S5: 54:11

Right now, everything in ESG and SI is predominantly self-reported. So we're trying to have our own independent source to validate the information that we're getting in terms of that double bottom line and those other impacts from our--

S2: 54:25

These are structural forces that aren't changing. This is just reality, and everybody needs to be in tune with it. Dan, I don't know if there's any question.

S1: 54:32

We do have a question.

S2: 54:33

Okay, here we go, please. I think we have five minutes to thank and we have a question here and a question right here. So we'll take two questions and then hopefully you can mingle.

S6: 54:41

Great. Thanks. Thanks to the panelists. So I know you guys spent all your time looking at the strategies, but what about the vehicles that are these things are coming out? And so I was involved at Pioneer with Deckchair, so we had that. And now we've got fully transparent, semitransparent, and then Capital Group throws a rigor in there, says, "we're going to make it transparent." So is it nontransparent? Is a fully transparent, semi-transparent? Does that matter to you, the vehicle?

S4: 55:13

Yes, absolutely agree. I'm actually I'm pleased to see the adoption of integral funds more frequently now. I think there are a lot of open and daily liquid strategies that probably shouldn't be daily liquid. And this whole battle between Blu ray and laser disc when it comes to semi-transparent or non-transparent ETFs, I get it. Some managers want that opacity. You're putting another hurdle in place, so I can speak to it firsthand with our experience with net shares. It worked. It definitely worked. But it was just a very complicated story. And so wrapper matters for sure.

S2: 55:48

We'll leave the answer at--

?: 55:49

Let me answer for you.

S2: 55:52

Steve, you want to--

S5: 55:54

I couldn't agree more. I mean, again, we could spend a lot of time answering this question. But some of the biggest train wrecks in the industry are because there's a mismatch between the underlying and the vehicle. So it's critical that you get the vehicle right. In some ways, we want to be vehicle agnostic because we want to get the solution to a client in the most efficient way possible. But we will also want to do it in a risk managed and intelligent way, and those decisions can be critical in some instances.

S7: 56:23

Hello there, great panel. I'm Joan Tren from Talent Global, and what you're saying is music to the ears because we are a female founded and led diverse ESG and impact fund manager. And we're actually in conversations with all of you. So this is a question to you, Greg, but it may be applicable to both of you as well. You talked about how you have two years of requests in your product pipeline. How do you determine as you see new fund managers, new PMs come in, how do you jockey your constant priority list? So I'm sure some of it is just PMs will fall off because the quality isn't there, the track record, etc.. But amongst equals in terms of what you think they can do for you to round out your platform, how are you making those really difficult decisions?

S4: 57:05

Yeah, great question. And I apologize, I didn't get the name of the firm upfront. But what we're doing, it's a game of triage often. And in particular when the market is throwing curveballs at us, and that can be market-driven or the industry is throwing curveballs at us, our retirements, mergers and acquisitions, things of that nature. And so these are all things we need to drop what we're doing and address as it relates to our existing book. And then when it comes to prioritizing the new requests, we have a number of ways that we will engage with key stakeholders around the organization to understand their sentiment on priorities and what they're hearing from clients and financial advisors, so that when we're going through our list of priorities, we want to make sure that our priorities are aligned with what we're hearing from the field, right, and understanding those needs. And then we'll incorporate that into what we prioritize next. It's not necessarily first come, first serve. It's more based on what is the most important thing at that time. And it could be that something that was an important six months ago is now important because we just had the terminated manager, right. It's a very fluid situation at all times, but if we had the opportunity to just stop and just do what we want to do, we would probably be out there focusing on all the gap fillers and all the different ways this industry is evolving. And we haven't even talked about mass customization or personalized approaches to strategies, right, and that's just at the content level. But the other element is again, making sure that we're finding managers that our clients want to invest with. That is an important part of it. And then, of course, making sure that they meet the great across all the other pillars. Tough question, tough answer, I apologize.

S2: 58:48

Time for one more.

S1: 58:49

Time for one more? Okay.

S8: 58:50

Hi, Tim Kovacs from Aloha Capital Management. A few weeks ago, I read that Merrill Lynch is relaxing its policy regarding account opening from owners of cannabis companies and related investments. I'm wondering what your views are on that, and also the possibilities of expanding new product offerings in the emerging cannabis economy.

S2: 59:17

And we'll go around the horn. Some that could be an alternative strategy?

S3: 59:18

Sure. Right now, it's still, I think-- how would I say that? Business as usual for us. So we haven't evolved to really relax our standards for cannabis or cannabis related investments. I don't know if we're going to get there. I know, obviously within alternatives, we look at a lot of different things, but that's a much bigger firm regulatory issue that we haven't been moving up.

S2: 59:49

And the Greg, I think there's a lot of-- I don't know if there's any US lists, there's a lot of Canadian listed stocks. And so your answer to cannabis?

S4: 59:57

Yeah. I mean, we're a Swiss firm. And with US federal law taking precedence here in the US, so I would say this, that we are constantly evaluating the landscape, whether it's cannabis, whether it's virtual currencies, to understand where we think we can find opportunities and do so safely within the regulatory environment that we operate in here in the US. So it's constantly under review, I would say.

S2: 01:00:18

Steve, final thought?

S5: 01:00:19

Not much to add. Same.

S2: 01:00:21

Perfect. Well, we can't thank you enough. Three large platforms that everybody needs to get to know. You brought us inside. Great knowledge. Michigan-centric platform as we realize the great state of Michigan. So what we're going to do is we're going to bring up here to give concluding remarks. Is it right at 5 o'clock, we're going to open those doors and it'll be open bar, but turn it over to Guy to conclude--

S1: 01:00:42

Just a round of applause for our panel here. Fantastic. Thanks so much.


Awesome stuff. Thank you very much. That was impressive.

S4: 01:00:50

Thank you so much.

S3: 01:00:50

Thank you.


You can watch the full interview on our site. 

Written By: Amy Sariego, Director of Content Marketing

Amy Sariego is the Director of Content Marketing at Dakota.


The leading intelligence platform on institutional and RIA data