To paraphrase Atticus Finch and a highly quotable Cherokee elder: ‘To understand a portfolio manager, walk a mile in their shoes.’ Or failing that, do their job for a while.

Jerry Chafkin, chief investment officer at AssetMark, can lay claim to having a unique insight into the mind of a portfolio manager, having been one himself before becoming the main gatekeeper at the Concord, California-based turnkey asset management platform.

Chafkin, a veteran of financial services, was previously chief executive and a portfolio manager of Boston-based alternatives boutique AlphaSimplex Group, part of Natixis, but he now finds himself facing off against his former colleagues as he decides whether or not to add managers to his $32 billion platform.

‘They are two different jobs,’ he laughs. ‘The benefit of being a portfolio manager is you have your hand on all the levers and you can pull them the way you want them.

‘When you are doing due diligence and running a platform, you have to be open to more than your personally favored approach for generating alpha, and you don’t have your hands on all the levers.

‘But the plus is you have a window on some really brilliant and creative folks, and I’m somebody who loves to keep learning. To have that dialogue with people and get a window into how people are thinking and evolving their strategies, it’s a great opportunity.’

Résumé

Subway switch

Although today Chafkin is reaping the rewards of a long and varied career within financial services, which includes a successful spell at Charles Schwab from 1999 to 2006, it could all have been very different if he had stuck to his original plan to work for the New York City Transit Authority.

After a stint as a budget analyst with the authority, he returned to business school in an effort to rise up the ranks, but ended up changing track completely.

‘Before I got into investments my plan was to go back and work for the New York City Transit Authority, because I love subways,’ he says.

‘That is why I went back to business school. I majored in finance because I found it easy. I thought I would go back to the subway, but when I graduated I faced the choice of working as an analyst on Wall Street versus supervising a track gang with sledgehammers in a dark tunnel. Wall Street sounded better.’

Guardian of the gates

What’s not so easy is for portfolio managers to gain access to AssetMark’s 6,700 advisors who use the investment strategies chosen and built by Chafkin and his team of six due-diligence analysts.

There are two main propositions available to AssetMark advisors. The first, for those who want to build their own portfolios using AssetMark’s research, is a curated platform of around 50 asset managers, comprised of 27 multi-asset class strategists, 10 fund subadvisors and 14 single asset class separately account managers.

The strategies on the platform are split into three headline categories: core mark ets, tactical strategies and diversifying strategies.

There are 12 managers within the core markets category. These managers offer a total of 42 variations of strategies. Variations can include income-oriented, total return, tax-sensitive, tax-deferred, US and global.

Tactical strategies are divided into two further camps: enhanced return focus and limit loss focus.

Within enhanced return focus, two firms offer a multi-asset class strategy each, while 12 offer single asset class strategies. Within limit loss, six firms offer one strategy each.

Diversifying strategies are also split into two sub-categories: bond and bond alternatives (nine firms, 25 strategies) and equity alternatives (seven firms, eight strategies).

Some managers have strategies in more than one category.

The firm also offers a service whereby it selects the managers and sets the allocations for advisors who do not want to build their own portfolios.

It does this by selecting the strategies directly for larger clients or via a suite of mutual funds called GuidePath® funds.

Chafkin has not taken his portfolio manager hat off completely as these are funds of funds, including exchange-traded funds, on which he and two colleagues – Zoë Brunson, senior vice president, investment strategies and Gary Cox, director of portfolio management – are named as managers.

‘They [the GuidePath® strategies] are for advisors who say it is great that you have this curated platform I can pick from, but could you just pick them for me and build the portfolio for me? By picking solutions available from our platform we will construct solutions for the advisor,’ he says.

The firm also has a range of subadvised strategies, the GuideMark® funds, which it has created to give its strategists further options when building portfolios.

Chafkin and his team select the third party managers who subadvise these funds.

Some of the managers who subadvise these funds also have funds available on the AssetMark platform, although this is not the case for Goldman Sachs Asset Management, Wellington Management and Barrow, Hanley, Mewhinney & Strauss.

Recent changes to the line-up of asset managers saw River Road and Loomis Sayles removed as subadvisors on the GuideMark® Opportunistic Equity fund and the GuideMark® Opportunistic Fixed Income fund respectively.

Chafkin says this was not down to any performance issues but rather that the size of the funds meant they did not warrant three subadvisors each.

‘We still very much like both these managers but the particular multi-manager funds they subadvised were relatively small,’ he says. ‘As a result, it made sense to divide the assets in these funds among fewer subadvisors.

The former is now run by just Westfield and Diamond Hill, while the latter is subadvised by Franklin Templeton and DoubleLine Capital.

The team

Don’t rest on your laurels

Given the highly curated nature of the platform and the tight list of around 50 asset managers running money here or on a subadvised basis, those managers who do make the grade face a high level of continued scrutiny from Chafkin and his team.

‘That is why we can do such a good job on our diligence, because it is a small universe of managers we are evaluating.

‘The ratio of managers to analysts never goes over 10. As a result, our analysts can go much deeper compared with what you might get from a rating agency.’

So what exactly does Chafkin look for when assessing a strategy? Broadly speaking, people and risk management are top of the list.

‘Everyone talks about risk, but in my experience they can mean very different things,’ he says. ‘Everyone says they employ risk management and that it’s a priority for them, but if you dig a little deeper you find people execute on it in very different ways.

‘We obviously look at the people and whether they have been working together a long time. We care about that team dynamic, that it is settled and that people have history together. We care about the philosophical foundation of the strategy. Why should we believe? What is the process? What are their risk management controls on the portfolio?’

This focus on the team extends to how AssetMark works itself.

‘The due diligence process starts with the full team listening to the full story as we get to know the manager. Our experience has been that different people hear different things so there is benefit to having multiple people listening and comparing notes,’ Chafkin says.

‘We like discipline and depth. If we're evaluating a shop with one guy who has a good track record but it is just him, we are less comfortable with that than with a firm with a well documented and repeatable process and where there are multiple managers watching and contributing to the process.’

Recent strategies to be added to the platform, which demonstrated the above criteria, were the DoubleLine Shiller Enhanced CAPE fund, run by Jeffrey Gundlach and Jeffrey Sherman, and the WestEnd Advisors Global Equity ETF strategy.

Chafkin explains why the firm has been adding this type of portfolio.

‘We are interested in what we call tactical enhanced return managers, so strategists who are benchmarked against a broad equity index but through sector rotation or country rotation believe they can significantly outperform if they are not overly constrained.'

This focus on enhanced returns goes beyond picking funds and helped Chafkin when it came to relocating from Boston back to the San Francisco Bay area where he had worked while at Schwab.

Chafkin is a big fan of bocce and managed to somehow find a home tailor made for his passion.

‘It’s not too strenuous and it's one of the few sports you can do with a beer in one hand,’ he laughs. ‘It’s the old man’s version of a sport. I have been interested in that for a while. When I was in college I started a bocce team and I have a court in my home.

‘It was here before we moved in,’ he swears. ‘It was one of the things that attracted me to the house.’