Vol. XII, Issue 11

The Trusted Source for Emerging Managers November 2017

A Publication of Financial Investment News

Reprinted With Permission of Emerging Manager Monthly

When thinking of the qualities and characteristics that military veterans can bring to various sectors of the workforce, a great deal translate

directly to the asset management industry.The individual aspects of teamwork, leadership, tenacity and discipline

sound like the makings of an adept investment manager, yet the veter-an-owned asset management space remains extremely limited in size com-pared to the overall universe—in this story, we were able to identify eight veteran-owned firms out of the thousands of investment managers that ex-ist.

While part of the reason for the shortage of veteran-owned firms may deal with the fact that veterans often lack the finances and individual track records to launch their own firms, there is no simple explanation for why the space isn’t larger.

Veterans either working in asset management or running their own firms shared numerous stories and experiences to help shed light on the topic.

Call To Arms:The Uphill Battle Of

Veteran-Owned Asset Managers

Call To Arms: The Uphill Battle Of

Veteran-Owned Asset Managers

Emerging Manager Monthly, November 2017 2

VETERANS: Macroeconomic, Cultural Factors Limit ParticipationContinued From Page 1

Why Isn’t The Space Bigger?Patrick Cleary, a former captain in the United States Marine Corps and current managing member at equity manager Alpha Architect, says there are macroeconomic and cultural factors that limit veteran participation in asset management.

Cleary noted that as the industry shifts from active manage-ment to passive, there are fewer opportunities for veterans as the larger industry players push out smaller ones.

“All these asset managers are getting fired and replaced by Vanguard [Group] and there’s not a lot of openings or excess cap-ital to take a risk on a veteran with no experience,” he said. “This is an industry in transition and when there are fewer chairs at the table and it’s shrinking, at least in the traditional sense, it’s harder to get veterans in there.”

It’s particularly challenging when considering that many vet-erans are entering the workforce after leaving the service and have little to no finance background, he noted.

From a cultural perspective, Cleary believes that veterans thrive in a team environment but argued that, conversely, it’s of-ten easy to become successful in the asset management industry as an individual contributor.

“A lot of veterans, especially after serving in combat and being charged with leadership, are probably going to get pretty restless in that type of role,” he said. “Veterans really excel at things where team management is important, where dealing with adversity and stress is required.”

After Greg Parsons, a former captain and infantry officer in the United States Marine Corps and current ceo of domestic fixed-income manager Semper Capital Management, completed his military service, his first job was at a boutique investment bank doing mergers and acquisitions.

He worked as an analyst for two mid-level to senior exec-utives who were formerly at a much larger firm. From them he learned the ins and outs of Wall Street, but there wasn’t much of a team feel, he recalled.

“I couldn’t articulate it at the time, but I hated it,” he said. “It was all about the ‘I’, it’s all about fighting for [a] bonus, and everything was the antithesis of the military mindset, which is all about the team, mission and purpose.”

Looking out for team first and yourself second was ingrained in him, but the asset management and hedge fund world can feel “ruthlessly self-interested,” he said.

Derrick McGavic, a former officer in the Marines and current managing principal at boutique real estate investment firm New-port Capital Partners, said that the presence of veterans in asset management has dwindled in recent decades.

“When I came out of the military [in the late 1980s], many of the people I reported to were Vietnam veterans and some were Korean War or even World War II veterans. There was a 40-year plus period of veterans becoming decision makers not just in as-set management firms, but nearly all companies,” he said.

However, beginning in the 1990s with the fall of the Soviet Union and the subsequent downsizing of the U.S. military, fewer veterans entered the nation’s workforce while older veterans re-tired, McGavic explained.

“Decision makers in asset management firms [today] pay lip

service to the concept and value of veteran skills, but they hav-en’t lived and breathed military experience [so] they really don’t see the value,” he added.

Segmenting Veterans: Good Or Bad? While veterans may not want to be viewed differently based sole-ly on their veteran status, they possess valuable skills that differ-entiate them from other investment managers.

Former United States Army infantry officer Joe Sroka, who is co-founder and cio of equity manager NovaPoint Capital, noted that while the industry has begun to recognize women and mi-nority-owned managers, veteran managers are still not seen as a homogeneous group.

Sroka, who spent nearly 20 years in the industry before launching NovaPoint in 2015, argued that identifying them sepa-rately would be helpful because of their proven and positive at-tributes—and that there needs to be a defined structure through which they can be identified.

“The skills and discipline that I brought to the job were valu-able to my employer, but it wasn’t necessarily always viewed that they were unique to veterans,” he said.

Much like Sroka, other veterans interviewed noted that greater awareness of these skills and experiences through some type of structure or categorization would be helpful if done based on merit. But the concept of veteran-owned asset management as its own category that is worth supporting is relatively new and poorly defined, Parsons noted.

Semper, a veteran- and minority-owned and operated en-tity in the state of New York, won a mandate from New York

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State Common Retirement Fund in 2016 through its emerging manager program as a minority-owned firm. However, the plan doesn’t have a cat-egory for veteran-owned, only for ser-vice-disabled, Parsons said.

While there is a strong focus on diversity from a racial and gender per-spective, he noted that he has yet to run into investors actively seeking a veteran-owned firm in the emerging manager space.

“We have not experienced any pro-active, ‘Look, we recognize the value of veteran culture and veteran ownership, therefore we’re talking to you’ with-in our emerging manager landscape—zero,” he said.

Many veterans agreed that veter-an-owned firms are not as visible to investors—unless they are classified as service-disabled.

And while state institutions and legislators have created programs for emerging managers, including minori-ty- and woman-owned, they have yet to do so for veterans, noted James Rus-so, founder of Altrius Capital Manage-ment.

Russo agreed that opening man-dates to veteran-owned firms is an approach to “giving veterans a shot equally” with other managers as well as minority- and woman-owned firms.

He also argued that the financial industry is lagging behind other in-dustries in recognizing and employing veterans, despite a cultural backdrop that generally offers an outpouring of support.

“It’s kind of sad because there’s so much done for veterans in America in general, where there’s so much pride and private citizens giving to veter-an organizations or the government taking care of veterans, but in finance I just think veterans are sort of over-looked,” Russo said.

Increasing VisibilityAside from broader structural issues that are prohibitive for veterans, there are also issues weighing on individual veterans that may serve to discourage them from launching their own firms – as mentioned, veterans often lack the

individual track records to stand out and networks to raise funds to do so.

A lack of access to working capital and a short track record have hindered growth among veteran-owned firms, said Cesar Gonzalez, senior v.p. of in-vestment programs at emerging man-ager-of-managers FIS Group, which began focusing on the veteran space not only because some clients had been asking for it, but because they felt they had an obligation to help.

While veterans spend most of their careers in the military, their counter-parts are working for large firms, build-ing wealth, experience and business networks, he said.

They have the opportunity to build wealth with their existing working cap-ital and a network of family and friend investors that can help them financially when launching firms, he added.

“If you’re a veteran who just came out, then you have to get internships, and it takes a while for them to devel-op the reputation that’s helpful when you’re starting a firm, and also not all of them were able to save a lot of money for working capital,” he said.

Veterans also tend to err on the side of caution when considering risk-ing their money on the uncertainty of launching a firm, Russo said.

Veterans like the safety of a pen-sion and the sense of financial security that the government can provide, so while they are brave when it comes to physically putting themselves in harm’s way, they are less likely to do so finan-cially, said Russo, who was a naval avia-tor in the Marines.

“When you’re an emerging man-ager, there’s no safety. It’s very entre-preneurial, nobody’s paying your salary and it’s risky financially,” he said.

Performance Over Status While some veterans argued that a more structured categorization of vet-erans and veteran-owned firms is es-sential to grow their industry presence, others argued that all hires and fires should be based solely on performance, while still others fell somewhere in be-

VETERANS: Lack Of Capital, Short Track Records Hinder VeteransContinued From Previous Page

Emerging Manager Monthly, November 2017 3

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Captain,U.S. Marine Corps

CEO,Semper Capital

Greg Parsons was captain and infantry officer with the 1st Battalion, 4th Marines in the United States Marine Corps. He now serves as ceo of Semper Capital Management.

Captain,U.S. Marine Corps

Principal,Atrox Capital

Andrew Watt was a captain in the United States Marine Corps, acting as a liaison be-tween the Marines and the National Security Agency (NSA) while deployed in Afghanistan. He founded Atrox Capital Management in early 2016 and is principal of the firm.

Captain,U.S. Army

CIO,NovaPoint Capital

Joseph Sroka was a captain in the United States Army, serving in Berlin, Germany with the 5th Battalion, 502nd Infantry Regiment and present during the fall of the Berlin Wall, the reunification of Germany and collapse of the Soviet Union. He co-founded NovaPoint Capital in 2015 and is cio of the firm.

tween. The varying viewpoints spoke to

the complexity of an issue that does not have an easy solution.

“Deep down it’s our belief that big decisions should be made about what’s right for the client: what fits their profile or asset allocation, what complements other strategies in their portfolio,” said Sarah Westwood, current partner and portfolio manager at domestic small-cap equity manager Eastern Shore Cap-ital Management and a former military intelligence captain in the United States Army Reserve.

“I don’t believe [being veter-an-owned] should be an end all, but it should be a couple points in the selec-tion process,” added Russell Sanderson, former officer in the Army Reserve and current ceo of investment firm Hanse-atic Management Services, said. “As an investment manager, your performance and your process are more important than being a vet.”

However, McGavic argued that the emerging manager space should be de-termined by AUM size, not by minority, woman or veteran status.

“Generally, veterans want LPs to in-vest not because of their veteran status, but because the LP honestly believes that veteran-owned firm will make the LP more money,” he said.

The Advantages Of Military Experi-ence In Asset Management

Movies and other popular cul-ture often suggest that the military’s hierarchical structure is made up of high-ranking officials incessantly screaming at their underlings.

But while there is certainly plenty of discipline in the military, the veter-ans we spoke with stressed the human aspects of that hierarchy and the long list of skills they had developed as a re-sult.

Much of that focused on teamwork, leadership and decision-making, with veterans noting that the military breeds a culture based on having a sense of purpose and understanding one’s role as part of a finely-tuned unit.

Parsons noted that when he com-pleted his service with the Marines when he was 27 years old, he reflected

on his service and, through self-analy-sis, asked himself what skills he had de-veloped and what he was truly good at.

“I’m very good at operating in en-vironments of uncertainty. I’m very good at making decisions with limited information, very good at making quick decisions, operating under pressure—all of these characteristics that I thought I was good at, knew about myself, and I thought—‘What does that translate to?’” he said.

Through a similar process, West-wood found that specific aspects of her intelligence training enhanced her ana-lytical skills and could be brought over to asset management—specifically, the interpretation of data and risk mitiga-tion.

She also found great value in the skills she honed in communications. Throughout her time in the military, presentation skills were an area of fo-cus.

As the S2 and S3 of her battal-ion—which loosely translate to security officer and training officer positions, respectively—she gave regular presen-tations to her battalion commander and his staff.

“Being able to communicate clearly under pressure is definitely an import-ant skill in our industry, and one that is particularly critical for emerging man-agers,” she said.

Lastly, Westwood believes that the confidence she built during her time in the military has served her well in high-stress situations.

“I do feel that having served in Iraq, I’ve been in a role where the stakes were higher,” she said. “I feel as though that was good for me; I tend to be a lit-tle risk-averse, and my deployment ex-perience has definitely made me more open to exploring new areas and get-ting out of my comfort zone.”

Contrary to the caricature of a mil-itary officer showing no mercy for low-er-ranking personnel, Cleary recalled the USMC motto of ‘officers eat last,’ which dictates that the most junior en-listed Marines eat first, followed by the officers and, finally, commanding offi-cers.

VETERANS: Military Experience Has Advantages In Asset ManagementContinued From Previous Page

Emerging Manager Monthly, November 2017 4

1st Lieutenant,U.S. Army Reserve

CEO,Hanseatic

Russell Sanderson was a supply officer and 1st lieutenant with the 469th Quartermaster Group in the United States Army Reserve. He is now ceo of Hanseatic Management Services.

Captain, U.S. Marine Corps

CEOAlpha Architect

Wes Gray was a captain and ground intelli-gence officer in Iraq for the United States Marine Corps, where he trained Iraqi police and became fluent in Arabic. He founded Al-pha Architect in 2010 and is ceo of the firm.

Captain, U.S. Army Reserve

Portfolio Manager,Eastern Shore

Sarah Westwood was a captain in the United States Army Reserve, deployed to Iraq with the 323rd Military Intelligence Battalion. She is now a partner and co-portfolio manager of the Small Cap Equity and Select Equity strat-egies at Eastern Shore Capital Management.

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While it’s the norm for asset man-agement firms to say they put their cli-ents first, or that they care about their employees, from a military perspective “you live and die by that motto,” Cleary said.

“That is culturally how we operate and reinforces to people that with great power comes great responsibility—you’re a servant leader to your troops, not the other way around,” he said.

Indeed, safeguarding clients is much like safeguarding soldiers; it’s a 24/7 re-sponsibility, said Sroka, of NovaPoint Capital.

Unlike investment managers who get into trouble when they deviate from strategies or take on too much risk, “mil-itary veterans are natural risk managers,” he said.

“You’re tasked with accomplishing a mission and at the same time you want to do it while taking the least risk possible,” Sroka explained, noting that these expe-riences and innate tendencies give many veterans the discipline to be successful, whether the market is cooperating or not.

As a supply officer, Sanderson noted that he was in charge of overseeing the budget for his battalion. While this is im-perative for success in any business en-deavor, the military experience gave him a whole new perspective.

“If I didn’t watch the budget, we’d run out of food and bullets and we couldn’t do our mission,” he said. “We are trained to handle things when they’re out of bal-ance, so we need to be flexible but also keep a level head.”

Similarly, several other stories vet-erans shared regarding their time in the service quite literally described life and death situations.

“Having a down month is nothing

compared to stepping on an IED or not eating, or being really cold or sleep-de-prived,” said Andrew Watt, principal and founder of oil and gas investment man-ager Atrox Capital Management and a former officer in the Marines. “However pissed off or angry I am now, it’s all child’s play compared to what it used to be.”

Another advantage that is honed during service is a sense of drive, Mc-Gavic added. Since the military is all-vol-unteer, those that enlist have chosen to enter the largest meritocracy that exists in the U.S., he said.

“Vets also chose the military despite bad food, being uncomfortable, enduring

long deployments and needing to solve a multitude of problems which of course occur during challenging times,” he said. “To use a commonly used adjective, that takes grit.”

Looking To The Future While veterans may feel that they are being overlooked, there are institutional investors that are beginning to pay more attention to veterans and veteran-owned firms and who are looking to create op-portunities with them.

In one example, Les Bond, ceo of emerging manager-of-managers Attucks Asset Management, noted that his firm is in the preliminary stages of creating a manager-of-managers vehicle focused on veteran-owned firms.

Bond said that the firm has been thinking of creating the vehicle for some

time after seeing interest in the space, especially among the pension funds in New York.

It’s possible that more programs such as this could give an incentive to veterans who are in the industry and thinking of starting their own firm.

Gonzalez from FIS Group stressed that, while part of the problem is that the market isn’t going out of its way to find veteran-owned firms, veterans and veteran-owned firms will also need to do their part to make themselves more vis-ible.

The list of qualities that former mil-itary professionals possess are vast, and

it’s imperative that they highlight their strengths.

“They’re very good with the business part—they tend to be run more efficient-ly from a financial standpoint,” Gonzalez said, adding: “They do tend to hire people that they know, so they’re a good incu-bator for future asset managers who are veterans.”

However, most emerging managers are not marketers themselves, so they don’t realize they should emphasize pub-licly that they are a veteran-owned firm, Gonzales said.

“What we can do from our end is to encourage them to make sure that they develop products that are needed by the market, have the right infrastructure from an institutional standpoint, and then also learn how to back themselves,” Gonzalez said.

VETERANS: Investors Begin To Seek Opportunities With VeteransContinued From Previous Page

Emerging Manager Monthly, November 2017 5

Having a down month is nothing compared to stepping on an IED or not eating, or being really cold or sleep-deprived.

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