If active managers are judged on their ability to outperform the crowd and find alpha while the rest of the herd looks elsewhere, unobvious parts of the market would be a good place to explore.
That's proving to be a good tactic for William Blair Investment Management, the $72.4 billion manager where Global Head Stephanie Braming and her team are finding opportunities — and client interest — in those “unobvious spaces that are adding value” right now, she told Pensions & Investments in an exclusive interview.
Take developed vs. emerging markets in terms of treading the untrodden path for regional allocations. All eyes right now are on developed markets' central bank moves and whether inflation’s new normal will remain above the traditional 2% target.
Frontier markets — countries that are too small or not liquid enough to be deemed an emerging market, such as Kazakhstan and Vietnam — are proving to be of interest with consultants, and one of the firm’s “top ideas,” she said.
“In some ways, it’s the unobvious space relative to, like, private credit. And it’s really personally intellectually interesting to me because it’s just so far out of my own investment experience,” Braming said.
The firm’s first emerging markets debt strategy came as a result of a team liftout from The Hague, Netherlands-based firm NN Investment Partners. The 11-member team, led by Marcelo Assalin, joined William Blair in January 2020.
William Blair managed $17.9 billion in emerging markets securities across all strategies as of June 30, with $13.4 billion run in dedicated emerging markets funds. Its Emerging Markets Debt Fund - Class I, for example, gained 13.41% in calendar-year 2023, according to the firm's website, vs. 11.09% for the J.P. Morgan EMBI Global Diversified index on a net-return basis.
And then there’s U.S. large-cap growth — another “unobvious” place to look, but one that’s proving to be particularly successful in terms of catching the attention of the firm’s non-U.S. clients right now. The William Blair Large Cap Growth Fund has grown to $16.3 billion as of June 30 — up from $1.3 billion in just five years. That includes two large wins in Europe of about $2 billion, although Braming declined to identify the asset owners involved.
Of course, some of that growth has come from markets providing “a nice tailwind,” Braming acknowledged, but the international allocations in particular are testament to the work done to add investment talent and expand business outside the U.S. For example, the firm recently appointed Ian Smith and Paul Birchenough, formerly of Newton Investment Management, as co-portfolio managers on the William Blair emerging markets leaders strategy, based in London.
Investment acumen
Along with expansion across the globe has been a focus on “growing our investment acumen,” Braming said, which comes in the shape of launching new strategies among existing teams, and also in team liftouts.
When considering adding a team, it has to be one “that would complement the platform — active fundamental investment teams we already have — but also improve something with our clients,” she added.
“We continually have teams come talk to us — we’re always looking for talented colleagues to add over time, but we’re really excited and happy with the two teams that we’ve brought on so far,” she said.
The firm has launched 13 new strategies in the last seven years across existing teams and those brought into the firm through various deals, such as NN IP and the 2021 deal to acquire U.S. value equities manager Investment Counselors of Maryland from BrightSphere Investment Group. That deal added an eight-person investment team and $3.2 billion in assets.
Adding the emerging markets debt team was a “great addition to our investment acumen,” not only from a results point of view but also for balance — the deal “tied in nicely with our global growth aspirations,” Braming said. And adding the emerging markets view to the developed markets strategies “improves our peripheral vision.”
Learning from one another
A huge focus for Braming since becoming global head in 2017 is culture, which she attributes in part to the manager’s private partnership structure. That culture allows for freedom of thought, autonomy among executives and the motivation to find new ideas and opportunities, she said.
One aspect of the firm’s culture that she's worked to cultivate is a willingness and emphasis on learning from one another.
Shared learning extends to clients, with different teams presenting to unrelated clients — that is, those not necessarily invested in their own strategies — on current affairs and topics of the day.
“From a strategic perspective, our goals are to continue to grow, be better partners to our clients, both by delivering strong results … then also by providing differentiated intellectual capital to them to help them make better decisions on things that we have nothing to do with,” Braming said.
Around the Brexit vote, Simon Fennell, a portfolio manager on several international strategies, took the time to educate clients on the implications of the U.K.’s exit from the European Union, while Vivian Lin Thurston, a portfolio manager on several emerging markets growth and China growth strategies, has spent time speaking to clients about the history of China to give additional context and help clients understand the bigger picture of the market’s impact and standing in the world.
“It is just a way for us to be a better partner with our clients and have a significant impact. (It) allows us to have long-term relationships, weather short-term performance hiccups — but it’s always used to broaden relationships,” she said.
It’s also evident that Braming walks the walk, in particular when highlighting conversations she hears among staffers and Yvette Babb, an emerging markets debt portfolio manager. Braming said listening to Babb talking about emerging markets debt, particularly when she's sharing insights on sovereign debt, is “intellectual candy.”
Braming also made sure she was at the center of the investment teams when she became global head of the firm, moving desks and also spending time walking the three floors of the Chicago office.
She takes pride in William Blair IM’s client-centric approach. Taking lessons learned from her time as a portfolio manager on the firm’s growth teams when she “met with the clients,” WBIM now humanizes investing by putting “spotlights” on the clients. Representatives will come into the office and present to the firm, giving the investment team and others the chance to link what they’re investing in with who they’re investing for. They talk about where the William Blair strategies fit into their portfolios and then have a “fireside chat,” she said.
“It’s a way to align people from a purpose perspective. The joy of investing is great, but it’s always bringing it back to the people you serve. And then when you win … you celebrate,” Braming said.
She’s also proud of what she terms “boomerang clients” — those that may have terminated mandates with the firm but have then returned for new allocations — that the average client tenure is over a decade, and that 36% of clients invest in more than one strategy with the firm.
And while interest and performance from certain investment strategies may wax and wane, retaining the culture within a firm is key to keeping teams motivated. “Part of it just this motivation of delivering excellence for clients in finding new ideas — just the actual act of investing,” Braming said.
“I do know from personal experience that when you hit air pockets, you need that philosophy, that bedrock, that process, but then also the flexibility to understand, ‘OK, I’ve made a mistake here and I need to move on. Because we attract individuals that just love investing, that provides a lot of motivation. Secondly, we have a very strong, collaborative-type of approach — and so our distribution teams and our investment teams work really closely together to say, how are we going to grow? How are we going to broaden our client footprint?” Braming said.
Motivation also comes from sharing wins and celebrating in a way teams weren’t doing before the COVID-19 pandemic.
Historically, client and other wins would be related over email, but the pandemic led everyone to connect virtually online — something Braming has kept up at the firm. So now, when there’s a big win to share, everyone involved from the product specialists to the portfolio managers are highlighted on a Teams call. "It’s a great way for people to know what’s happening — we really rally around that… It gives people transparency and insight, gives people an idea of how everyone works together.”
For those client wins, “it takes a village,” Braming mused. “Sometimes it’s a game of millimeters. (Sometimes) it’s actually how you responded to this one question in the RFP that was the deciding factor,” she added.
