Paul Tashima: Investing is Never Easy

This article was originally published on this site

Kate Copeland

PAUL TASHIMA STARTED HIS CAREER as a clothing wholesaler, but quickly found his calling in finance. As managing director and portfolio manager with UBS’s Corporate Cash Management Group, in Chicago, he specializes in creating allocations of short-term fixed-income investments for institutional and ultra-high-net-worth clients.

The Southern California native is Barron’s 10th-ranked advisor nationwide and belongs to our Financial Advisors Hall of Fame – a group comprising those who have appeared in 10 or more of our annual Top 100 rankings. Tashima and company have seen their business growing steadily; the 20-person team has added $3 billion of assets over the past five years, for a tidy sum of $27 billion. Sitting down with Barron’s Advisor, Tashima talks cracking the institutional market, growing the team, and why there’s no such thing as an easy environment for managing money.

Q: After earning an economics degree from UCLA and before heading to the University of Chicago for your MBA in finance, you had a brief career outside of wealth management. What was it?

A: After graduating [from UCLA], I took a year or so off working. I had my own business selling clothing wholesale to retail stores. The saying goes: Necessity is the mother of invention. The genesis of the clothing company was the need for clothing and income to help pay for college.

And then I was fascinated by the financial markets and so decided to go back into business school.

Q: And today you work with institutional clients and very wealthy individuals. What was the key to landing those institutional clients starting back in the early 1990s?

A: Oftentimes we would just, consistent with compliance and regulatory requirements, pick up the phone and reach out as a courtesy call to let them know we existed. And through word of mouth, through the recognition from awards and accolades from organizations like [Barron’s], client references by being in the business, the reputation and the knowledge of our existence gets out, and by definition, people want to do business with you.

Q: What percentage of your assets are from institutional versus two-legged clients?

A: I’d say it’s probably 80/20 or 70/30 [institutional to individual]. Our roots were working with large pots of gold – corporations, foundations, hospitals, universities. Naturally these institutions and entities are filled with individuals, and as those individuals recognize what we are doing for them as an institution, inevitably you’ll get a phone call that says, “Hey by the way can you do that same thing for me as an individual?” So our fastest growing segment of our business is working with high-net-worth, family offices, individuals of that sort.

Q: And within that segment, do you serve as just an investing specialist, or do you provide planning as well?

A: I believe that planning is memorialized by way of an investment policy. It’s kind of like your proverbial outline to an essay. So establishing a plan, setting the parameters, establishing the borders [by] which one will expect you to manage money is paramount. That way it level sets, it communicates and it manages expectations perfectly. Then you overlay tax rate, liquidity needs, any type of event that is forthcoming, and then there’s the unknown.

Families have many multi-faceted needs, whether it be business related, family related, generational related, distributions or philanthropic causes that are very meaningful for them. So surrounding the broad parameters of those borders of a policy also we incorporate all the extra qualitative features or quantitative features that must be incorporated as part of that plan. Then once we have those variables at our disposal, then we deploy and allocate cash accordingly. So the answer is yes.

Q: As you have added more business from individuals and families, to what extent have you had to add experts to your team in planning and tax and other areas?

A: The good consequence of success is that you’re forced to continue to build your own infrastructure to accommodate the expanding needs of clients. It is very important to hire people that help with planning, but all of the other functions of the deliverable as well: execution, marketing, trading, operations. Four of our [20] team members joined in the last five years as we are expanding our business. We are constantly interviewing new hires as we continue to grow.

Q: I’m curious about the extent to which the institutional investing approach also fits individual and family clients. Does it have to be tweaked at all, or is it pretty much a version of the same service?

A: It’s very much the same service. Anybody who is successful, whether it be an enterprise, a corporation, a university, a hospital, a family, they’ve all worked very hard and successfully. And usually the consequence of that success is cash. They have no illusions about risk aversion and how conservatively that asset must be managed during the time that they have it, so that they can redeploy it back into what’s important to them.

Q: What is the minimum to get into one of your separately managed accounts?

A: Oh it varies. We try to be all-inclusive and take a long-term approach to things. If someone is an entrepreneur and just starting off in their career, they initially may only have $3 million to $5 million. So we’re going to invest the time and energy to educate and establish a program that, maybe through time as they become successful, it grows.

So we really don’t have minimums. But as I tell people, if you are going to go toward a separately managed solution rather than a one-size fits all bond fund or mutual fund approach, then generally you want to start at least in that $3- to $5-million range, where we can diversify adequately.

Q: What’s the biggest challenge in investing for fixed income these days?

A: The challenges that we have are balancing the uncertainty of economics and direction of interest rates, optimizing returns over those multiple cycles of time, and making sure that we remain very closely connected to clients as it relates to their liquidity needs. Because ensuring that they have liquidity over return is paramount in this marketplace. No one likes to be subject to the vagaries of the marketplace and have to sell investments prior to maturity if they ended up needing liquidity sooner than later.

Q: Are things especially tricky now?

A: There’s been very little time in my career in almost 30 years where I’ve ever sat back and said, “Oh, this is an easy climate in which to manage money.” That’s what makes it so intriguing and so intellectually stimulating. There’s never a point in my career where I felt I could be complacent.

Q: So what asset classes look good currently?

A: Right now we believe that the cycle of growth and success and profitability remains with those [issuers] that are most agile and most resilient to absorb the many changes in the marketplace. So as you look at the corporate debt markets we know that there’s been some uncertainty as to the quality of earnings, the leverage in the marketplace. When you see this type of uncertainty, you tend to see markets start to widen out in terms of spread.

We are seeing it specifically in the corporate debt markets; you’re seeing it in the lower quality sectors of the marketplace, especially with the higher leveraged companies. And this is when fundamental analysis of those companies becomes that much more important – to be able to identify household companies that temporarily have spread widening, that offer greater cash flow.

The same within the municipal markets. You look at various regions of the country that are doing rather well, and sometimes in those regions because we have national challenges or global challenges, some of those credits will sell off by virtue of association, and that presents opportunities.

So we believe as an asset class the municipal markets and the corporate debt markets present meaningful value and will continue to do over the many years ahead, especially since they do generally yield more than where U.S. Treasuries or U.S. agency debt is trading.

Q: Can you name a decision over your long career that you would like a do over on? If you could step into a time machine and do it differently?

A: As I look back, I wish I would have worked smarter, not harder. I wish I had surrounded myself with the right mentors sooner than later and I wish I’d embraced sooner the use of technology to improve worker productivity. I think that all those combined would have allowed me to be more productive early on. A very famous person said, “Don’t confuse activity with achievement,” and I think that holds true when we think about working harder versus smarter.

Q: Thanks, Paul.