Delaware does it different. Philadelphia-based Delaware Investments (go figure), a member of Macquarie Group, bucks the traditional fund family model by lifting out valuable teams from other shops, and then letting them operate with a great deal of autonomy. In other words, they stay out of the way and let the teams do what made them great in the first place.
That isn’t to say they’re completely independent. The firm just wants to ensure they aren’t distracted by the other parts of running a mutual fund business (overhead, human resources, distribution), and can concentrate on finding alpha and generating great returns. J. Scott Coleman (left), CFA, Delaware’s executive vice president and head of distribution and marketing, sat with AdvisorOne for a discussion about the unique business model, and how it’s fueling their phenomenal growth.
How does the structure you employ benefit the managers and, ultimately, the shareholders?
If you go back into the late-1990s and early-2000s, Delaware was primarily known as a value and fixed income shop. It was [President Patrick Coyne’s] decision to diversify the equity offerings to develop a structure to incentivize portfolio managers to come to the firm. As a result, we lifted out a number of teams over 2004, 2005 and 2006. There are a number of benefits if you’re a portfolio manager on the Delaware platform. It really enables the portfolio manager and their team to focus almost solely on driving investment returns. They don’t have to concern themselves too much with the other aspects of running a business, such as the technology platform, human resources, legal, compliance, distribution and even down to bookkeeping. All of that is handled by Delaware. It really gives what I consider to be the best of both worlds; they run their own boutique and have their own research process.
What do you mean by “have their own research process?”
There’s not a common research platform that they draw upon, which is a very distinguishing element between us and some other firms. They spend 95% to 100% of their time developing ideas to add alpha to the client’s portfolios. It allows Delaware to focus the other aspects; gathering assets for the teams and insulating them from some of the nuances of running the business. That combination of giving them the autonomy and a very transparent compensation plan, as well as having the resources of a very large firm to draw upon, portfolios managers find that to be very attractive. Another common thread among all the teams is that we are firm believers in active management; we’re firm believers in building a portfolio from the bottom up and we’re firm believers in superior investment research. Those are common elements we look for when looking to bring on investment teams. Pat looks for terrific investors and investors that really take a lot of pride in developing their own ideas and their own research and running an active portfolio.
When you’re talking about some of the resources of a large firm, what specifically are you talking about?
Let’s take distribution, for instance; we have 180 people on our distribution team, and it provides access, not only the retail side of the market, but the institutional side of the market. So if you’re a small boutique equity team you plug into the Delaware platform and you’ll have opportunities with large defined benefit plans, with advisory opportunities and with offshore opportunities through the use of this platform. And we have relationships with key broker-dealers, so it’s an opportunity for them to immediately plug into a distribution network that’s running virtually across all the major distribution channels that are out there.
What about travel? Are the managers getting out there and kicking the tires and looking under the hood?
It depends on the individual managers. We have some teams that travel a lot. And it’s because they can combine it with some distribution opportunities. They’ll go out and visit individual companies. We have some other teams that take a different approach to that. They have a network of analysts and they have a number of databases that they can draw upon. They conduct a lot of individual research over the Internet or via the telephone. So it varies by team as to how they conduct their own research.
Do you have any concrete numbers that really point to the success of the “lift-out” strategy you mentioned; in terms of asset flows, performance, anything like that?
I can tell you right now that we’re at an all-time high in terms of assets under management and revenue. And in 2009, right after the financial crisis, we were managing approximately $116 billion. Today, we’re up to approximately $182 billion.
Are there other families that manage this way, or are you guys really the only ones out there doing it? By that I mean the autonomy aspect.
There are some other firms out there that employ a multi-boutique structure. There’s some that do it a little bit differently, where they allow each boutique to entertain their own brand. I think each firm handles the distribution a little bit differently. Some firms might have a common retail distribution and other firms might have distribution housed within each boutique. We have a common institutional and retail distribution platform, so again each boutique doesn’t have to bear the burden of distribution; it sits on the platform.