Jeffrey S. Coons, PhD, CFA
Manning & Napier
Jeffrey S. Coons is the president of Rochester, NY-based Manning & Napier, an investment management firm with $27 billion in AUM. The firm manages multi-asset class and single-asset class portfolios via a staff of over 400 employees, a commitment of resources that speaks to the importance of client service in its model. The firm also has its own captive trust company, mutual fund complex and significant depth of expertise within its team of over 65 investment professionals.
As president, Coons is responsible for the firm’s IT and administrative operations, together with its client analytics team, a group that provides additional information and services to help clients understand their situation, establish their objectives, and meet their overall needs. He also oversees the firm’s trust company, and supports its product development, research and sales efforts.
I recently sat down with Coons to get his read on current and future industry trends, including technology’s impact on the field of asset management, and his thoughts on regulation and the ongoing struggle for gender equity in the sector.
A call for flexibility
I kicked off our conversation with a sweeping question. What trends are occupying your thoughts at the moment? What’s worrying you, or exciting you, both now and as you look towards 2018?
“One of the positive trends that I have been noticing more and more is the number of institutional investors that are embracing the need for flexibility in asset allocation and in portfolio construction. There’s a growing understanding among investors that they need to address the changing nature of risk in the markets over time. So, on the one hand, we’re seeing a push towards passive investing at the security selection level, and on the other, we’re seeing more interest in using tools that allow for flexible asset allocation and flexible risk management from an overall portfolio construction perspective.
“I see this in the trends of institutional investors using GTAA (Global Tactical Asset Allocation) mandates within their portfolio and target date fund managers beginning to add flexibility to their glide path. This is something that’s always been important to Manning & Napier. We’ve employed what we call a glide range in our target date funds to allow us to adjust asset allocation, and increasingly we’re seeing managers provide some communication around having the flexibility to adjust that glide path, which we think is prudent, because that glide path may not work in the next market environment that we face.
“In the end, there are many trends that pose a threat to investors and the investment industry, and I think the trend towards passive investing is one of them. Although that wave is continuing right now, we are seeing a growing undercurrent of investors who are uncomfortable with the complacency that’s implied by just simply going to the lowest fees and the most passive investments. They’re beginning to seek out managers who are able to manage risk actively, and they’re doing that because they’re preparing for what’s going to be an inevitable change in the market environment.”
What’s the impact of technology on the industry?
“Any industry with relatively high profit margins and low barriers to entry is going to be at risk of disruption. Those disruptive forces are beginning to be seen in the investment industry and they’re likely to be seen at an accelerating rate. And I’m not just talking about exchange-traded funds or the trends towards passive investing. I’m talking about how those tools may end up being used within robo-advisory offerings. This is an area that disrupts the asset managers probably less than our intermediary relationships. As an industry, asset managers have become heavily reliant on distributing through intermediaries like financial advisors and, in some ways, our industry has lost touch with our real value, which is managing investments to achieve objectives for the end client rather than simply trying to beat some narrow benchmark. As these intermediaries face a growing threat of technology delivering advice directly to their clients, I think many asset managers are going to find themselves selling to a shrinking advisory community.
“In some ways, I think this threat highlights why we have always emphasized the idea of managing risk actively to meet objectives as well as the idea of building direct relationships with small and mid-sized institutions. We view both of those are very important as these technology threats begin to affect the business models of advisors.”
Has the firm given any thought to acquiring a technology company?
“It’s important to understand these trends, both where they’re going and how you can compete. Robo-advisory, in particular, is very early in its cycle, but at the same time you already have 80 to 90 percent market share with two of the giants: Vanguard and Schwab. So, when approaching the idea of acquiring technology companies, you need to be doing it with an understanding of what the end business strategy is and what you can execute on.
“What we’ve done a lot over the last several years is put our resources towards internal development of value-added services. Our client analytics group is a good example. We’re providing customized investment solutions and offering advice that extends beyond simply managing assets to beat a benchmark. We think it’s ultimately going to be very important as the more commoditized parts of our business are undercut by technology.”
A sense of uncertainty
With a good read on Coons’ mindset regarding industry trends, I was curious to hear his feelings on regulation. There’s been a great deal of anticipation and uncertainty surrounding the new administration’s approach to regulation. What possible changes are you watching most closely and why, I asked.
“The best description of that impact right now is ‘uncertain.’ It’s not clear exactly what the priorities of the administration are or what they’re going to be able to get done in the window that they have. We believe that, as an investor, there are broad implications for efforts towards reducing regulation and allowing industries to operate in a more efficient way. That said, it’s not clear yet exactly how this is going to play out for the investment management industry in areas like the fiduciary rule or in the SEC’s audit focus going forward.
“In many ways, the pressures on the industry today are coming from clients rather than from regulations, so I would not expect the administration to have a major impact on our business at this point. We do, however, need to remain aware of the impact of deregulation and be ready to move if that uncertainty gets resolved.”
A need for engagement
My final question was focused on gender balance, an issue that is near and dear to my heart. What is the leadership at Manning & Napier doing about addressing this problem, I inquired.
“This question is timely as I just came from a luncheon celebrating the 30-year anniversary for our chief accounting officer. She started with us back in the ‘80s and remains an important leader in the firm today. In general, I would say that over the 30 years I’ve been in the business, the investment industry has made some significant strides with respect to gender balance. I do agree, however, that more does need to be done than just improving employment policies to foster better work-life balance and a supportive work environment.
“In particular, I believe that investment industry executives need to take it upon themselves to personally combat the subtler sources of gender imbalance. Let me give you a couple of examples in the form of questions that I think we should all ask ourselves as senior managers of investment firms. The first question is, ‘Are at least half of the employees that we are personally mentoring women?’ And the second question is, ‘Are at least half of our most important projects being led by women?’ I think these are the questions that all senior managers need to be asking themselves in order for an organization to address some of the subtle sources of gender imbalance. Being a meritocracy is very important for any investment firm to be able to survive in today’s ultra-competitive environment, but that requires us to eliminate those subtle biases that exist in our decisions to hire and promote talent to the top of the organization. We need to break this habit and intervene early in the careers of the most talented people by embracing diversity.”
How do we go about doing that?
“First and foremost, when our firm brings in people and they begin to advance in their careers, we need to understand that it’s not about trying to replicate what we already are. Instead, it’s about broadening our perspectives and increasing the value that we’re bringing to our clients. That starts with individual executives reaching out, mentoring and ultimately giving some of the most important projects and challenges to a wider group of people. There are already a lot of talented women in most investment firms today — we need to be mindful of subtle imbalances to ensure everyone has an equal opportunity to shine.”