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?