Episode 39: $200B Asset Management CIO Bill Harding on the Importance of Qualitative Due Diligence | Why Culture is a Source of Alpha | “Ask an Allocator” Session

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About Bill Harding:

Bill joined JNAM as Head of Investment Management in October 2012, and oversees the asset allocation and portfolio construction process, sub-adviser monitoring, and manager research.

He was previously Head of Manager Research for Morningstar Inc.’s Investment Management division and has more than 20 years of experience in portfolio management, asset allocation, and manager research while working at JNAM, Morningstar and Leprino Foods Company.

Bill graduated from the University of Colorado, Boulder with a Bachelor of Science degree in Business. He holds an MBA from Loyola University Chicago and is a CFA charterholder.

Resources Mentioned in This Episode: 

Songs: Enter Sandman - Metallica

Books: On Fire by John O’Leary

TRANSCRIPT

Below is an AI-generated transcript and therefore it may contain errors.

Bill Harding: [00:00:00] That's really what we try to focus on. And I think is, you know, an important source of differentiation. Is the culture in how the teams interact and what their incentives are, how they're aligned with shareholders, just kind of what drives them to do what they do on a daily basis. So that's really what we try to get out of a lot of those initial meetings.

Stacy Havener: Hey, my name is Stacy Havener. I'm obsessed with startups, stories, and sales. Storytelling has fueled my success as a female founder in the toughest boys club, Wall Street. I've raised over 8 billion that has led to 30 billion in follow on assets for investment boutiques. You could say against the odds.

Yeah. understatement. I share stories of the people behind the portfolios while teaching you how to use story to shape outcomes. It's real talk here. Money, authenticity, growth, [00:01:00] setbacks, sales and marketing are all topics we discuss. Think of this as the capital raising class you wish you had in college mixed with happy hour.

Pull up a seat, grab your notebook and get ready to be inspired and challenged while you learn. This is the billion dollar backstory podcast.

Bill, thank you so much for being here. This is really fun for me because I feel like I've known you, I don't know, is it 20 years? It might be.

Bill Harding: We go back a ways. Yeah. That's my old Morningstar days. It

Stacy Havener: might be. Probably

Bill Harding: about that long.

Stacy Havener: Yeah. So it's an honor to have you in the studio. And I'm kind of liking this.

This is like, I'm calling this like a little Ask the Allocator, Ask an Allocator series. But before we get to asking an allocator. We got to start with my favorite thing, which is backstory. So, I want you to take us through, you mentioned Morningstar, I'm sure we'll pass through the, the hallowed [00:02:00] halls of Morningstar in this journey with you, but did you always know you wanted to be in the investment world?

Like, kind of take us way back, the way back machine.

Bill Harding: Yeah, the way back machine. Yeah, I always grew up knowing I wanted to be a manager, research as a little kid. Probably not. So, and I will just kind of foreshadow that I'm probably going to be the only Alec here you talk to that, had experience in a cheese plant.

So we'll get to that momentarily. So, so I grew up on Long Island, middle class family. My father was an auto mechanic, owned an auto repair shop for many years, was kind of traditional stay at home mom. So one of the things that kind of led me on my journey was While we were growing up, we used to ski a little bit as a family, typically in Vermont.

And then one year in high school, I don't know, we were up in Vermont skiing and I saw some sort of flyer advertisement for Bale in Colorado and kind of asked my parents about, you know, maybe we should go on a ski vacation out to Colorado. [00:03:00] So we did. I fell in love with that area and that kind of led me to going to college at University of Colorado Boulder.

Which was phenomenal and great time there and enjoyed the mountains and started off trying to be a computer science major, realized after first semester, probably wasn't the right fit for me. So transferred over to the business school and, uh, did get, uh, my degree in business with, uh, you know, focus in finance.

So thinking about, I guess. Uh, when I was about to graduate, a lot of the companies that were recruiting on campus were kind of your auditing type firms, some investment banks, et cetera, didn't really know what I wanted to do, what kind of path in business or finance I wanted to go down. I just thought at the time, what I was still loving the mountains, kind of wanted to be in that Boulder Denver area.

So I was really just. Looking for job openings. And one that I came across was for his financial analyst position at a privately owned company called Leprino [00:04:00] Foods Company. So this is where we started getting into the cheese story. So what piqued my interest about the role itself, it was pretty general.

So it gave me exposure to, you know, a couple different areas within being a financial analyst. I really still didn't really know what that meant, like just coming out of college, but Leprino was a manufacturer, still is, of mozzarella cheese used by All the big pizza chains, so Domino's, Papa John's, Pizza Hut, et cetera.

So they kind of had a niche. They were, they produced at low cost, had a very efficient process and were very successful in that business. So part of that role at Laprino Foods was some of it was kind of corporate finance, doing budgeting and. Least first buy decisions on tractor trailers, things like that.

But the other part that I realized was more interesting was analyzing some of the investments within their 401k and profit sharing plans. So that's really, I guess, when I started to think more about focusing on investing as a career, then part of [00:05:00] my roles that took me to the cheese plants was actually providing, you know, very basic education for the plant workers about why they should save in a 401k plan and, you know, What investments mean and what's an equity fund versus bond fund.

So that was kind of interesting. And especially since these cheese plants tend to be in the middle of nowhere where there's lots of cows and you have ample access to milk. So my favorite was Roswell, New Mexico. It was a good one. Yeah. So that kind of led me. Further down the investing path and I'll tie this into Morningstar.

So when I was at Lepreno foods, we utilized some of the various, you know, Morningstar products and you'd go back a ways before the internet. And even before the CD ROM, people probably don't even know what CD ROM is. There was this big thing that Morningstar called the binder, the print publication of reports.

So I remember just as part of my role in researching these mutual funds that we had in our, [00:06:00] 401k plan there at Laprino, reading through the Morningstar Analyst Reports and so forth. And eventually after being at Laprino for about three years, realizing I wanted to focus more on investing and, and seeing those reports and learning about Morningstar, I was like, Oh, this sounds like a great place to work.

I remember at the time they had a, Somebody had written a book about Morningstar and describing people rollerblading into the office in shorts and t shirts. Like, Oh, this sounds great. You know, still wearing that shirt and tie to work. So, so lo and behold, I actually saw a posting for a Morningstar analyst role.

I had never actually been to Chicago before, so I did interviewed with them. Eventually went out to Chicago for an in person interview and. Obviously people being in Chicago, it depends on when you visit, whether you want to live there. So I was pretty fortunate. It was a very warm, late April day when I visited, the river was beautiful, sun was shining.

And so it worked out [00:07:00] and it was a great start to my, I guess, real investment career with Morningstar there.

Stacy Havener: What was it? The cheese plant is so fantastic. And by the way, high five on your storytelling skills because you teed that up at the beginning of the story. That was magic. Great job. Very proud of you.

So what year did you join Morningstar? Was that in the 90s?

Bill Harding: Yeah, so I joined Morristar in 1999, so it was June 1999.

Stacy Havener: And you were there for how long?

Bill Harding: Uh, 13 years.

Stacy Havener: So, what a journey.

Bill Harding: Yeah, it was. I mean, obviously, Morristar's grown a lot, you know, over the years and started off as a fund analyst and did that role for a few years before I moved into, uh, you know, a Their investment management division and spent more time managing portfolios, picking mutual funds and so forth.

So that was kind of the, probably bulk of my tenure there at Morningstar was in that investment management division.

Stacy Havener: And then, so take us to today. So you're at Morningstar for 13 years. And

Bill Harding: I'm Morningstar for [00:08:00] 13 years and I was contacted by a recruiter regarding a role at Morningstar. Jackson national.

And at that time, I didn't really know much about Jackson national at all. I didn't know much about the variable annuity industry in which Jackson operates, but the role itself was intriguing to me. It was leading an investment team that was responsible for doing manager. Research. So I decided to look into it.

And the more I got to know, you know, the company, what the role was, the more interested I was in it. So decided while Morristown was a great place to work for 13 years, the time was right for me just to make a change and to move over to Jackson. And I've been here for 11. 5 years now.

Stacy Havener: That's nuts. I can't believe it's been 11 and a half years.

Wow.

Bill Harding: As I add all this up, you can't believe how old I'm getting, actually. Okay, let's,

Stacy Havener: yeah, no, we don't want to take ourselves there. We'll feel bad as I'm wearing a tie [00:09:00] dye shirt, which I don't even know what's going on there, but, you know. So, um, I think maybe what I want to do is, for people who don't know Jackson, because I think, you know, when you first said I'm going to Jackson, it's like, that's an insurance company?

Like, it just doesn't click naturally. So talk a little bit about, like, you mentioned the variable annuities, you mentioned manager selection, like, tie that all together for us.

Bill Harding: Right, so Jackson primarily operates in the annuity business, and there's all different types of annuities, fixed, indexed annuities, et cetera, but Jackson's bread and butter has been variable annuities, now they do also do some fixed, and more recently have been also in the Rila or registered index linked annuity space as well.

Uh, so we have some different types of products, but specific to what I work on with the variable annuities is really, it's a platform of, we have 130 funds available for clients that invest in our [00:10:00] various Jackson variable annuity products. And one of the differentiators for Jackson in the industry is investment freedom.

A lot of the other variable annuity providers might limit. Their clients into what particular types of funds they can invest in, maybe limit their equity exposure or put them into manage volatility portfolios. And the reason they do this is, you know, because they don't want to have to hedge the book and some of the exposures to ensure that the capital is there to meet the needs.

So that's why I liked about Jackson is that investment freedom story, the broad lineup of funds they had available. And as well as ability to even improve upon that lineup of managers and to utilize my and team members knowledge of the manager universe to really partner with What we think are some of the best of breed managers across the various asset classes To help maintain a competitive lineup and to really kind of power that investment [00:11:00] freedom story.

So it's one thing to have lots of options over a hundred funds, but we also want to make sure that they're good funds that, you know, are meeting client expectations and delivering types of returns and risks that we expect and that we want for our clients.

Stacy Havener: I love the investment freedom piece. That's a great, and I'm sure it's, you know, on your materials.

It's awesome. And I think what's interesting, so, again, if I put myself in the shoes of the listener, like, how are Stacey and Bill friends, though? Because wouldn't, like, Jackson National be investing in all the bigs? And, you know, wouldn't that be the easiest thing for Jackson to do, is just, like, You know, get the pages and look at the biggest fun shops and say, great, we'll just have Blackrock and Vanguard and all these things.

So I'm going to let you speak to that.

Bill Harding: Yeah, so we invest in some of the bigs as well as some of the boutiques. And I would say, again, this has been something that has evolved. You know, over the years, and especially since, since I joined again, knowing knowledge of [00:12:00] some of the managers out there in the universe and the processes we put in place to really do a diligent job on manager research and selection.

I think that led us down a path to being open to exploring some of the more boutiques out there as well. But yeah, certainly, you know, the bigs, we have exposure. We work with T. Rowe Price and BlackRock and JP Morgan. And the like, but we also have, you know, a number of boutiques represented within our platform.

And sometimes they tend to play more of a role. We, of the 130 funds, you know, we have some passive funds. We have a lot of actively managed, we have all different flavors and investment strategies. Many of them are single strategy where, you know, the, we hire one subadvisor to manage the fund and their names on the fund.

But then we also have a suite of multi manage. Funds where those tend to be in more capacity constrained asset classes or things like alternatives, you know, small growth, small value, mid cap, et cetera. And we've kind of utilized more of the boutiques to play roles in those [00:13:00] multi manager funds. Cause And one, I think that's kind of plays to their niche, their specialization.

And I guess some of the benefits that you would have with a big of having kind of distribution support and help in the marketing things are less important for those multi manager funds as well. So that's where we have tended to utilize more of the boutiques.

Stacy Havener: Yeah, great, great backstory. Awesome job on the storytelling in general.

Let's pull that storytelling thread a little bit forward, because I can imagine that you meet with a lot of managers. Fair, fair to say that you meet with thousands. Yeah, I should, I

Bill Harding: should tally it up sometime. You should,

Stacy Havener: you should. And so, you know, one of the things that, that is very challenging for managers to do is to articulate what makes them different.

And I can imagine that being on the other side of the table and meeting with these managers, you've heard a lot of people say, here's what makes us different. And maybe inside, not [00:14:00] externally, like sort of rolled your eyes. So like, talk to me about that. Like, how are You know, especially today when it just feels like there's so many funds and so much stuff and noise, like what's happening in those meetings and how are managers able to really communicate their differentiation to you?

Like what? Talk us through that.

Bill Harding: Yeah, you're right. Sometimes I do kind of roll my eyes or chuckle to myself when a manager comes in and claims there. Bye. Their analyst team is really the only one doing, you know, as thorough company analysis research and talking to Suppliers and competitors. I'm like, I've heard that from every other manager So what that's really not differentiated at this point, but you know, I think like you in this podcast I love to start with the backstory of the manager or whoever i'm meeting with and where they came from especially when it's a Maybe a boutique or somebody starting their own firm or had moved from, you know Maybe a big firm to somewhere else is trying to understand [00:15:00] that.

And after that, I think it's really about the culture that they're building at their firm, the that's really what we try to focus on. And I think is, you know, an important source of differentiation is the culture and how the teams interact and what their incentives are, how they're aligned with shareholders, just kind of what drives them to do what they do and, um, a daily basis.

So that's really what we try to get out of a lot of those initial meetings.

Stacy Havener: Much more qualitative. Everything you said there.

Bill Harding: Oh yeah, certainly. Yeah. I think there's a lot of that qualitative. I mean, the quantitative comes down the line in future meetings. But again, a lot of, I think these days, a lot of that's, the process is, again, there's Less differentiation in some ways.

It's just I think more behavioral differentiation, right? I mean everyone's got access to a lot of the same information these days and resources and Databases [00:16:00] spreadsheets facts at bloomberg, etc. I mean you're assumed everyone's got all that, right? So really what is you know, how you're differentiated?

Every once in a while, it might be some way some people are looking at the data or so forth or doing their analysis that is slightly differentiated, but I think more becomes on the behavioral side and just how they manage their portfolio and make changes

Stacy Havener: Yeah, and the people and i've heard this from other allocators and I wonder if you feel the same That when you're in a meeting, you know manager comes to a meeting and I think there's this disconnect between what?

The manager thinks that you want to hear or talk about And what the allocator actually wants to hear and talk about you just articulated some of the stuff like how you start a meeting Etc. And I think the manager comes in thinking well, i've got to come with like data and charts and here Let me point to my pitch deck and show you this And i've heard allocators say I [00:17:00] can get all that to your point Like I can get the data and what really is valuable in a meeting are the things that I can't get From a software system or you know, do you agree with that?

like Bring me the stuff I can't get I can get your data. I don't need to. I don't need you to read me the chart,

Bill Harding: right? Yeah, or maybe even ahead of the meeting you already have a look at some of that or and you know I'm happy to have a pitch book, you know for reference, but you know Please don't turn page by page through the pitch book that just drives me crazy But yeah, it's good to have in the meeting, maybe just as a resource, or if I want more background on, you know, specifics on, on the team or something like that, but the best meetings are ones where the pitch book is sitting there to the side.

You maybe never open it or you open it once or twice just for reference, but you're having a conversation, a dialogue with the people in the room. Again, you're learning about their culture. You're learning about. How they do what they do [00:18:00] and they're telling you stories, right? They're providing you examples, right?

It's not just going through the reverse pyramid slide of how they select the security that everyone has in their deck. It's. Really, you know, tell me about the examples of things that you did well and what led you to those decisions. But also, as important, and we'll ask if they'll bring it out themselves, tell us about the mistakes.

Yes. Tell us, you know, the ones that went wrong, what you learned from that. And that's important. And you got to be humble in this industry. And, uh, even the best investors, obviously, you know, their bang average on a individual security, you know, selection is not going to be perfect, right? Everyone's got mistakes.

Everyone's going to have names that don't work out. And I think the key is to recognize that you will make mistakes and to try to learn from that. So we try to get those types of stories and try to get that dialogue during our meetings.

Stacy Havener: Is that on the mistake piece because I agree with you and some managers I've actually had a client once who refused to answer their question [00:19:00] and I basically just wanted to like throw my You know pen up in the air just to be like we should just go we should just leave You're never getting this.

Why do you ask that question? I mean I have I think I know why but just really like why do you ask the question about the mistakes? What are you looking for?

Bill Harding: So I think there's a couple things we can get out of that is One I think it speaks to Can speak to the culture and reinforce what that culture is or isn't.

It could. You know, lead also provide again, more insight into the behavioral aspects of that manager and how they think and, and how they trade securities and again, just getting into their personality. And, you know, we've been in meetings where depending on how they address those mistakes, will the portfolio manager just kind of blame the analyst, not taking any responsibilities.

That's, you know, that's kind of a yellow and a red flag. I really don't. Like to hear that when at the end of the day, if their name is on the phone, they have the PM, they should ultimately [00:20:00] take responsibility for every name that's in that portfolio. But we've had meetings where that's, that's been the case and you can, or you were in meetings where, you know, you can actually see some of the tension between portfolio managers and analysts when they talk about a mistake, right?

So that. Speaks to what is the culture at this firm? Is it truly collaborative or, or not really? Is it more kind of, uh, were few individuals or really have all the power and everyone else is kind of afraid of that person that's not a healthy culture in our opinion. So I think those are some of the reasons we ask about the mistakes.

Another question we like to ask, you know, not necessarily relative to mistakes is again, Are there certain people that inspire that portfolio manager? What, again, got them into the industry? What, you know, what makes them tick, right? So I think that's also kind of informative. We, you know, ask about if there's competitors they admire.

And so forth and, and [00:21:00] who they kind of look to as, you know, peers, just to try to get a sense for, again, get a little bit more into their personality and, um, what motivates them.

Stacy Havener: It's a great question to ask somebody that, that particular one on mentors or who inspires you. In fact, that's one of the ways if somebody's stuck on their backstory or that I can tell they're feeling uncomfortable with it. I usually will ask that question and you can just. See their whole sort of vibe changes because they start talking about someone who inspires them.

It's a great unlock. And I would imagine the competitor one is as well. Do you ever have managers say, Oh, there's, we don't have any competitors.

Bill Harding: Yeah. Or in a way kind of respond kind of like that, like, Oh, we don't really pay attention much to the competitors or, or, you know, I think it's more off putting when they kind of maybe take jabs at the [00:22:00] competitors.

And it's just, you know, that sometimes is something that we'll, we'll know and just try to understand

Stacy Havener: that

Bill Harding: rationale. Yeah.

Stacy Havener: Well, speaks to my culture. It's really

Bill Harding: bad if we actually work with those competitors as well, and that's something they should probably know before the meeting, right? So, has happened, actually.

It's surprising. Oh my God. Yeah.

Stacy Havener: Awkward. Yeah. Yeah. So that's great. What other questions? These are awesome questions. What other questions do you ask that we haven't talked about? I mean you're mentioning analysts in the room So is that something you like to see like the dynamic of the team together?

Bill Harding: Yeah, uh for sure and Sometimes we get that here in our office, but more often we get that when we go out and visit You know, a company at their headquarters on site. So, which, you know, we, we do make that an emphasis in our research, you know, before we ever hire a new manager and then even ongoing with the current, you know, funds and managers we work with, we'll go out pretty much almost every year to most [00:23:00] managers and do onsites.

And again, during that process, it's not just meeting with the portfolio managers, which we'll do, but it's also, you know, meeting with the analysts and just, you know, Seeing how just people in the office interact. How, you know, again, how did some of the people treat the receptionists or just people at different levels of the organization?

That speaks a lot to the culture, I think, when you can, you walk in and, you know, they're telling you about anyone that works in the office and what their background is. And just, you can kind of sense that it's more, Like family, like more of a collegial atmosphere and that's just going to lead to greater employee retention and I think lead to greater productivity and hopefully, you know, better results for the clients.

Ultimately,

Stacy Havener: so good. And I are mutual friend. Paul Black talks a lot about culture can be alpha, which is what you alluded to there. And, you know, he talks about it more in [00:24:00] terms of companies they're analyzing, but how interesting that you're applying that to the managers themselves. Very smart. Very smart.

Okay, let's stay with this because my next question is very, is related. There's this Kaya study, which I kind of pointed to a little bit earlier about the disconnect between what managers think allocators value in the due diligence process and what allocators actually value. in the due diligence process.

And the bulk of that is around qualitative versus quantitative. So the managers think allocators overweight quantitative, or the allocator actually says that qualitative is as important, if not more important than quantitative. So with that backdrop, I've been kind of batting this question around for like a year plus, which is, are you buying a fund?

Or hiring humans.

Bill Harding: Well, certainly we're we're hiring humans Yeah, I would say especially again [00:25:00] if you're looking for actively managed strategies, you know Maybe if you're doing something in the passive space, that's or you just want some very targeted niche exposure to a bitcoin etf You're buying a fund but for You know, investing in, you know, how can we manage strategies?

We're investing with the people. And that's why that qualitative is so important. Now I understand the quantitative look at the end of the day, performance matters, right? And we all want to achieve and deliver good results to our clients. So we want that. That performance, so the quantitative is important ultimately.

But to me, that's just kind of the the outcome of the process of the people of what we think are the sources of a competitive advantage that have led to that good past performance, right? Because we all know it's there's now a ton of persistence in our industry, and it's very hard for, you know, to have that, you know, continued success over time.

So that's why, again, we try to focus more on the sources of a competitive edge, which goes back to all the qualitative [00:26:00] aspects or, again, getting into the people in the process or, uh, but of course we use quantitative tools and trying to even analyze that, right? So we can look at, you know, especially within the process, you know, we spend a lot of time looking at portfolio characteristics or factor exposures, performance attribution.

I mean, there's a lot of quantitative research that goes. into trying to make that assessment of whether we think this is a sound discipline process that's led to, you know, good results over time, understanding why that is. And, you know, has it been applied consistently and so forth? So it definitely is a mix, but at the end of the day, for us, we have to make a qualitative assessment.

Stacy Havener: Yeah, I love the twist there about the quantitative research you're doing is trying to unpack the why of the results. Ooh, I love that. That's like Simon Sinek's start with why the CFA version or something like that. So good. Talk about [00:27:00] We're sort of on the front half of due diligence here. Let's talk about the back half.

Let's talk about now you've, you've hired a manager. What goes into, I think there's this short termism, like, Oh, you know, investors, nobody wants to stay. They can't stomach the downturns. You know, they just sell and move on to the next hot dot or whatnot. How do you think about that? How do you think about when a manager is underperforming?

And how do you deal with them and talk with them about that?

Bill Harding: Yeah, unfortunately it happens and with the, you know, broad lineup of over 130 funds, there's always, you know, at least a few that are going through a rough patch of performance. And, like, we, we do a lot of reporting, a lot of, you know, That is ultimately provided to an independent board of trustees that oversee the fund.

So, of course, they're focused on performance, you know, every quarter. And, you know, they're looking at the typical, you know, trailing one, three, five, you know, type of data points that the industry gets so [00:28:00] focused on. And we try to provide a little bit more context to that. We have a proprietary performance.

Ranking measurement, which is kind of a combination of multiple return to risk adjusted metrics. And looking over longer time periods, it goes up to, you know, 10 years or since inception of a strategy. Now, of course, even that performance ranking can be influenced by, you know, really, if you have an 18 month stretch of like meaningful, like big under performance, that's going to even, you know, Bring down some of those longer term results and lead to a lower performance score.

So, but of course then we want to kind of keep that within the context of what the environment is, as the portfolio managers and style, but now in a favor, what led to that underperformance. And for us, we're willing to be patient with the manager. If our quality of assessment remains solid, right. If we still have that conviction and in the team and their process.

And we just think [00:29:00] like, look, they've kind of hit a rough patch here. The market's not rewarding their style for whatever reasons they're sticking to their knitting. They, that should hopefully lead to a rebound in performance. Then, uh, Uh, we'll see them through that. But of course, again, there's a lot of, uh, education we have to provide to our board of why we're comfortable with that and how we're making that quality of assessment.

So that's where again, running more of the detailed analytics, whether it's. attribution or trying to understand the factor exposures and some of these other risk statistics maybe can help provide that context of of why they aren't performing well. And maybe it's kind of within our expectations based on our view of what the manager does and how they run that portfolio.

But then other times, yeah, I mean, sometimes it just underperformance persists and you're not really seeing any improvements. We'll probably get more concerned when you then start to see. Managers maybe overreact and kind of, [00:30:00] they end up getting whipsawed, right? They're trying to make up some ground and maybe deviating a little bit from their process, trading a little bit more frequently, and sometimes it doesn't work out and to us, that's kind of more of a concern.

Stacy Havener: That last point is powerful right there because I think managers need to hear that you're saying just if, you know, if you are a value manager and you just went through this, you know, getting kicked in the teeth for 10 plus years, don't all of a sudden trade more and start putting, you know, innovation names in your portfolio.

That's more of a red flag than if you had just stayed in your lane, given the backdrop that you're in. Fair to say. Correct.

Bill Harding: Yeah. Yeah. For sure.

Stacy Havener: Yeah. What about authenticity? This is a tough one. This is a tough one for managers because, well, maybe for all of us in general as human beings, but certainly in the investment industry, perhaps more so.

There's this idea, [00:31:00] I think we all, we all agree on this. You know, sort of grew up in this biz that, you know, it's not about the people. It's the firm and it's the process. And then it's of course the performance. And so you have these, these fund managers who, you know, they all want to look the same and have the pitch deck that has the universal funnel and everyone sort of saying the same stuff.

It's really difficult for them to break out of that. And I wonder how you think about that. And I wonder how you think, you know, when you meet managers, if they're all just sort of cut from the same Brooks brothers cloth, I don't know, does anyone wear Brooks brothers anymore? I don't even know,

Bill Harding: you know, like

Stacy Havener: now I'm really dating myself.

Like, how do you, like, Do you want them to have a little bit of personality?

Bill Harding: Yeah, I think so. And I, I do think, uh, I mean, there's probably still kind of [00:32:00] some of that in the industry. I mean, obviously, I think we've identified a lot of managers that are kind of differentiated, that kind of are authentic. But, uh, certainly I think when you're, You know getting to know firms and I think it is important for them And I think it goes back to like some of the questions or why we ask Why we ask those questions in the beginning is to kind of get at that not just to go through their typical You know, pitch book and cadence of, okay, I got to tell these people these things in this order.

And let's kind of, again, not even use the pitch book and just kind of have a dialogue. And I think sometimes also helpful in that those informal moments of a meeting. And that's why I kind of love that we're kind of back in the, After coven and back to doing in person meetings, because, you know, I felt like a lot of those zoom meetings that we were all doing are definitely more scripted and you don't have the ability for those informal interactions of when I'm just walking somebody through the hall into the conference room.

Or again, you got some of [00:33:00] that just. Informal discussion about whatever topic, you know, your kids or activities you're into before and after the meeting. And then, you know, if we have the opportunity to do a lunch or dinner or something like that, I think that just even helps get to that authenticity a little bit more and get to know them as people, not just like talk business and talk shop all the time.

Which is another little pet peeve, especially if we're like. Doing a dinner or lunch. It's like, it doesn't have to be all work all the time, right? We'll get to the work stuff. But like, let's, again, let's, you know, get to know each other as humans. And as people, let's learn a little bit more about each other.

And then, you know, don't be time to pitch me something later. And don't want to just like, write in like, Oh, are you working on what you have to say? Hold on. Okay.

Stacy Havener: Why don't you talk about your sharp ratio over salad? Like, let's just

Bill Harding: say that.

Stacy Havener: I love the idea that. The informal [00:34:00] moments in the meeting are valuable.

Bill Harding: Yeah, definitely you can see that because, and going through COVID, you kind of recognize that, how valuable they could be. And that's like, sometimes, I mean, also, again, they're not scripted, and they're willing to tell you something that maybe didn't come up during the meeting, whether it's about a competitor or something else, sometimes you just get some, you know, Interesting nuggets of information in those types of just informal sessions.

Stacy Havener: It's the moments in the meeting. The little moments. That's so good. How often, this has happened in later stage due diligence with some larger allocators, and I wonder if you do this, and I want managers to hear this, if you do approach conversations this way. You know, there's this idea that stories are sort of spin.

And, you know, a lot of, there's a lot of, you know, numbers, not narrative. And I get it. I get why that's so objective. And yet it's also very robotic and not [00:35:00] human and not help people make decisions. I would say numbers and narrative together. I've been in meetings with allocators where they'll take the portfolio.

And they'll like pick a random name and then they'll say to the fund manager, tell me about that random name. And it's like every fund manager hates that. They get, they start sweating. They want to know, is that going to happen beforehand? So A, do you do that? And if you do that, why do you do that?

Bill Harding: Well. I don't think we do that very often, but I think it depends on, on the strategy depends on lots of things.

I mean, yeah, if you're talking to a manager that runs a 25 stock, large growth portfolio, and they're all kind of meaningful positions yet. And I think, you know, Asking them, you know, about a particular name is certainly, you know, fair game if it's a, you know, portfolio of hundreds of securities and you're picking on like one that's five basis points, like [00:36:00] the PM maybe should know why it's in the portfolio.

But again, if they're not, you know, if it's intimately aware of that name or, you know, to an analyst that covers it and follow up, but to us, I think we try to focus more on like, well, the real driver, obviously you're looking at attribution reports and yeah, there's a. A name has been a significant contributor or detractor.

You want to definitely ask about that and know about that, but sometimes there could be outliers in a portfolio and you want to know why maybe it doesn't really fit, like you look at on the surface and it's like, I'm not really sure that. This fits in a large cap growth portfolio. Let me ask about, you know, why this name is in the portfolio.

I think, I think that's fair game.

Stacy Havener: Me too.

Bill Harding: So, uh, but yeah, we, we won't try to play gotcha or gotcha games too often or something like that, but also on the other hand, going back to spin, you know, I think we, we talked to our team a lot about that. Look, I mean, we get the industry and like, there's always the potential for someone to try to spin you and you could use a story or [00:37:00] not use a story, right?

There is good. And ultimately you're just trying to understand, get to the truth and trying to, you know, understand what's really happening. And that goes back to where I think you're feel better about not having that spin. If again, they're tying in stories about mistakes they've made and acting and in a humble fashion and again, they seem more authentic.

They seem like they're more open and transparent and candid. Then, you know, then you're kind of like, okay, this, I feel like I'm not really getting the spin here. Transcribed This person is being candid with me. And, and, um, I think that's very important. And a lot of times we'd come away from meetings where like, wow, that was refreshing.

That person was really candid. Like, I know some of the things they talked about were probably not comfortable for whatever reason, but you know, they did. And that scores a lot of points and you just then have a greater level of trust. With those individuals and, and with future meetings.

Stacy Havener: The idea that you could spin with stats just popped [00:38:00] into my head too.

'cause you said like it doesn't have to always be stories. I mean, you can do a lot of custom benchmarking .

Bill Harding: Yeah. Focused on cer. Yeah. Certain time periods. Yeah. Um, where you look better versus others or certain Oh, of course. Yeah. We see, you know, definitely have seen that over. Over the years.

Stacy Havener: Yeah. A blended benchmark.

What's your benchmark? Oh, it's blended. It's these three things that no one could ever find that we have to send you. That's great.

The narrative in numbers is a big thing. It's a big thing. I think, I think that fund managers are generally not as comfortable using their words, so to speak. And so some of that bias to numbers is probably also sort of a self selecting thing. Like, they're just more comfortable going there. I loved your comment that when You find a manager or team that's [00:39:00] able to have those candid moments and maybe talk about things that aren't necessarily in their comfort zone, that that vulnerability scores points.

Bill Harding: For sure. I'm

Stacy Havener: restating that so all the listeners hear that loud and clear. It's louder for the people in the back. We talked about this a little and I want to come back to it. The idea that a healthy ecosystem. anywhere, but certainly in asset management would have both sort of the bigs and the incumbents and the boutiques and sort of the emerging kind of the next gen.

And I think our industry is not particularly good at supporting that balance in the ecosystem. I would love to see more big shops kind of seed the next generation of asset managers like they do in Silicon Valley, right? If someone has an exit. That founder is very typically going to be investing in the next generation of [00:40:00] whatever new cool tech things are happening.

And I don't think our industry is great at that. You even could hear some people say things like, Oh, you know, the boutiques, the specialists, they're just gonna. They're gonna die. Yeah, that it's just gonna be like four big firms And I wonder how I wonder how you think about that. Do you still see a place for specialists?

Bill Harding: I do. I think they it's harder than maybe it was 15, 20 years ago, there's just greater complexity in the industry, greater, you know, costs, regulatory issues, compliance thing. And then obviously I think there's, you know, again, just the nature of the business and where the, how the dollars are flowing is maybe again, a little bit more concentrated than it used to be.

So I think it is tougher. I think it's tough for the middle ground, actually. I think that's where the, it's the kind of middle players, those firms that maybe are kind of stuck in, are they kind [00:41:00] of a boutique or specializing in certain things? Or are they trying to be a big player? And I just don't know how many more bigs they're going to be, right?

And it's, So I think it's the middle, the middle ground players and you see them though, they're the ones that tend to, I guess you see where there's acquisitions or mergers of companies tend to be those kind of middle players that haven't gotten big enough to truly compete at scale with, with the big players.

But yet they're not differentiated enough to really be driving out at the strategy level to gain access and be as successful as, you know, some of the boutiques we work with, like, you know, you mentioned Paul Black at WCM or, or GQG partners. Again, they're, you know, boutiques that specialize in certain asset classes that have gotten, you know, very.

You know, have been very successful in delivering great performance to clients and then can get in the assets follow, but yeah, to me, it's the middle ground. It's going to be the biggest challenge.

Stacy Havener: Great point. I spoke with Paul recently and one of [00:42:00] the things we were talking about is that he's one of the few, I mean, I guess they're, they're a boutique because they are very specialized, but they're also quite large.

And one of the things that he shared was. You know, they've been sort of doing lift outs or taking spins and kind of plugging them into the ecosystem at WCM. And I would just love to see more firms do that, right? Because to your point, Bill, like it's really difficult to stand up an investment boutique for all the reasons you mentioned, the cost, the regulatory, all the distribution, all the things.

And then you have firms who have all of that built. And could create A really nice incubator or venture studio, I don't know, whatever cool name you wanna call it. Mm-Hmm. . But the investment management version. And I feel like that would be such an awesome addition to the ecosystem.

Bill Harding: Yeah, I agree. I'm surprised there's not more, I mean, again, that there's probably a few [00:43:00] other firms that have kind of taken that multi boutique approach.

Yeah. Like arson partners. Oh yeah. You know, great point. We work with, um, you know, verus has, you know, a number of different affiliates or you know, some of the other. Firms like that, that have, you know, rolled up some, some shops, but I agree. I think that's one way for, you know, these boutiques to, you know, to do well and to thrive and to, you know, get focused on the investments and then, you know, utilize, you know, a bigger relationship to, you know, help support them and take on a lot of those other business related costs.

Stacy Havener: Yeah. And really let them focus on what they do best and special and their specialty, their, the investment management's unique ability. I love that. Let's transition if we can to, I don't know, my version of Proust's questionnaire, which is really just a way to ask questions. Again, this is all about the people behind the portfolios and you did a fabulous job on your backstory, but this is just like, get a little bit more insight into Bill and.

For everybody who's listening like give people something to talk about besides, you know, [00:44:00] sharp ratio over salad, right? Like let's talk about things as humans. So I'll start with maybe hopefully an easy ish one What book inspires you?

Bill Harding: So a lot of the books I read are just kind of business biographies I'm kind of a dork and nerd but there was one book I think about that.

I have actually, you know loaned or Giving copies to friends about it's non investment related that was inspiring. And that was, uh, it's actually one that I originally got from our friends at WCM on fire by John O'Leary. So he's a motivational speaker, great story. So basically when John was nine years old, it was an accident in his garage.

He was basically burns across a hundred percent of his body. So it's just a story of how Not only did he survive that, but, you know, eventually, you know, thrived and, and, you know, it's a story of just living life to the fullest and being inspired and also about how other people helped him through those times and, you know, and, and taught [00:45:00] him things and just didn't just.

pity him cause, you know, in a situation, but was given them ways to better himself. So he had a second book come out called it all as well. And I think the podcasts in which goes well, but yeah, just that to me is kind of inspiring and think why. You know, initially read that book, my one of my sons was also around nine years old.

So we're just like thinking about like, what would, if I was in that situation as a parent, how would, you know, and so definitely hit home and just, you know, ended up, you know, just being very inspired by that particular book.

Stacy Havener: Thank you for that. That is a new one. I've jotted both of those down. And you said he has a podcast too, right?

Bill Harding: Yes. Yeah, I think just, yeah, search Don O'Leary. I think it's something along the lines of inspired or an inspired

Stacy Havener: life, yeah. Okay. So switching from books to places, what place inspires you? You've mentioned a couple places, so I wonder if we're going to go back to some of them. What place inspires you?

What's your happy [00:46:00] place?

Bill Harding: Place. My happy place is. Being on top of a ski mountain, looking out over the, over the town and surrounding area, that's my happy place. And now I'm happy that my kids can enjoy that with me too. And we had a great spring break just, you know, skiing together. So that's my happy place.

Stacy Havener: Do you go back to Colorado or do you go somewhere else?

Bill Harding: Uh, normally Colorado and Utah, but uh, starting next year, my oldest son will be attending University of Colorado, so I think I'll be back there quite a bit.

Stacy Havener: Yay! And you're smiling. I can already see, I already see a lot more skiing next year. There is something special about, yeah, there's something, there's a quiet.

When you're on, like, when you're on the ski mountain, when you're on the chairlift, there's a quiet that you really, it's really pretty amazing. Yeah, I just feel

Bill Harding: like that connection with nature. Yeah. It's just, it's beautiful.

Stacy Havener: Yes. Okay. Now, we're switching gears again to, you are going [00:47:00] to give a presentation.

You're at a stadium. It's a big, there's a lot of Bill fans in this stadium. And before you take the stage, they're gonna play a song. It's like your hype song, your walkout anthem. What is it?

Bill Harding: This is the easiest question of the day. It's Enter Sandman by Metallica. And this is in honor of the great Mariano Rivera, former Yankees closer, best closer of all time, would play that when he entered into the game in the ninth inning.

So that one's easy. Yeah. Yeah. Yeah. That one pumps me up.

Stacy Havener: This is like my favorite song. I don't know why it makes me laugh so much because I'm so used to seeing all my friends like in the work environment and then they come up with these songs. And I'm like, that is just not what I have guessed. So good.

Love the tie back to the Yankees and Mariano Rivera. That's fabulous. OK, what profession other than your own would you like to attempt?

Bill Harding: Well, let's see, the engineering didn't go well for me. So if I was going to attempt another profession, I'm a [00:48:00] pretty decent cook. So in a ideal world, maybe I'll have a little open up a little restaurant or something like that.

Stacy Havener: Oh my gosh. Are you watching, did you watch the bear?

Bill Harding: Yes. I did watch the bear. Yes. Great

Stacy Havener: show. This is great. Also. I mean, the thread of the, uh, the cheese plant is kind of coming back, right? I mean, this is like,

Bill Harding: before the cheese plant going back to Long Island, I was bus boy and a little Italian restaurant and.

Hang out in the kitchen, learn to cook a little bit.

Stacy Havener: So cool. I love that. So, is Italian is your cuisine of choice?

Bill Harding: Yeah. You know, being a New Yorker, you gotta appreciate good Italian food.

Stacy Havener: So good. Okay. Uh, flip side. What profession would you not like to do?

Bill Harding: Well, I would be a terrible politician, so anything, like, related to politics, I would probably not be good at.

Stacy Havener: I have to change this question, because a lot of people say that, understandably, yeah, and I'm like, it's so true, like, I'm going to have to put

Bill Harding: [00:49:00] asterisks,

Stacy Havener: asterisks, uh, politics, you can't say politics, but it's true, it's, yeah, sad, sad state, okay. Last one. What do you want people to say about you after you've retired or left the industry?

Bill Harding: That I did my best to kind of focus on doing the right thing for shareholders and investors and was a great team player. It's all I can hope for.

Stacy Havener: Yeah. The teamwork has been a big theme of this conversation. Really, if you think about it, it's not maybe surprising to hear you say that given. how you do your due diligence, how you think about analyzing managers, why you took the job at Nash at Jackson National to lead this team.

And I bet knowing you for as many years as I have, people are already saying that Bill. So I hope

Bill Harding: so. Thank you. Yeah.

Stacy Havener: Thanks for being here. It was awesome. Appreciate you. [00:50:00] Appreciate you taking the time to talk to our listeners. High five.

Bill Harding: Yeah. Thanks a lot, Stacey. Great. Okay. Good day.

Stacy Havener: You too.

Bill Harding: All right. Bye.

Stacy Havener: This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The information is not an offer, solicitation, or recommendation of any of the funds, services, or products, or to adopt any investment strategy. Investment values may fluctuate and past performance is not a guide to future performance.

All opinions expressed by guests on the show are solely their own opinion and do not necessarily reflect those at their firm. Manager's appearance on the show does not constitute an endorsement by Stacey Havener or Havener Capital Partners.

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