Ray Joseph is a man in a hurry.
While many of us use the first few months in a new job to get acclimated with colleagues and learn the ropes, Joseph takes a different approach.
Appointed head of portfolio management and model solutions at UBS less than a year ago, he has wasted no time drawing up an ambitious to-do list.
In his first 10 months he and his team have:
• redefined their investment philosophy;
• repositioned portfolios, dropping underperforming managers;
• scrapped overlay fees for advisors using home office portfolios and
• introduced a new strategic asset allocation framework.
As goals are achieved more are added.
They are currently:
• reviewing their liquid alternatives allocation;
• searching for US small-cap core and growth managers;
• completing a multi-asset manager search and
• reconsidering their environmental, social and governance (ESG) framework.
The level of ambition and speed with which these projects are being pursued is perhaps less surprising when you consider Joseph’s background.
He is very literally an early starter, landing his first job on Wall Street at just 14 years old in the HR department of Dean Witter in 1986.
‘It was great,’ he says. ‘Summers in New York are hot and humid. My friends were out working construction, I was making more money and working inside. To me it was a positive.’
This role helped Joseph land other positions with JPMorgan, Salomon Brothers and Merrill Lynch before his return to business school, after which he began his career in asset management in earnest with roles at Capital Group, Alliance Bernstein and ultimately UBS.
But why did he take a summer job on Wall Street aged 14?
In short, he needed money, but not for the reasons most 14-year-olds do. Joseph was not working to pay for the latest craze, but rather school books and clothes due to a deal he had made with his father.
‘My dad said: “I’ll pay for boarding school but you’ve got to handle books and clothes,’ he explains.
Joseph’s attendance at boarding school came about through an organization called The Oliver Scholars Program, which helps prepare gifted New York students, from African American or Latino families, for top independent schools and colleges.
Joseph, who lived in Queens, New York, at the time, was not short of offers from good schools in the city, including the likes of Stuyvesant High School and Regis High School, but took the chance to go away, to St Paul’s School in Concord, New Hampshire, for two reasons.
First, in the short term it would save him a lengthy daily commute; and second, in the long term it would set him on the road to his dream college: Harvard.
The latter factor was key in Joseph deciding which prestigious prep school to attend. In an effort to help him achieve this, Joseph’s dad collected all the yearbooks from a variety of schools.
‘He was like “which one sends more kids to Harvard. [It was] St Paul’s.” And off I went to St Paul’s,’ Joseph says.
Clearly due diligence runs in the family.
The support from The Oliver Scholars Program not only gave Joseph access to a different education and set of opportunities, it also sparked in him a passion for education reform.
He has since sat on the board of the program, been the chairman of two charter schools and been involved with a number of nonprofits that aim to improve educational opportunities for talented, low income, often minority students.
This work led to him becoming involved in the founding of the Relay Graduate School of Education, the first standalone college for teacher preparation to open in New York State for nearly 100 years. He was employee number 10 and helped raise $35 million.
‘I’m big into education reform,’ he says, perhaps understating his work. ‘It was that scholarship organization that got me interested. They provided support services. They are the ones that helped me get that first summer job. They provided SAT prep, leadership courses and all the other softer stuff kids need to be successful.’
Although Joseph’s day job is not in education, he sees the parallels and says that were he to leave wealth management, he would become a high school principal.
‘When you are a teacher at any level, you close the door and the classroom is yours. When you are a researcher, you close the door and that research universe is all yours,’ he says. ‘You tackle it the way you think makes sense. As a research manager or a principal your job is the same: remove the obstacles from each of those people to be successful and to build a common framework that people think about when they are doing their job.
‘In both those jobs you have people who are really autonomous and your job is to set the culture.’
The culture he has set is one of ambitious growth. The team currently oversees $26 billion, $14 billion of which is in discretionary portfolios with a further $12 billion in non-discretionary and model assets.
Joseph believes this number could be dramatically increased.
‘The ambitions for growth for this business are substantial,’ he says. ‘I talked to you about directly managing $14 billion of assets, we think that number can double, triple, quadruple in size. We haven’t set a timeframe but we think that’s the opportunity.’
To do this, he and his team are proactively removing any barriers the firm’s 7,000 advisors might have using the portfolios.
Hence the scrapping of overlay fees, which can be between 10 and 30 basis points, the investment review, a new philosophy and asset allocation framework.
‘I took over the group last August. Over the past 10 months I have spent a lot of time reviewing our processes, our systems, and trying to find ways to strengthen it,’ he says.
‘That includes redefining our investment philosophy. Reviewing, changing and assigning various portfolio managers to various portfolios.’
The change in asset allocation is due to Joseph’s team switching from their own framework to one used by the wider UBS group, in an effort for greater consistency across the company.
The shift in philosophy has meant they have moved away from permanent biases toward quality and value, and instead are flexible about factor exposures.
‘If anything drives us it is that we are big believers in mean reversion,’ he says. ‘We think manager performance is cyclical. We think factor exposures behave cyclically. And so we often look at where we are in the cycle for both those things when constructing portfolios.’
Joseph and his team oversee around 75 different portfolios, many of which are variations on 14 core models. These portfolios are made up of mutual funds and exchange-traded funds, on average between 15 and 20 in each. His team’s work is used by around 4,300 advisors.
There are a total of 80 mutual funds used across these portfolios. As of August last year, any new manager being selected for these will come from the manager research team’s high-conviction list, but historically that has not been the case, hence there are some legacy managers in portfolios who are not on the list.
Joseph has oversight of the manager research team, which is led by head of investment research Joe Aniano. In the spring of 2015 the team struck a deal with Mercer, for support of its ongoing due diligence efforts. Mercer does not make any high-conviction recommendations, these are made by the investment committee of which Joseph is a member. He says the use of Mercer has increased the analysts’ capacity by around 20%.
An emphasis on the price of portfolios is one reason why there are more passive products than ever in the UBS models, but Joseph says this is not necessarily an indicator for the future.
‘Today we probably have more passive products than we have ever had before. I’m not so sure over the next five years that’s going to be true. Every portfolio manager on the team is responsible for understanding why we should use an active manager in a space versus a passive instrument.’
When it comes to active managers Joseph says he prefers introversion to those with more extravert tendencies.
‘I am careful not to let charisma overwhelm me. I have learned that even some of the most monotone people can be great investment managers,’ he says. ‘[I like] someone who has a good command of their weaknesses and understands the flaws in their investment processes, their blind spots. Someone who is a student of other ways of constructing portfolios and who understands why that does or does not work for them.
Sounding something like the principal he may one day become, he adds: ‘I love people who are introspective about their craft and come to a conclusion about what does and doesn’t work. Hubris is always a sign of an issue.’