Talk about managing money with Paul Viera, CEO of Atlanta-based EARNEST Partners (No. 2 on the BE ASSET MANAGERS list with $8.2 billion in assets under management), and he’ll talk passionately about the thrill of competition. For Viera, money management is a contact sport — each year starts a new “season” where financial performance becomes a permanent mark on an asset manager’s record. Viera’s fascination with continually improving upon his record is what ultimately gives him an edge.
“Throughout my life, I’ve always put myself in a position to compete, whether it was playing sports or trying to do well at competitive schools or in the employment history that I’ve had,” says Viera, a Harvard Business School graduate who also holds an economics degree from the University of Michigan. His passion to compete led him to create his own trademarked stock assessment process, Return Pattern Recognition, which is a program that quickly narrows down more than 3,000 small-cap stocks to the 150 with the best potential to outperform. The process provides such thorough fundamental analysis that it has helped elevate the performance of his 6-year-old investment management firm to rival some of the best asset managers in the country.
Just look at the record. Using Return Pattern Recognition, equity offerings managed by EARNEST Partners have performed impressively. The firm produced a 45.7% gain for 2003 as sub-adviser for the Harbor Small Cap Value Fund (HASCX), placing it in the top third of all funds in its category, according to Chicago-based mutual fund research firm Morningstar Inc. Another fund Viera sub-advises, the Strategic Partners Moderate Growth Fund (PIMGX), placed in the twelfth percentile in its category, with a 25.5% gain for 2003.
And the firm’s fixed-income offering has had an equally impressive performance recently. The EARNEST Partners Fixed Income Trust (IVFTX), an intermediate bond fund, ranked in the top percentile in its category for 2002, according to Morningstar. As the equity markets were reeling from a third consecutive year of double-digit losses, EARNEST Partners’ fixed-income strategy of analyzing a broad number of securities, identifying pricing inefficiencies, and then acquiring the appropriate quality securities enabled the fund to rack up a 12.6% gain in 2002. In fact, the fixed-income fund has been a safe haven for long-term investors. Over the last three years, the fund produced a healthy 7% return, and over the last five years (which includes the three-year recession), it returned a nifty 6.4% to investors — above-average returns compared to similar fixed-income offerings.
An added benefit for Viera has been that the separate accounts his firm manages for corporations, endowments, universities, and municipalities have produced returns that are as impressive as, or even better than, the mutual funds his firm manages. All this positive performance has boosted EARNEST Partners’ assets under management by a remarkable 68.6%. Viera is hopeful that institutional investors are taking notice of his firm’s performance, which could lead to more opportunities to present his financial management philosophies to a wider range of clients. He’d also like them to take notice for another reason: “We have a firm that looks like America, and [our success] makes the statement that if you have great people in a firm that looks like America, then you can be the best.” Because of its phenomenal growth and its emergence as a consistently high-quality performer in the investment community, EARNEST Partners has been named the 2004 BE Financial Company of the Year.
CREATING THE RIGHT BUSINESS CULTURE
Born in Detroit and raised in Battle Creek, Michigan, Viera was introduced to hard work at an early age. He got a firsthand view of how working for a living could yield differing levels of success by watching his mother and aunts, who were school teachers, and his father and uncles, who all held down jobs or ran their own business ventures. Seeing his family toil in the real world made being the best extremely important to Viera, mostly because the euphoria of winning felt infinitely better than the disappointment of losing.
By the time Steve Sanders, president and co-CEO of MDL Capital Management (No. 5 on the BE ASSET MANAGERS list with $3.8 billion in assets under management), met Viera as a fellow summer intern at Aetna in Hartford, Connecticut, Viera had become a master competitor who was also focused and prepared.
“He was a very sharp guy who knew where he wanted to go,” says Sanders with admiration. “He navigated
around the company from one summer to the next and was able to stake out exactly which internships would work best for him. He wasn’t afraid to move against the crowd. He looked for what would make him unique and distinctive.”Not much has changed about Viera. In fact, he uses the same type of focus and competitive drive in the day-to-day management of his firm. Typically, an early-stage firm takes on the personality of its founder, and, at 45, Viera has emerged as a capable business manager and the key catalyst for EARNEST Partners’ growth and accomplishments.
In a relatively short time, Viera has instilled a business vision using three simple principles he feels lead to success: achieve high quality in everything that you do, complete all tasks with a sense of urgency, and do everything with good cheer so that clients will want to interact with you. He has also managed to incorporate his intense work ethic with a commitment to customer service and civility that has created a work environment where employees are cross trained in multiple disciplines and don’t mind staying late. The corporate culture provides the structure and support necessary for the firm’s financial philosophies to operate with maximum efficiency. Having the ability to execute such a dynamic business infrastructure makes Viera more than just a gifted stock picker.
“There are very few people who have the combination of skills that he has,” says EARNEST Partners Investment Manager Trey Greer. “[Some] people are absolutely brilliant and can pick stocks well. Other kinds of people can communicate ideas in a straightforward fashion. And then there are other people who are good presenters and communicators with clients and prospects. Typically, a person falls into one of those buckets, but Paul can do all of them,” says Greer, who sits on the company’s equity investment committee and worked with Viera at INVESCO during the 1990s.
Having honed many of those skills at INVESCO, where he was global partner and a senior member of the investment committee, and at Bankers Trust, where
he was vice president of investment banking in the London and New York offices, Viera was more than prepared to lead his own firm. In 1998, he left INVESCO to become the head of an already existing fixed-income management firm that was then renamed EARNEST Partners. He then merged a small equity management firm into the company and added a few individual clients to build assets up to between $400 million and $500 million in its first year.QUALITATIVE AND QUANTITATIVE
After establishing a solid base, it was time to implement a strategy to grow the business. While it is fair to say that Viera’s development of the Return Pattern Recognition process is responsible for a great deal of EARNEST Partners’ success, that’s not the entire story. Members of EARNEST Partners’ investment committee are assigned to analyze each of the 150 stocks before the entire group comes back together to make the 60 stock selections that the company will eventually own. The selection of the 60 stocks that make up the individual equity products is critical to the overall EARNEST Partners performance record.
Marketing the successful performance of Viera’s investment style has been the key driver of the firm’s assets under management since 2001. David Van Hooser, chairman, president, and trus
tee of Harbor Funds, was sold on the approach when he was searching for someone to manage the Harbor Small Cap Value Fund in December 2001. Van Hooser says they did not have a small-cap value offering until EARNEST Partners was selected as the sub-adviser from a group of more than 300 money managers. EARNEST Partners was chosen because of its track record, the philosophy and process it uses to manage money, and the high skill level of the people on Viera’s team.
“Paul talks clearly about what they are doing, and you come away with a high comfort level that they will do a good job managing money,” says Van Hooser. After starting with $2 million or $3 million in seed money, Viera began marketing the fund. Twenty-seven months later, it has close to $300 million in assets. “This has been the fastest-growing fund we have ever had,” says Van Hooser. “We introduced another fund a year before his, and he has beaten that fund to the $100 million level and the $200 million level.”
Getting the word out about such performance will help
attract more opportunities for sub-advisory roles in the future. But where Viera has grown the business extensively is with his institutional clients. When the Teachers’ Retirement System of Illinois was searching for minority- and women-owned investment firms to handle a portion of its business, EARNEST Partners’ performance record enabled it to compete.“We conducted a search and considered more than 100 firms, and EARNEST Partners came out on top for fixed-income and equities, so we hired them for both assignments,” says Jon Bauman, executive director of the Teachers’ Retirement System of the State of Illinois. As of February 2004, EARNEST Partners held $335 million in total assets for the retirement system, and both the fixed-income and equity products had outperformed their benchmarks. “[EARNEST] is now working alongside the largest bond managers in the world, and their performance is competitive and comparable.”
Looking ahead, Viera sees fixed-income as a source of continued growth. “[Our fixed-income product] held up remarkably well when a lot of people had poor fixed-income performance,” he says. “People are starting to recognize the quality and consistency of what we are doing on the fixed-income side, and that’s a tremendous growth opportunity.” Viera also says his firm’s Large Cap Core and Small Cap Core products have opportunities to expand as the financial markets improve and people move back into equities.
MANAGING GROWTH
To manage the growth of his firm, Viera will rely on intense focus and attention to detail, like any head coach worth his salt.
“He’s certainly hands-on,” says partner John Friedman, who has been with Viera from the very beginning of the firm. “But it’s not from a standpoint that he wants to micromanage, it’s from a standpoint that he has a genuine interest in learning everything that is happening. It makes him a better person, adds different dimensions to his work, and he gets a better understanding of the company.”
Since both the fixed-income and the equity side of the business are going well, the biggest threat to EARNEST Partners is the performance of the people who make its equity selections. For Viera, high finance is a full-contact sport. And detailed analysis is key to maintaining his solid game plan.