[REPLAY] Paul Black and Mike Trigg – How to Build a $100B Money Manager

**Ted Seides** (0:05)
Hello, I'm Ted Seides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com. My guests on today's show are Paul Black and Mike Trigg from WCM Investment Management. Paul and Mike are both past guests on the show who have taken an investment philosophy focused on culture and mode trajectory to turn a once-struggling boutique into a $100 billion powerhouse. Paul came on the show a few years ago when WCM had quietly grown to $25 billion in assets, and Mike joined a year ago to dive into their research process. Their colleague Mike Tian shared another perspective earlier this year when he described applying WCM's mode trajectory discipline to investing in China. In this continued exploration of WCM, we start with the truly unique facts about the firm's rebirth a decade ago, and turn to key features of its success, including embracing change, the importance of culture, alongside some characteristics of toxic cultures, hiring practices, telling the truth, integrating new team members, managing turnover, and transitioning leadership to the next generation. Please enjoy this fascinating conversation about how to build a $100 billion money manager with Paul Black and Mike Trigg from WCM.
Paul, Mike, great to see you guys.

**Mike Trigg** (1:52)
Great to see you.

**Paul Black** (1:53)
Thanks, Ted. It's great to be back.

**Ted Seides** (1:55)
So this is kind of amazing. I know Paul, since you last came on WCM with this relatively little-known $25 billion firm, and I know a couple of months ago, you wrote a piece about how to build a $100 billion firm. I thought it'd be interesting to get your take on what it took for WCM to get there.

**Paul Black** (2:15)
Well, I think where you start is with a $4 billion firm and running a large-cap US domestic portfolio, you underperform dramatically for five years. You get fired by pretty much all of that $4 billion in assets. And you know, the interesting thing is you make sure you don't fire any of your good young talent because you do want to live to fight another day, but you take the income hit all at the principal level, and then you have an operations guy come up to you and say, you know, I was thinking about what we were doing in US large-cap growth. Why don't we launch, since it was so successful in the US., why don't we launch an international large-cap growth strategy? Now, mind you, the gentleman who came up to us was in operations, had zero investment experience, spent time in the industry selling garlic boxes in Gilroy, California, but he had this idea that we thought, hey, you know, we've got nothing to lose right now. Let's try that. So we put him in place, and here's the interesting part. You decide, yeah, one money management portfolio manager probably doesn't work for this. Let's add somebody else. So you add an inexperienced portfolio manager to the team. So now you have two people that have never run international strategies in their life. They have no portfolio management experience. And just for fun, you add a third person who drops out of Columbia Business School because they didn't feel like they were learning anything different, who is thinking, I'm going to leave the industry and actually start a hamburger stand. You add him to the equation. And then, you know, what you do is you literally say, okay, you've got literally a million dollar portfolio running here. Why don't you go out and sell it institutionally across the board? So they go on the road. They start showing up. They build a five-year track record. That five-year record is phenomenal. But even after five years, we literally had three million dollars in the portfolio.
And just for fun, remember you can't look at the founders of the firm for any help because the loss that occurred from four billion to under a billion dollars in assets in the US growth strategy put them into PTSD. So they were no help at all. That's how you do it.

**Ted Seides** (4:27)
Well, it's safe to say that while that is true, it's kind of an unconventional approach. So, Mike, when he came on the show last year, talked about thinking differently. What is it about how you've gone about this relative to the industry that's really made it work?

**Paul Black** (4:45)
Well, I'll start with that. You know, when we started the domestic growth strategy back in 1999, we were very conventional in our thinking. We did what everybody else in the business does, buy those big large cap companies that are high quality. They have huge competitive advantages, and we were trying to buy them at a discount to intrinsic value. And that worked for a little bit until it didn't. And when it didn't work, what we realized is that we had camped too hard on trying to find really cheap companies. So it's interesting. The mistakes that we made with the domestic strategy really helped us when we launched the international strategy, because that whole notion, and we've talked about this before, of buying wide moat businesses cheaply, I think is flawed today because everybody's trying to do the same thing. So the reality is, we found that if we just keep doing what the conventional wisdom says you should do, we're probably going to get pretty conventional and pretty average returns. So it was at that point, actually adding Mike to the equation, where he came over from Morningstar, that we began to wrestle with that whole idea of what is important with a competitive advantage. And part of that was it wasn't about the absolute size, it was about the direction of that competitive advantage. As we started working that out more and more, we started having greater and greater success.