Chief investment officers who trained at Chrysler: Bob Watson of Chrysler, Doug Brown of Exelon, Mark Schmid recently retired from University of Chicago and Rob Manilla recently retired from Kresge.
There are two chief investment officers who practically grew up together at Chrysler. They spent their 20s in the trenches learning all they could about the markets. They suffered through the Great Financial Crisis. Went through mergers and un-mergers with Daimler. As the economy seemed to collapse around them, they survived hedge fund takeovers, and had to prove their mettle as investors on the internal team. Then they went on to leadership within and outside of the company.
Through it all, Doug Brown was Bob Watson’s mentor, and provided
him with both friendship and grit, even when it seemed their backs were against
the wall. Since this series is about the many people Brown mentored into CIO
roles, it was important to interview Watson, his heir apparent, whom Brown groomed
to take over his own role as CIO of Chrysler once Brown went on to become
Exelon’s CIO.
Earning their Stripes
The story starts in the mid-80s, when Brown started at Chrysler Motors
in 1983, then shifted to Chrysler Financial, the captive finance company of
Chrysler Motors, where he hired Watson for an asset backed
securitization role. There, they packaged the top wholesale and retail
receivables and sold them to investors in the bond market.
“I loved working for him, it was just a great environment because
he kind of had my back and trusted me and brought me along and taught me a
lot,” reflected Watson.
Chrysler has become known, in a sense, as an incubator for some of
the smartest in the industry, including Brown, Mark Schmid (who just retired
from the CIO role at the University of Chicago) and Bob Watson, Rob Manilla
(retired from the CIO role at Kresge Foundation) and Jay Laramie (CIO of PepsiCo)
among others. And there was much to be learned within the company because it
offered a large amount of exposure to different segments of the markets,
especially through the 1980s and 1990s when the CIOs were forging their early
careers. They also developed their careers during times of great volatility,
and learned to navigate some of the most turbid markets.
Brown and Watson went on the unsecured debt side of the company
and Watson also did interest rate and currency derivatives for Brown. “It
allowed me to really understand capital markets and, and deal with investors,”
said Watson. There they learned to ‘sell
the story’ of Chrysler, as they sold the bonds of the corporation directly to
investors such as PIMCO and Western Asset Management and secured the capital to
run the car business. It gave them a strong understanding of derivatives in the
bond market. From there, Brown moved to the pension side, and Watson stayed in
the capital markets a few more years.
Mentoring through Volatility
Yet it wasn’t long before Brown asked
if Watson would be interested in joining him on the pension side.
“Honestly, at that point, working for
Doug was such a draw that it almost didn't matter what the job was. You knew
knew the type of environment you were going to be in, and he was going to
include you in decisions and bring you along and teach you. So I rotated to
work for Doug on the pension side, and was able to keep layering on my
expertise.”
There, Brown taught Watson about
pension liabilities as well as risk management. He also placed him on the
investment committee, which was a huge boon for Watson. Not only did it expose
him to senior executives, it allowed him to be known as a subject matter expert
in certain areas, and to listen to what senior management considered to be important
on the pension side.
But Chrysler is in a volatile industry
and was the smallest of the domestic automakers.
It merged with Daimler. And then
demerged. It went through a bankruptcy, and a near bankruptcy.
“And one of the things I'll tell you
is that when you go through those kinds of fires with somebody, you forge deep
and lasting relationships,” said Watson.
When the company was bought by the
hedge fund Cerberus Capital Management, it later filed for bankruptcy in 2009. For
a time, the company’s manufacturing plants were shut down indefinitely. And,
being owned by a hedge fund staffed with practiced investors meant that Brown,
Watson and the internal investment team had to prove their mettle as the hedge fund
combed through the company looking for redundancies and areas of improvement.
“It required us to continue to prove
ourselves to new management teams, new executive teams. And, we had to be on
our toes, and we had to be able to sell our expertise and prove that our
returns and our alpha that we were generating was good, and that we had a very
knowledgeable and deep team and that they should go look for problems elsewhere
in the company.”
They kept track of where their
performance was in their peer groups, and the fact that they continually beat
their benchmarks.
“We had to work harder and smarter
than other people to survive. And Doug had a career of just taking different
positions and learning and growing and being mentored himself by some very
talented people,” said Watson.
But how did the pension
team at Chrysler continually beat their benchmarks despite all of their
challenges?
Brown already had a great reputation
as a manager who allowed you to grow and supported your career growth with
senior management. He often had his pick from the company’s Treasury department
of 75 people, and tried to choose the best talent for his 13 person team. Those
he brought into the company were outstanding with great reputations.
Part of his successful team strategy,
however, was that once he hired you, he allowed you to build your base of
expertise by layering onto your knowledge. And he did most of it through
rotations, without spending a dime.
If you were good at equities, you
weren’t left in equities for the remainder of your career.
He would allow team members to rotate
to different posts within the portfolio, learning how each asset class and allocation
was handled.
Reflected Watson, “And that is
a big component. A lot of people that I've dealt with in the asset management
industry may be asset managers for their entire life, or may be on the bond
side for their entire career. That wasn't Doug's philosophy, it was, ‘Yes, you
should understand bonds, but you should also understand equities, you should
also understand alternatives. And derivatives. You should build your knowledge
base through strategic rotations.’ And it helps develop the whole team.”
In this way, the investment team
became a tightly-bound incubator for its own people.
“You're dispersing knowledge down from
Doug, to his senior managers, to his analyst, and you're helping everybody
become more experienced and grow in their knowledge. And I think that was a
fundamental part of what made him and his team successful. He was willing to
suffer the learning curve, if you will, and when you came into a new asset
class or a new area, he knew you were smart and had the skills, but he trusted
you and brought you along and helped develop you so that you're just a stronger
employee,” said Watson.
Brown would never completely shuffle
all people to new positions at once; there would always be a mentoring person
to teach the other what s/he needed to know. And in time, each person could
rotate, cut their teeth in a new asset class or investment area, and teach
another.
It answered a common problem for a
smart team that was hungry for knowledge. They didn’t have to leave the team to
grow. Because often where you lose institutional knowledge and where it can be
most difficult is when people rotate out of the group they are in and no one
has been backfilled or trained to fill the position, and a large hole is left
behind.
“But if you rotate somebody within the
Asset Management Group, for instance, they're still there, and yes, they may be
handling a different asset class or have different responsibilities. But
they're still part of the Investment Committee, they're still weighing in on
their old asset class, they haven't gone anywhere with that institutional
knowledge. And they're looking over the person that replaced them and guiding
them to so it's not just Doug mentoring me, it's me mentoring, the person that
replaced me. It’s kind of just: let's all get better by sharing our knowledge
and growing, and being the best asset management team that we can,” explained
Watson.
Another interesting thing about Brown
was that he was able to plan ahead about rotations and strategic needs for the
organization. “And he knew enough that he could help guide and fill in gaps as
needed,” added Watson.
And when giving his investment team
members the opportunity to be in front of senior executives, he prepped them
beforehand and, during the meeting, made sure to back them up in a way that put
both the investor and executive at ease.
If a presentation was going off course, or one of his team was getting
pushback from a senior executive, Brown, who was a natural at facilitating
committee discussions, would be there to interject and change the momentum of
the conversation.
“Because you don't want to get into an
argument with a senior executive at an investment committee. That's going to be
a short term career move. And you want to be a subject matter expert in their
eyes. Doug didn't put you in positions where you were going to fail,” said
Watson.
On the whole, his leadership and solid
mentorship made for a very sharp team that was cognizant of each division’s investment
goals and challenges, and could navigate as a smooth unit of people. An added
plus: the team had forged tight professional friendships and had each other’s
backs.
And Brown also continued to lead. When it became clear in early 2007 that
Daimler was going to sell Chrysler to private equity or a hedge fund, even
though the buyer was not known at the time, he and the team began to derisk given
the pending dramatic change in the plan sponsor. This meant they derisked the
portfolio prior to the financial crisis, which, of course, put them on more
solid ground comparatively.
And when it came time for Brown to
leave for the CIO post at Exelon in 2009, Watson was ready to step into the
chief investment officer role, having gained an understanding of the bond
market, (the most complicated side of the portfolio), private equity, hedge
funds, real estate, as well as the pension’s liabilities. Brown still made
himself available to chat about issues with Watson when their paths would cross
at conferences, and Watson carried out his model and vision when he stepped
into the role.
“It was a huge loss when he left, and
big shoes to fill. I did everything I could to kind of build the team in the
spirit of what he had built. And it was successful for me as well. But if you ever
get a chance to work for him, you want to do it because you know it's going to
be a good experience,” said Watson.
Related stories:
Part 1: How Doug Brown of Exelon Mentors
Future CIOs (with Neil Roache)
Part 2: Angie Buk’s Rise from Part Time
Employee to CIO
By Christine Giordano
