Laura Dagans eight-year stay on the Caribbean island of St. Barts proved a useful icebreaker at her 1987 interview with a man just back from vacation there: John K. Dwight, who had founded Burlington, Vt.-based Dwight Asset Management as a stable value specialist four years earlier. The former elementary school teacher became Dwights eighth employee, at a time when the young firm was managing $2 billion in assets. She became president and chief executive officer in 2004, and succeeded Mr. Dwight as chairman at the end of 2005.
Despite successful efforts over the years to broaden Dwights fixed-income capabilities, stable value has re-emerged as the firms dominant asset gatherer. This past year the firm had $7 billion in net wins following long-time industry leader Invesco Inc.s loss of a veteran stable value team. That windfall helped Dwight displace Invesco as king of the stable value hill. While some naysayers dismiss stable value as the low-fee equivalent of an Edsel, Ms. Dagan sees continued demand for the strategy from baby boomers. She also sees opportunities for Dwight to apply the skills developed in stable value to growth markets, such as liability-driven investing and insurance company outsourcing. Ms. Dagan is positioning Dwight, now with more than $68 billion in assets, for continued fast-paced growth: naming David Thompson, the executive who built up the firms insurance business, as president at the start of this year; hiring industry veteran Peter Vutz in December to build a non-U.S. investment capability, and putting the finishing touches on a new equity plan with parent company Old Mutual Asset Management.
What makes a great stable value provider? You have to pay attention to the projected liability stream. You want to be able to manage that liquidity, and have appropriate investment vehicles, so you can provide liquidity without touching the investments. (That requires) the customization of portfolios. Youre building it (the portfolio) around a particular pool of participants, a particular plan. Well look at all the information we can get the fund itself, the demographics of the participants, in determining what that asset allocation should look like, what that duration target should be. There are more moving parts than there would be managing a core or a core plus portfolio.
That sounds somewhat akin to liability-driven investing. Exactly. From our roots in stable value, we started managing assets for life and annuity companies because annuities youve got that longer payout stream that looks similar to stable value was a natural fit for us. Managing against book value, paying attention to yield, customizing portfolios, were all part of our DNA. We were immediately successful, and have been building that business. So I see this as a continuum, where its stable value, insurance and LDI. A pension plan is almost like a little annuity company, so managing insurance assets and having that expertise puts us in a very good position to understand all of the moving parts and the drivers of LDI. Thats an exciting area. Were starting to see more activity and more urgency to take some steps in that direction.
Is Dwight well-positioned for where the market is moving? We have the baby boomers moving into retirement, and concern about having income-producing investments. To the extent the participant stays in the plan, stable value is a great option. You can almost create a cheap annuity a payment stream thats quite predictable. Thats a strategy that hasnt really hit yet, but can be promoted. You can combine that with some other features, potentially, to make that something even more interesting.
You can, or you would have to team up with somebody? We would probably have to team up with someone. Thats an area of interest I have, to see how far we can take stable value into what I call tomorrows market, addressing the retiree.
As individuals annuitize, and companies terminate their plans and buy annuities for plan participants, there are lots of opportunities for an institutional manager like Dwight to be under the hood, managing the assets. Thats been a big part of our insurance initiative. Then of course theres LDI, which is relatively new. Offering customized solutions for that market would be something very familiar to us working with the client, trying to address their issues, and pulling the pieces together in a way that makes sense. So Im excited about all of those areas.
These are areas for the future, or youre already there? Theyre happening. Were already managing insurance assets of $20 billion. Its a thriving business, and theres huge growth ahead. That brings other competitors to the market, but if youre a total-return fixed-income shop, managing insurance assets, managing stable value assets is more complex and its lower fee. Youve got to be good at it, very efficient. Weve built our firm off of stable value, which is the lowest fee, and weve done that very, very efficiently. So were well-positioned to migrate. Were moving up into insurance, whereas many firms would be moving back.
And LDI? With LDI, we have components to it. Were talking with clients and consultants about it. Well be making an even larger push. A number of firms are doing it differently, doing baskets, duration buckets of funds. For us, the better way to do it is a customized approach. Its a slower process more of a marriage, working closely together in a partnership. Thats the way the insurance market works as well, youre working hand in glove. Thats the kind of thing we like, where were helping them solve problems and meet challenges. That gets our creative juices flowing.
Some enhanced cash strategies have recently run into problems. Does Dwight have an enhanced cash offering? We just started an enhanced cash fund, but were very plain vanilla. No CDOs or SIVs, stuff thats been repackaged and then repackaged again, so its hard to know what you have. Thats the kind of stuff we have not put into our portfolios.
More investors are looking abroad to boost returns. Can Dwight play in those markets? We just brought in Peter Vutz (from BNY Mellon Asset Management), both for the expertise he has in managing (non-U.S.) portfolios and his experience in building out a business. Initially, hell be adding incremental value to our core-plus fund. Further out, Dwight will look to have a nice track record in non-dollar products, as well as being able to manage for non-U.S. clients.
You began the year by giving away one of your titles. Ive moved David Thompson into the president role. He had been tasked with building out Dwights insurance capabilities, focusing on the property casualty market during the past year. (His success there) resulted in this president role. Im pleased to have him to work side by side with me.
Is Dwights Burlington location a hurdle in getting the investment talent you want? Its been a help! We have hired some exceptional people because they wanted to work at Dwight. Everyone here seems to have an outdoor lifestyle. We have a ski day in winter and the Dwight hike in the fall. People here put in long hours, like people anywhere in the industry, but every now and then we want to remind ourselves why were in Vermont.