Mining Manager Bulls&!t

From aiCIO Magazine's February Issue: A public pension trustee uses his past interrogation experience to weed out potentially suspect asset managers.

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One of the first things Don Neely, a 66-year-old trustee from the $6.3 billion San Bernardino County Employees Retirement Association (SBCERA), will do when he meets you is ask about your favorite animal. A golden retriever indicates that you enjoy the familiar—your comfort zone. An elephant indicates that you’re honest, trustworthy, loyal, and traditional in many ways. Similarly, Neely uses this tactic to evaluate asset managers on both personal and professional levels. He used it with me when I met him for the first time at our Industry Innovation Awards dinner in New York City—aiming to see if his fund would be the winner in the Public Pension Plan (Below $15 Billion) category.

They did not win, and he told me afterward that he wasn’t surprised by the loss. I had told him the answer despite my attempts at stonewalling; My eyes gave it away, he said.

Whether or not you approve of Neely’s intense, out-of-the-ordinary tactic to evaluate people, his success at using it to profile asset managers highlights an important and perhaps sometimes overlooked content of character that is essential among individuals in the asset management space—those who have a fiduciary duty to safeguard large pools of cash for beneficiaries. While some may say Neely’s line of questions is often tangential and kooky, he highlights an essential truth: Performance numbers alone are far from being the only metrics needed to evaluate the overall quality of an asset manager. Behavioral and emotional sensitivity can’t be overlooked. (Perhaps this kind of emotional intelligence assessment would have saved many people from losing their life’s savings in Bernie Madoff’s Ponzi scheme.)

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With a degree in psychology, Neely began his career at the University of California, Los Angeles (UCLA) in the behavioral health department within the neuroscience institute. There he worked with a wide range of criminals, from sex offenders to serial killers. After subsequently working with the state of California’s criminal forensic department for more than 12 years, he moved to Europe for about a decade, working with various police agencies and instructing them on how to read a crime scene. As one of nine trustees on the board of SBCERA, Neely uses that same approach — evaluating even the offices of asset managers for SBCERA as he would possible crime scenes. “I use the same skills I used during my criminal forensic work when I go out on due diligence trips as a trustee for SBCERA. I pay attention to eye contact,” Neely asserts. “If they’re often talking in one direction, they’re usually coming up with a story as they go along,” he notes.

On a typical day, Neely will meet with a handful of asset managers, paying particular attention to transparency at the company and movers of key personnel. “After sitting down for a few minutes following the meet-and-greets, I excuse myself, saying that I need to go use the restroom,” Neely says. “I walk through the office to see how many cubicles they have and whether they’re empty or full. I observe. If I see a slightly messy desk, I assume they’re hardworking. If I see a perfectly clean desk, I get a little concerned. Extremely organized people are sometimes too lazy.”

As a trustee, Neely is responsible for meeting with about 80 money managers every two years. He says he often catches managers lying to him when he questions them about their funds’ performance. “I ask the same question three different ways. When the answer is different each time, or when they don’t give you the responses and have to think about it for a while, or when there’s a long pause after a simple question, that doesn’t help to convince me that everything is okay.”

Neely firmly believes that the economic crisis brought to light the danger of not reading between the lines, taking lofty, highfalutin facts and figures as a given. It exposed lapses in judgment, critical thinking, investigative questioning, and scrutinizing, leading many investors astray from focusing on one very basic question: Is this someone I can trust? The financial crisis exposed the growing propensity among the investing universe to ignore intuition and good ol’ common sense.

“My advice: It’s all tied together—body language, verbal messages, non-verbal communication,” the trustee says. “Asset managers are there for business and I accept that; I’m there to learn about their business. I appreciate when people take me through their facility because it tells me about the people. I look for photographs on the walls. It tells me they trust in the company and feel comfortable in the environment. That often translates to success.”

Neely’s ultimate objective, of course, isn’t to pry inside the minds of unsuspecting asset managers—or of journalists ­holding secrets about whether he will win an award. It’s to ensure that his pension’s capital will be properly invested and that members will have adequate assets when retirement is due. Of course, that doesn’t mean he can’t have any fun with his unique—and under-recognized—skills.