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.
Part 1: How Doug Brown of Exelon Mentors Future CIOs (with Neil Roache)
By Christine Giordano