After an 18-year stint at Pioneer Investments, Steve Graziano was ready for retirement and an easy transition into teaching. Then 2008 hit and, like so many of the best-laid retirement plans, things changed and Touchstone Advisors came calling.
“I actually got a call from a recruiter in August of 2008,” Graziano says. “I was sitting on my deck on Cape Cod looking at Martha’s Vineyard sipping a cocktail. That’s a tough sell. ‘Not a chance in hell,’ I said. But of course things change. Your mind-set changes when you’ve had enough golf and travel, and honestly, I was so bored out of my mind that when I got the call again, I was more favorably predisposed. I said, ‘Interesting. Let me look into this.’”
What he found was a company with a subadvised model that decided to take advantage of their strong cash positions and seized 11 new portfolios at the bottom of the market. Those portfolios formed the foundation for a rebirth to Touchstone Investments, which had “hovered” around $5 billion to $8 billion in assets for several years.
Since then he’s been on something of a buying spree, recently announcing the acquisition of 16 mutual funds from Fifth Third Asset Management, as well as selected assets from Old Mutual Asset Management’s U.S. mutual fund business. Once the Old Mutual deal is complete, total AUM will be $13 billion.
Investment Advisor spoke with Graziano about life after retirement, the argument for subadvising funds and his investment outlook.
What are the advantages of subadvising to other asset managers?
What’s unique about Touchstone versus most managers who run their own money is that we hire experts in their respective asset classes. We hire people who only specialize in those classes. A good example is our large-cap growth fund that is subadvised. They run close to $20 billion in large-cap growth in the very same style I hired them to run my fund. That’s all they do. Contrast that with Pioneer; when we ran a fund, we needed to hire a manager. They need to come and prove they work with the fund, and after three years or so, if they’ve proven their work, you have something to sell. That’s not what we have to offer. What we have to offer is a portal to money managers who specialize in running money for large institutions and endowments; money managers who pass the hurdle and screens of institutional consultants who are generally the gatekeepers.
So you’re managing the managers?
That’s exactly right. We have a team of three, soon to be four, people whose only job is to review the performance of our existing managers and to bring new managers into the fold.
What are you telling your clients about the next year? How are you positioning yourself given all that’s happening in Europe and elsewhere in the world?
You don’t position yourself in a year. It takes a long-term plan to get you in place. One of the advantages of our system is we can bring product to market relatively quickly. What we focused on in my first year here is setting the table with product to be sure that all of our managers and our value proposition held water. When you look at our lineup, if there is a fund that is underperforming, it is explainable because the markets had shifted away from their style, not because they had done a poor job. So we did do some housekeeping to replace several managers; we did close several funds. And we have added to our lineup to be sure that we had product that could address any market cycle that came our way.
So back to what you asked me originally: What are you doing to position our funds in the coming year? We are focused on premium yield. Dividend yield strategies are products right for the time. People are looking for income, and we’re talking about our high-yield strategies.