Bob Veres’ Insider’s Forum 2014

How to Create and Lead an Effective Investment Committee Best practices to help your committee maximize its potential and minimize dysfunction

Part 1: Philosophy

Part 2: A Case Study

Drew Pratt, CFA, CPWA® Director of Research Principal

Greg Peterson, CFA, Ph. D. Director of Research Partner

This report includes candid statements and observations regarding investment strategies, individual investments, economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact. Our views and opinions regarding the investment prospects of our portfolio holdings include “forward looking statements” which may or may not be accurate over the long term. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate. These opinions are current as of the date of this piece but are subject to change. The information in this report should not be considered a recommendation to buy, sell or hold any particular security.

Drew Pratt Wetherby Asset Management Inside Wetherby: • Director of Research and Senior Wealth Manager • Chair of the Investment Committee Outside Endowment ICs: • Member and former Chair of the Mill Valley (CA) Schools Community Foundation – Endowment Investment Committee • Chair of the Tam High School Foundation Investment Committee

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P HI L O S O PHY

The Dream

Investment Committees bring together multiple opinions and multiple beliefs, applied to the often confusing and rapidly moving world of the markets we invest in, and hopefully, through positive, collaborative interaction, help us settle on the right portfolio decisions

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P HI L O S O PHY

You May Have Heard About Committees “a group of unfits engaged by the unwilling to do the unnecessary” “a group of people who individually can do nothing, but who can meet together and decide that nothing can be done”

“Committee: a body that takes minutes and wastes hours”

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P HI L O S O PHY

Investment Committee Positives

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Integrate different points of view

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Allow broad participation in investment decision making and an inclusive feel to the process

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Pool knowledge and experience

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See problems and solutions from many different angles

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Deliberations can be educational

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Come up with creative solutions

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P HI L O S O PHY

Investment Committee Negatives

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Can be indecisive and vulnerable to stagnation and inertia

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May lengthen the decision making process

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Expensive, given the amount of executive time involved

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The ultimate decision may reflect the opinions of none (acceptable = best?)

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No one member feels accountable

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May be dominated by a few more vocal members

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Best Practices Committee Composition

• There is no set formula on who should be involved • Blend investment and non-investment professionals together (Research and Client Service) • Include some junior members to build for the future • Bring together diverse experiences and perspectives • Continuity in membership is ideal

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P HI L O S O PHY

Best Practices Leadership

• Strong committee leadership is critical • Leaders should be good at running meetings • Possess strong communication skills AND an understanding of investments • Be able to draw out both priorities and perspectives • Keep meetings productive and on schedule • Help drive the best possible decision making • Members should embrace the mentality of the leader

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Best Practices Member Preparation

• Understand firm history, mission, resources and philosophy • Keep current on the markets and the economy • Come prepared to discuss and help move the conversation forward to a satisfactory conclusion • Bring well supported and productive conversations to the committee • Challenge and debate the issues at hand using facts and data instead of relying on strong opinions to prevail • Raise any issues well in advance to ensure that they are adequately addressed

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P HI L O S O PHY

Best Practices IC Meetings

• Make materials available ahead of time • Meetings should combine structure with conversation • Voting is essential (no one should dominate) let the majority decide • Meet when there is an agenda or a good reason to get together • The agenda should be limited to a few key items • Circulating clear and concise meeting minutes that summarize decisions and next steps • Continued dialogue and exchange of ideas outside of the meetings

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Best Practices Member Attitude • Energy and dedication = long-term success • Remove any personal bias • Participate in meetings on a regular basis and bring a curious, attentive, and positive attitude to any discussion • Remember, “We are trying to move forward in a productive way.” Ask yourself: how can I keep the ball rolling; how can I help; what is the next question? • Be respectful of the members of the committee who did the work that enabled a well supported conversation • Try to establish constructive relationships and discussions 12

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Best Practices Clear Purpose

• Ask the question: what experience are we trying to create for clients? • Follow a disciplined investment system meant to help achieve philosophical goals • Understand the factors that you control AND drive portfolio performance. • Use an objective and measurable definition of success • Focus on the long term and resist behavioral finance errors as a group • Intellectual honesty is healthy

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Functional Considerations

• Who does the work? • Sub-committees • The role of Research

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