Category Archives: Hot Topic Commentary

A Letter from Your Society President – November

· · Leave a comment
Joshua M. Howard, CFA

Last month I attended two events focused on increasing the number of women in the Investment industry. The first event I attended was a presentation and debate on gender in the industry at the CFA Institute’s Society Leadership Conference in Hong Kong. The second event was a panel at the University of Minnesota, led by four female CFA charterholders, called “Paving the Way for Our Future Industry Leaders”. Both events discussed demand side and supply side issues with getting women in the investment industry and keeping them there once they start families.

It became clear during both discussions that the industry still presents some challenges for women (and men) in its work-life balance, sometimes stressful working conditions and occasional machismo culture. It was generally agreed, however, that great strides have been made at most firms in the last twenty years to improve the image of the industry and to achieve more acceptable working conditions for both men and women. Also, it seems that most employers strongly desire diversity on their teams – in gender, race, socio-economic background and approach to problems. Study after study has shown that diverse teams produce better results than homogenous ones, and are better as assessing possible risks. While even very talented women may have had a very hard time entering the industry in the 1980s, now they are strongly desired at many firms.

Despite all the change in industry culture and the increase in demand by employers for more women in their companies, we still have a supply problem. Approximately 20-25% of CFA charterholders in the U.S. are women, a range that has held steady for many years. Women make up the same percentage of candidates as well, so the overall ratio will not change anytime soon, at least in North America. More and more women are entering formerly male-dominated and demanding fields like engineering, medicine and law, but for some reason our industry has remained unattractive for most women who would otherwise be highly qualified to manage money, provide financial guidance to clients, trade bonds or manage equity risk. This is not true globally, as female CFA candidates in East Asia, especially China, are taking the CFA exams at the same rate as men.

What is it about our industry that fails to attract women and millennials? While there are obviously numerous explanations, I believe two reasons are very important.

The first is that we as an industry do a poor job of educating the public and the next generation about what it is we do all day long. “Finance” can mean many different things, many of which are very opaque to the average individual. We have not put in the time and effort to mentor and guide future leaders on the difference between a trader, an investment banker, a portfolio manager, a financial advisor or a risk manager. There are many different fields in our industry, but most people outside our industry are only acquainted with one or two of them (either from watching the movie “Wall Street” or from watching their cousin day-trading in his parent’s basement, wearing his pajamas all day long.)

The second reason is the way the industry is portrayed in the media. Most often when finance is in the news it is because of a rogue trader losing billions of dollars or a Libor-manipulator lying to his firm and regulators. Our industry is seen by many as unethical, full of money-loving jerks who like private gains but socialized losses. We do not do a good enough job of making sure everyone understands the benefits of a well-developed, well-regulated financial system, one that takes excess savings and deploys the money to its most productive use elsewhere, such as in infrastructure, car loans or startup companies. Our Industry allows individuals to smooth their consumption over their lifetime, and to store up savings for bad times. It allows for the purchase of a home well before most people would have the resources to buy one, and gives capital to entrepreneurs who attempt to create the next great device, software or medicine.

Most of us who work in their industry love our work and can’t comprehend why so many people, including women, fail to see the benefits of working in a fast paced, competitive, ever-changing industry, alongside smart, talented colleagues. We need to do a better job of educating the next generation about the variety of opportunities available in finance, and most importantly, we must maintain our high ethical standards, raising the profile of the industry for our future coworkers and clients.

Joshua M. Howard, CFA
President of the Board of Directors
CFA Society Minnesota

Liquidity Risk – What Investors Need to Know Now

· · Leave a comment

Presented by Michael Bird, CFA, Senior Fund Manager, Money Funds, Wells Capital Management and Steven R. Malin, Ph.D., Director, Investment Strategist, US Capital Markets Research & Strategy, Allianz Global Investors

– Lucas Baker, CFA, Wells Fargo

Michael Bird, a senior fund manager for Wells Capital Management’s money market fund strategy and Steven Malin, formerly with the Federal Reserve Bank of New York and currently a director and investment strategist with Allianz Global Investors, discussed liquidity risks in the market, client concerns, regulatory and market factors affecting liquidity and potential sources of liquidity issues in the future. During the interactive discussion moderated by Tyler Carrington also of Allianz, Mr. Bird discussed some of the challenges of managing money funds in a post-2008 world. Alternatively Mr. Malin, leveraging his central bank experience, presented a macro tilt to the issue of liquidity risk and provided attendees with a glimpse into the Fed’s perspective.

Clients have exhibited increasing concern over liquidity risk and have taken a more direct interest in their portfolios questioning the composition of their portfolios to determine if they should diversify into alternative products such as an ultra-short bond fund instead of MMF.

With investors increasingly moving towards investment grade corporates instead of Treasuries, Mr. Malin questioned if the structure of the market had changed and described a seemingly barbell view on liquidity. He said liquidity issues have become more focused on Treasuries on one hand due to programmatic trading and one-way bets, and HY on the other hand due to a smaller universe of investors and higher inherent volatility. In the middle, high grade corporates have exhibited greater liquidity given the large size of deals and significant number of natural buyers.

When asked if and how they were being compensated for liquidity risk, both presenters said that liquidity was addressed during the security selection process. Mr. Bird added that he is currently seeing wider bid-ask spreads and more bid-wanteds driven in large part by the disintermediation of banks.

The discussion turned to regulations and their impact on liquidity. While Mr. Malin, citing his Fed background bias, noted that the financial system was unequivocally safer now than in 2007, Mr. Bird questioned the effectiveness of the SEC’s most recent amendments to prevent runs on money market funds. One unintended consequence has been the significant decline in the repo market due to the disintermediation of banks. Currently, the repo market is half the size it was prior to the financial crisis, requiring money funds to expand the universe of counterparties that funds repo with.

One of the more important discussion points centered on the evolution of trading and its impact on liquidity. Mr. Malin noted that the trading universe is much broader and dominated now by algorithms that move in the same direction, exacerbating price swings during times of increased volatility. Investors attempting to limit risk by “avoiding it” with a passive strategy such as an ETF or “outrun it” with a momentum strategy can find themselves in negative feedback loop as correlations increase along with volatility forcing portfolio managers to sell winners to raise cash and holding onto losers. To manage that risk, Mr. Bird’s company stress tests its portfolios for redemption shocks in addition to the other stress tests it conducts.

Going forward, Mr. Malin sees the continued evolution of trading – i.e. an expanding trading universe with more traders and faster execution – as a potential source of liquidity risk particularly in light of a heterogeneous market vis-à-vis companies, countries and currencies.

Finally, when the Fed finally decides to liftoff, the primary polity tool it will use to raise interest rates will be reverse repo, which could be problematic given current limits to that program. Mr. Bird expects the Fed to remove the current cap on the program to effectuate its policy.

Building Extraordinary Teams with Liz Uram, the Coach & Mentor Group

· · Leave a comment

-Chris Kelley, CFA

On Thursday, October 22nd Liz Uram presented on building an extraordinary team. Focusing on a topic different than the usual brought an eclectic group of leaders to the presentation, all of whom were interested in the soft skills of people management and leadership. Liz’s expertise in the industry as both a practitioner running teams at Wells Fargo and other financial institutions as well as her strong academic background resulted in a vibrant presentation that was very interactive with all the participants. Liz’s expertise in the industry as both a practitioner running teams at Wells Fargo and other financial institutions as well as her strong academic background resulted in a vibrant presentation that was very interactive with all the participants.  She touched on a variety different topics and industry research that showed a consistent level of employment dissatisfaction, even though billions of dollars has been spent trying to engage employees.

Liz touched on three basic take-aways that can eliminate the majority of the indecision and friction in most offices: 1) a 3 step process in setting goals that eliminates the noise of corporate bureaucracy. 2) Components for keeping performance feedback stress free and rewarding. 3) Surefire way to gain employee buy-in on strategic goals and direction of any firm large or small. Though not explicit in her presentation, my key take away is a classic 80/20 example. Taking a little more time and thought (20% more) can alleviate and eliminate 80% of your office and team issues and produce a more streamlined and well-run team. The presentation was informative and educational to all participants and I gained a great amount of value from it.

 

– Ildiko Hildreth, CFA

Liz shared the results of a 2014 Gallop Poll which found that 51% of workers are disengaged, 18% are actively disengaged, and only 18% are engaged. And, that this statistic has not changed much in recent decades. Wow! If that is not a reason to think that there is room for improvement in our work environments, I don’t know what is. After all, the more effectively we communicate, the better our teams function, and the better our performance.

So how does one foster more employee engagement? Liz discussed the importance of communicating goals and strategies to the team. Also, how listening is a key to employee buy-in. She laid out how a simple goal setting process based on a few key performance measures and behavioral standards can be tailored for each individual. And that when you let people know what is expected on the front-end, giving and receiving performance feedback can be less stressful.

I found the meeting to be thought provoking. In our profession, we all work and communicate with clients, portfolio managers, analysts, “the street”, and support staff. And, most, if not all, of these are teams in some shape or form. The trick is how to improve investment outcomes by building an extraordinary team.

If you are interested in a handbook that describes what Liz discussed and more, she invites you to request a copy by e-mailing her at liz@coachandmentor.net with the subject line ‘CFA handbook’. Additionally, Liz expects to release a book soon called Connected: Bridging the Gap Between Strategy and Execution.

Watch Me Whip

· · 1 Comment
Susanna Gibbons, CFA

As I was doing The Whip last night in my living room, my son covered his eyes with his hand and walked out with a disgusted “that’s just wrong.” I yelled after him “I don’t need your permission to do The Whip…hey, are you listening to me…? Anybody can do The Whip if they want to. Anybody!”

So much has been written over the past couple of years about the lack of diversity in the investment business. We’ve tried the mentoring programs, we’ve highlighted the performance benefits, we’ve taken the negotiation courses, but for all of the hand-wringing, it feels like we have gotten nowhere. According to the CFA society, we have in fact gotten nowhere. Focusing just on women, there are currently a lower percentage of women applying to take the CFA exam than there were 20 years ago. Most of the people I know in the business say they can’t find the diverse applicants they want to hire. And women in particular seem to be avoiding the business because of the lack of visible, viable career paths – there’s no one who “looks like us,” so how can we possibly imagine an investment career?

Last night, as my progeny turned his back on my dancing, I had a moment of clarity around this problem. We are all, always, seeking to affiliate. We have fairly rigid ideas about who can do what. In the investment business, we have collectively allowed this urge to overwhelm our rational judgment. We have become increasingly balkanized in our own affiliation groups, somehow unable to step beyond these boundaries to make the choices we know will result in better businesses and better careers.

For those in charge of the hiring, that means you have to stop thinking about diversity as simply a willingness to accept those who show up. You actually have to go out and build the pipeline, develop the networks, and find a way to reach the people who currently are not reaching you. Stop thinking about this as an altruistic burden; it will be a profitable investment in your business.

And for those among us trying to break in or move up – they ain’t going to give it to us, you gotta take it. Stop waiting for permission, stop expecting to find affiliation. Move outside your comfort zone and pursue the investment business because it is exciting, intellectually challenging, ever changing and rewarding. Even if you don’t end up where you initially intend, the journey will be amazing.

Take that, my little teenager. Watch me whip.

2015 Financial Compensation Survey Results

· · Leave a comment

CompSurvey2015_LargeWe’re excited to release the results of our 2015 Financial Compensation Survey, the 3nd Annual in-depth look at compensation levels in Minnesota and the Dakotas, conducted by CFA Society Minnesota.

Click the image at right to download, at no charge, this white paper summarizing high-level survey findings in an easy-to-read format. In return for the white paper or for deeper data requests, please complete the contact form below. Your feedback is welcome and appreciated.

This year we expanded the survey across the entire Midwest region to include the Chicago, Cincinnati, Madison, Milwaukee, Nebraska and St. Louis markets. Coming soon will be a consolidated survey report for all these markets, providing you a directional benchmark not only against other financial and investment professionals in the Twin Cities, but also across the region.

Thanks for your interest!