Seitz Partners. The Path to Leadership: Head of Institutional Distribution via Consultant Relations. The Path to Leadership an Overview

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1 The Path to Leadership: Head of Institutional Distribution via Consultant Relations January 2015 Table of Contents 1 Overview 1 Notable Hires and Promotions 2 Why Now? 2 Trend or Fad? 3 Expanding Opportunity for Women 3 Expanding a Firm s Consultant Relations Capabilities without Endangering its Sales Culture 4 Circumstances in which Hiring or Promoting a Consultant Relations Leader May Not Make Sense 5 Institutional Sales Experience A Necessity or a Nice-to- Have? 6 Determinants of Success 6 Conclusion 7 About the Author A growing number of leaders are being vetted and legitimately considered for the top institutional distribution role. The Path to Leadership an Overview In this three-part series explores the changing dynamics of the Head of Institutional Distribution role and the potential career paths, competencies and experience required to land the position. In this first part, we explore the path through the function. Notable Hires and Promotions Recent hires shine a light on the growing number of consultant relations leaders that are being vetted and legitimately considered for the top institutional distribution role. They include: Steve Paddon was hired as Head of Institutional at OFI Global in 2014 from his Head of Consultant Relations role at Investec. Maureen Beshar was named Head of Institutional Sales at Nuveen in late 2013 after joining ClearBridge Advisors in 2010 as Managing Director, Head of Institutional Sales. Before that, she spent six years at Lazard Asset Management, most recently as Managing Director and Head of Consultant Relations. Maureen Fitzgerald was hired by Pyramis Global Advisors in the summer of 2012 as Head of North American Institutional Distribution from her position as Head of the Institutional Client Group for North America at State Street Global Advisors, where she previously ran the team. Jill Lohrfink joined Allianz Global Investors in 2012 to lead the firm s institutional business from her role as Head of Global Consultant Relations at Goldman Sachs Asset Management. Susan Oh joined Janus Capital Group in 2011 to lead their U.S. institutional business following a twenty year career at JP Morgan, most recently as Global Consultant Strategy Sales Leader and Group Leader of the Americas Consultant Relations team. Bill Porter was promoted to Head of U.S. Institutional from his position as Director of Consultant Relations at Pioneer Investments in Dan McCormack was promoted to Global Head of Distribution in 2011 following positions as Director of Sales and Relationship Management and Head of Consultant Relations at The Boston Company Asset Management.

2 PAGE 2 THE PATH TO LEADERSHIP Why Now? For years, investment consultants have played an increasingly vital role in the manager search and selection process for institutional investors. While the numbers vary, industry experts contend that a significant and growing percentage (upwards of 80%) of institutional mandate hiring decisions are driven through investment consultants. As consultants expand their influence into the defined contribution manager selection process and move further down market into plans with fewer assets, asset managers have little choice but to emphasize and improve their coverage of the consultant channel. The role of the professional and the skills required to successfully execute the role have changed dramatically in the last ten years. The role of the professional and the skills required to successfully execute the role have changed dramatically in the last ten years. No longer seen as primarily reactive, the new breed of professionals are required to be tenacious, proactive marketers, especially as access to consultants becomes more limited. The balance of power between sales, and relationship management has been shifting, especially since the market downturn of 2008, with professionals gaining more influence, sometimes at the expense of their sales counterparts. This subtle shift in influence and the resulting reliance on consultant relationships has put leaders in the spotlight. Trend or Fad? The importance of investment consultants in the asset raising process does not promise to diminish any time soon in fact, just the opposite. Consultant involvement in manager selection continues to increase for a host of reasons, including, but not limited to: Increased complexity of investment strategies, especially alternatives Limited supply of investment talent available to institutional investors responsible for scrutinizing managers and their strategies Investors need for a second opinion and corresponding guidance Dramatic growth of consultant participation in defined contribution and sub-advisory manager hiring decisions Expansion of consultant coverage to institutional investors with fewer assets Creation of OCIO and implemented consulting businesses As consultant influence grows, even more pressure will be placed on leaders to deliver positive product ratings and ultimately drive more revenue to their firms. The acquisition and development of skills, attributes and experience once limited to salespeople will lead to more active teams and more capable leaders that will compete for heads of institutional distribution openings.

3 THE PATH TO LEADERSHIP PAGE 3 Growing Opportunity for Women Historically, the road to the head of institutional distribution role passed through a firm s sales organization. Sales organizations have been, and still are, overwhelmingly populated by men, which meant the higher likelihood of a male being promoted or recruited into the head of institutional distribution role. research shows that roughly 18% of existing institutional distribution leaders are women. Among consultant relations leaders, women make up approximately 37% the population. As more leaders compete for the top job, it follows that the number of women that will compete for, and ultimately be hired into, distribution leadership roles should also increase. 82% 18% Expanding a Firm s Consultant Relations Capabilities without Endangering its Sales Culture While there is no universally optimal distribution organization structure and affiliated job design that spans across all asset managers, some firms, recognizing the changing capabilities within their ranks, have opted to create a hybrid sales and structure in lieu of separate teams for each function. In these organizations, hybrid professionals spend upwards of 80% of their time calling on consultants and spend the remaining 20% calling directly on institutional investors. Women make up only 18% of current institutional distribution leaders, but that number is expected to grow as more leaders compete for the top job. These professionals are perfectly capable of securing and actively participating in finals presentations and ultimately closing deals. As these professionals succeed in growing consultant and client relationships and eventually are promoted into management roles, they will gain the requisite skills and experience to succeed as a head of institutional distribution. Succession Management Historically, firms have looked to their best institutional salespeople as logical successors to the top role, viewing them as potential management bench strength and they are. But given the existing, and growing, importance of the function and the changing characteristics of leaders, firms (particularly CEOs and current distribution leaders) should invest time and resources into grooming their leaders as potential successors to the top institutional distribution role within the firm.

4 PAGE 4 THE PATH TO LEADERSHIP Circumstances in which Hiring or Promoting a Consultant Relations Leader May Not Make Sense Distribution leaders, especially those with a sales bent, are quick to point out that there are times when it makes little sense to hire a leader into the top job. Their examples tend to have a central theme points in time when investment consultants will not consider a firm and/or their strategies for search activity with their clients. Causes of this exclusion include: Firms in transition, for example: o Companies in the process of being sold or acquired o Significant leadership turnover o Significant portfolio manager turnover (voluntary or involuntary) Poor investment performance Poor risk controls Strategies that lack a 3-year track record Nonconforming products that are rarely researched or recommended by consultants Headline risk In cases where consultants either block or have little influence on manager selection, asset managers may be better served by building a direct sales force and focusing distribution efforts on trustees and investment staff within institutional investors to influence buying and manager hiring decisions. Firms that are solely focused on direct sales will be caught flatfooted with consultants and run the risk of missing a significant window of opportunity to raise assets However, when organizational stability returns, when investment performance improves, and when strategies eventually hit their threeyear mark, consultants will once again become a viable channel for raising large chunks of assets. Firms that are solely focused on direct sales will be caught flat-footed and risk missing a significant window of opportunity to raise both brand awareness and assets if they hire distribution leaders that lack an understanding of, and experience with, investment consultants.

5 THE PATH TO LEADERSHIP PAGE 5 Institutional Sales Experience A Necessity or a Nice-to-Have? Let s consider the experience of the recent hires listed earlier in this piece. Steve Paddon, Maureen Fitzgerald, Maureen Beshar, Jill Lohrfink and Susan Oh have each held institutional sales roles, and in a few cases, sales management roles at some point in their careers. There are several benefits to hiring candidates with both strong and sales experience, for example: they bring a broader understanding of how decisions are made by prospective clients and their consultants which should allow for better communication and more collaboration between sales and colleagues as well as more consistent messaging; inherited sales managers and salespeople are more likely to respect newly hired distribution leaders that have walked in their shoes and shared similar experiences; sales professionals are more likely to learn something from, and have a greater potential to be mentored by, leaders that possess sales experience versus those that are career professionals. The benefits listed above are by no means exhaustive, but they do serve two essential purposes. First, they point to a higher probability of growing assets through greater collaboration across the firm and through the possibility of greater productivity from increased motivation and mentoring of salespeople. Second, they have the potential to decrease the risk of unwanted turnover among sales professionals. There are benefits to hiring candidates with both strong consultant relations experience AND sales experience. Why would salespeople consider leaving if someone with a consultant relations background is hired as their leader? For one, they might feel that the importance of their roles has diminished in relation to. They might also believe, perhaps incorrectly, that they have nothing to learn from a leader who lacks institutional sales experience and choose to move to a firm that employs a leader from whom they think can gain additional training and insight. Interestingly, most leaders, regardless of their background, would assert that they possess sales experience that the role is, in fact, a sales role. And they re right. The difference is that many professionals have not historically called directly on institutional investors or participated in finals presentations. That, however, does not mean that they do not possess the understanding of how, or the capability, to do so. Those same professionals would argue that they, among all of their distribution colleagues, have the most holistic picture of the market and the best understanding of how buying decisions are made.

6 PAGE 6 THE PATH TO LEADERSHIP Determinants of Success Given these arguments, one could conclude that an institutional distribution leader must have sales experience lest they risk losing all of their salespeople and struggle to increase the productivity of their distribution teams. However, while experience plays an important role in determining a distribution leader s success, it is not the sole determinant. Without providing a complete job description, other factors that determine success include a candidate s: culture fit; investment acumen; moral compass and empathy; knowledge of the asset management industry, especially those who make and influence buying decisions, and the ability to deploy appropriate resources towards each; ability to hire, motivate/inspire and manage a highly productive team; ability to identify and implement an organization and compensation structure that serves to promote the firm s goals while maintaining its culture; talent for building relationships and earning the respect of portfolio managers and other investment professionals; grasp of market demand and a knack for working with product development and investment professionals to translate actual and anticipated demand into viable strategies and vehicles. As you might expect, there are quite a few existing and former leaders who have never held a sales role or led a sales team, yet possess these attributes and more. They engender confidence in their ability to lead because what they supposedly lack due to the absence of sales experience is more than made up by their abundance in the attributes above. Firms that anticipate the need to hire or replace their head of institutional distribution would benefit from the inclusion of several leaders in their search process. Conclusion Consultant relations leaders will be given greater consideration and compete for institutional distribution leadership roles with more frequency in the coming years. Their growing contribution to a firm s success in both raising and retaining assets is directly attributable to the increasing influence of investment consultants in the manager selection process and to the shifting characteristics namely those of a more aggressive, more capable business development professional now inherent in many professionals. Firms that anticipate the need to hire or replace their head of institutional distribution would benefit from the inclusion of several consultant relations leaders in their search process.

7 THE PATH TO LEADERSHIP PAGE 7 Coming Next The second installment in our three part series will explore the rationale for considering and hiring head of institutional distribution candidates with several non-traditional (non-sales) backgrounds including positions in marketing, product management/development, client portfolio management, and investment management. The third installment of the series will examine the path to institutional distribution leadership via sales. We will explore why this has been the preferred option for decades and whether, despite competition from other functional leaders, this will continue to serve as the go-to talent pool for institutional distribution leadership in the future. 225 Franklin Street 26 th Floor Boston, MA t: (617) cseitz@seitzpartners.com About the Author Chris Seitz Chris Seitz is the founder and Managing Partner of. Chris portfolio of asset and wealth management search and advisory work spans front office and functional roles including CEO, head of distribution both institutional and intermediary, head of consultant relations, intermediary channel leaders national sales managers, as well as institutional sales, and relationship management professionals. He is a recognized expert in both institutional and intermediary distribution and is regularly quoted in industry periodicals. In addition to his body of distribution work, Chris has completed projects for investment consultants as well as chief investment officers and asset class leaders for endowments and plan sponsors. He has also led assignments for buy-side equity and fixed income directors of research, portfolio managers, portfolio specialists and research analysts. Chris clients include investment management firms, investment consulting firms, insurance companies and institutional investors. About is a retained executive search firm dedicated to the asset and wealth management industries. We deliver unparalleled access to talent and unrivalled market insight to our clients. Copyright 2015, Inc. All rights reserved. Reproduction without permission is prohibited. Trademarks and logos are copyrights of their respective owners.