Investing in Diverse and Emerging Managers

Hi Kelly, thanks for being with me today.
Kelly Chesney: Thanks for having me, Elana.

EMS: Tell us a little about your firm and how you got to where you are today.
KC: Sure. My partner, Connie Teska, and I have worked together since the mid-1990s. Our focus over that time has always been investing and capital markets, originally as part of the group that invested proprietary capital in a variety of alternative investments on behalf of what was then for Chicago.

And then in 1997, Connie and I launched the bank's first foray into investing with outside managers, hedge funds. Fast-forward a merger or two, and we launched a multi-strategy product for bank clients. But after the merger into JP Morgan, we found ourselves redundant with respect to investing and managing portfolios directly. We were offered other jobs, but rather than move away from directly running portfolios, we left JP Morgan and launched Pluscios in 2006. And Pluscios combines the institutional processes of a large bank and the ability to assist clients in a more customized fashion of a boutique investment advisory firms.

Now, we got where we are via a long and winding road that allowed us to each discover our strengths and our passion, and Pluscios is the product of that journey. So for example, Connie was a journalism major in college. That investigative reporting skill comes in handy when evaluating managers. For me, an example is my time as a bankruptcy lawyer, which allows for a deeper dive when investing in distressed and event driven opportunities. And with respect to being entrepreneurs, Connie comes by it naturally as her dad was a serial entrepreneur. Me, not so much, but my strategy consultants days, being on the road and spending time in client offices, made me a great level one tech support person and a wiz at the red button from Staples.
EMS: Kelly, diversity inclusion has recently been top of mind for the investment industry, but Pluscios has been a pioneer in the space, investing in diverse and emerging managers since inception. I would love to hear your thoughts and why you have always been a believer in this space.
KC: It's always been important to us. We are women who invest, which wasn't that prominent when we started in the business. And when we started out investing on this investing path with First Chicago, we were judged on performance. It didn't matter your gender. But we realized early on in launching Pluscios, that it was quite rare to have a woman-owned firm.

In addition, our anecdotal evidence had shown us early on that small, emerging and diverse managers actually added value to a portfolio and we've always sought them out and used them. It was later on that the data and studies showed that, in fact, women approach investing differently. As you may remember, after 2008, there was a spate of articles and discussions posing the question, if women ran all the funds, would the devastation and the subprime crash have been much less? Unfortunately at that time, the whole comment of women take risks differently was really translated as women don't take risks. And as we all know, if you don't take risks, you don't make money.

Meredith Jones wrote a book, Women of the Street: Why Female Money Managers Generate Higher Returns and How You Can Too. This was one of the first that really delved into, with respect to women, the biological differences, as well as the fact that taking risks differently is actually more code for women aren't cowboys. In full disclosure, Connie and I know Meredith well. We helped inspire her to write her book and Pluscios is chapter 12.

In exploring the theme further, we realized that some investors put smaller and diverse managers in a separate bucket that integrated into their main portfolio. So we identified and created a multi-strategy portfolio of diverse group of managers, both women and diversity firms, who seemed to bring a different perspective to their investing. And we've been very pleased with the outcome. In addition to taking a risk differently, diverse managers are often smaller and are able to find investment opportunities that are off the beaten path or are just too small for really large firms to focus on.
EMS:Kelly, as a follow-up, what is Pluscios doing to address the lack of diversity in the industry and champion more women at a young age to go into investing?
KC: Well, we recently put out a thought leadership piece on this topic entitled Looking for Change, which can be found on our website. It points out what we believe is broken in many diversity programs and that just hiring a manager isn't enough, the must be holistic. We need to build a pipeline of diverse managers through early education, mentoring. And we need to encourage all of the managers out there to increase the number of diverse folks among their junior analysts. We believe that having an active voice in the market is critical to not only providing an example, but also reminding the marketplace of the opportunities around us all to diversify.

In addition, for ourselves, Pluscios has hired a series of professionals and interns over the years that are diverse, not because of this factor, but because we believe their diversity helps to build a more resilient and engaging firm. Our senior leadership team is also involved in a variety of community-based initiatives to support young girls and women, encouraging them towards careers in finance, which has been historically underrepresented.

There are lots of organizations and programs out there from Posse Foundation, Toigo, Girls Who Invest and Rock the Street to name a few. There's so many more out there. One I just learned about that is focused more broadly on helping girls is PEO International, so there's a lot of resources.
EMS: And Kelly, more broadly, what could the industry do as a whole to address this lack of diversity?
KC: This is a great question. Elana. The answer is not checking a box, making a single token higher and moving on. The answer is a cultural shift. One that embraces the opportunity inherent in building a more diverse team. In addition, as we discussed before, girls and minorities need to be encouraged at a young age to learn about finance and to see it as a viable and exciting career path and which they can prosper and grow.
EMS:Kelly, we covered a lot of ground today so I wanted to see what your future plans are for Pluscios.
KC: We are truly excited about the women in diversity program we've developed and the many, many managers we have identified, some of whom we have invested in over the years. We're laser-focused on seeing this movement grow and finding strategic partners through endowments, foundations and corporations who want to make a more immediate impact by investing directly with women and diverse managers.
EMS:And Kelly, are there any final or concluding thoughts he would like to share with us today?
KC: No. We have seen excitement for diversity before, and it isn't that produced the results we would all hope for. We're certainly cautiously optimistic at this time that it might be different, but it'll take all of us doing more than talking about improving diversity. It will require that we do the hard work together, of finding, hiring, mentoring, engaging, and growing our diversity ranks, and allocating our capital towards diversity and inclusion.
EMS: Kelly, thanks for sharing your perspective with our listeners.
KC:Thanks for having me, Elana.
EMS: And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast, where we get down to business.