Scott McDonald (6:23)

Sloan and Dave, thanks for joining me today. Dave, why don't we start with you. Give us your quick background and let's jump right in.

Dave Jerger (6:30)

Well, I don't know how I'm still here because I was the first lawyer that WCM hired. You can imagine that WSIM was probably in operations for close to gosh. I mean it was started in 1976, way back in the day when I came on board, they were running billions of dollars and hadn't had a single in house counsel doing anything. Ironically, I wasn't even brought in to be the lawyer guy. I was a lawyer guy. I was working for a humongous law firm, hating my life, billing my life in every six minute increments as all the lawyers know they have to do. I took a leap of faith when I decided I just did not want to do that life anymore and came on with a friend who was working at the company, told me about it. I thought it was too good to be true. Took two years of dating for him to convince me that that wasn't actually the case. And started pretty much from the bottom, how we like to start. Everybody just doing basic portfolio management trades, working with the trade desk, doing some ops tasks, a lot of admin work. Eventually when Sloan convincing our CEO that we needed someone to actually look at the contracts, they were like, you should probably maybe blend you into a little bit of legal work just to make sure we're signing up what we think we're signing up for.

Scott McDonald (7:38)

And you weren't even a fund formation lawyer, which is where you typically come from.

Dave Jerger (7:43)

That's right, Yeah. I had no experience in the investment advisor space. I was a commercial litigator for seven years, going to trial, had some experience doing banking type litigation. But if you saw my resume, any other company and wanted me to hire me for this role, I would not have met the first layer review. But that's the special thing about this place is that we don't necessarily look for those orthodox competencies. It's character above everything. You have to be smart, you have to be super intelligent. But once you establish yourself in that way, everything else that you bring to the table matters so much more.

Sloan Payne (8:18)

Trust as the operating Principle versus systems and processes. I think that's a little bit inverted from how a lot of operational teams think. For me, it starts with the hiring. You said something, David. You're brought in from an employee who knew you as a childhood friend. We often have done that. There's a layer of nepotism here that's worked incredibly well because people are pre vetted. And if you're hiring not for credentials, but for self awareness for the whole person, that's the whole ball game for us. If you're an employee at wcm, you care deeply about your reputation, about the success of the firm and who you bring in. I mean, the bar is high. It's worked really well. We talked about some of the goofy questions we asked people like would you be friends with yourself? Tell me about that. Or if your friends had to write a one line roast of you, what would it say? Or what's something you used to believe about yourself that you no longer do? Those kinds of questions are interview questions. I mean, we have hundreds of them. Not to be cute, but we genuinely believe self awareness is the whole ballgame.

Scott McDonald (9:15)

It's so fascinating because at the end of the day, interviewing is trying to uncover who you are. So why don't we lay our cards on the table? Here's who we are as an organization. This is the type of person that would excel in this. Everyone's showing up and treating it like a first date. Everyone's amazing. Nobody has flaws. But eventually it gets unpacked. So why don't we just make life easy on everybody and just lay it on the table and say, look, this is who I am. If you don't like it, that's okay.

Dave Jerger (9:41)

And that's the point. Trying to get there as early as possible so we can reveal who those people are that we're bringing on to a very special place where if you don't have certain characteristics and traits, it's not going to work with how we form our culture around elevating your performance. We get pretty unorthodox in interviews. I remember an interview I had with a member on our finance team where we started talking about her love for making bagels. I'm a bagel fanatic. And so unfortunately, the interviews are always a little bit short. They're around 30 minutes, I think. We talked about bagels for probably 20 to 25 minutes, Evan. But in the last five minutes I was looking at the list of questions that I was supposed to be asking and all these phenomenal targeted inquiries that Sloan has curated over the years. And I pick one out randomly. And it was, how do you imagine yourself dying? And I look back, I probably could have picked a better one, but it revealed such a. An incredible story that she got into about not just herself, but her father and her family. And the interview got really real, really quick. And it picked up some traits and characteristics that you would never be able to reveal unless you made yourself vulnerable in that moment together. And once you start from a place of vulnerability, it automatically leads into the place of trust, which is what we're trying to chase. We're always trying to chase trust as quickly as we can.

Sloan Payne (11:00)

Bagels to death. Yeah. What's funny, though, because Jacqueline sees in the interview that Dave's actually interested in Jacqueline, and the back and forth that then emerges after the, like, how do you imagine yourself dying? But that's where the real terrain is, and it's not about whether you have the right resume or the right skill set. She does have a great skill set for the job, but that wasn't the point.

Scott McDonald (11:22)

So how did you know that Dave wasn't going to come in as a litigator and start tearing people up and make sure he's got the right mindset?

Sloan Payne (11:28)

Because he had Andrew Weichert, who had sponsored him, coming in, absolutely loves the firm, like most of the people here. I've been at the firm since 2004. The number of people that have left WCM voluntarily in that time span, it's less than three or four. We've had a couple of retirements, but people where it's not a good fit and they don't skip to work. I'm amazed by it. The flip side is nobody wants to bring anybody into the ecosystem that doesn't fit. So Andrew was just adamant about what a high quality person Jerger was, and then we put him to the same interview process. He was right. Dave's done three or four different jobs at the firm. I'm retiring in two years, and he's taking over my job. We have very similar perspectives, but his job is transitioning to this job, so he's got firsthand sense of how it all works.

Dave Jerger (12:16)

But if Sloan is being perfectly honest, he was probably very worried about me coming in and being the litigator that I was. I was worried, too. I was still getting to know the place and how they operated, and I was coming from a very, very different company to start where they talked about culture, talked about values, had the poster on the wall in the break room, but didn't do anything to align themselves with those values. I think their worry was that I was going to bring that culture into wcm and fortunately for them, I was ready to leap off the cliff and just do everything the opposite, as I was doing before I started. So it was a perfect fit.

Sloan Payne (12:52)

If either one of us had to say, why do you build trust as an operating mechanism? You want people to feel safe enough that they're going to be honest at work, but you also want them to feel trusted enough that they take ownership of stuff, that they take initiative. And you do that not through having systems and program. It's by modeling behaviors, by being intentional, but not rigid, by being organic, by being human. I think you experienced that out of the gate because I remember you did have some stuff early on about compensation. We have this whole idea that we want to generously compensate. We want to over trust people before they're ready, put them in roles before they've proven they can do them. That's our whole mantra. And then we pay them really, really generously. Dave couldn't quite get his arms around that in the beginning. He was trying to figure out, what is my bonus going to look like next year, what is my comp going to be, and is it commensurate with the risks of my position? Particularly when you went into the compliance role, it took a little while for you to shake the residue of the big law firm risk aversion. Is that wrong?

Dave Jerger (13:54)

No, it's not wrong at all. I'm still shaking a little bit of the rescue today. It's with you, despite all effort to get it off.

Scott McDonald (14:02)

Well, you spent your whole life being told that's the way.

Dave Jerger (14:05)

Yes, exactly.

Scott McDonald (14:05)

You come in and you're like, it's always X and X plus Y. And every year you could ask for a little bit more.

Dave Jerger (14:11)

And yeah, you had to be vocal. You had to do it because there was no one else doing it for you. It wasn't that kind of environment that cultivated growth from the outside. It was. You had to speak up and you had to prove yourself because everyone was just looking out for themselves. There was no service to others. There was only service to the entity. And no one even really knew what the entity stood for. And here's the exact opposite. It's all about serving the people. We understand that the entity is just a figment of a lawyer's imagination. Unless you're a company that has the machines producing all the output, you're going to have the people producing the output. And if you don't care for the people, you don't maintain the people. In the right way. And for us, it's maintaining it through trust. You're going to lose the game.

Sloan Payne (14:54)

Yeah, for sure.

Scott McDonald (14:55)

And Sloan, you came in as a philosophy major.

Sloan Payne (14:59)

Yeah. Isn't that what most guys running into the business side of investment management firms do?

Dave Jerger (15:03)

This is why he's so good at pontificating.

Sloan Payne (15:04)

It's funny. Like I've said, it's not a straight line path. It hasn't been for any of us. I've done virtually every job you could do at the firm. I waited tables until I was probably 30 years old and traveled. I definitely don't have the finance pedigree that a lot of people in a role like this would have. We're running $120 billion globally. It's definitely a complicated business. I'm not really a math guy. Somehow it works. It's fascinating. If you'd asked me when I was 20 years old, is this where I'd be? There's no way in the world I would have conceived it. But I love it. When Dave was talking, I was thinking about we didn't invent the culture from scratch. Paul Black, who's co CEO right now with Mike Trigg, he was co CEO with Kurt Winrich. Kurt's dad founded the firm. We joke sometimes that it's culture by inversion. I think about some of the stuff Dave was talking about getting his arms around coming from a law firm and this idea that we do tend to trust them before they prove themselves. We don't do that naively. We do it because we understand that reciprocity is a huge reflex that all of us have. And if people feel over trusted, hey, they don't let you down. For us, generosity precedes performance and the performance follows. But I think the reason that happens is because this culture that was built by inversion and we did invent it from scratch. Paul and Kurt, when they were co CEOs, they got to watch a bad culture up close in a sense that, I mean, was this an origin story that we tell as a firm? In a way they went 180 degrees the other way. Now we have open offices because the door was always closed back then. We have shared equity across 65 or 70 employees because in the old days one person controlled it all. Our pay is transparent because it used to be opaque. Fun is a core value of the firm because the alternative that was here used to produce talented, miserable people. It's one of the most honest things about wcm. We didn't have a blueprint, but we had this cautionary tale did you have

Scott McDonald (17:02)

to actually sit down and write it down?

Sloan Payne (17:05)

Paul is a really gifted storyteller. There is this oral tradition at WCM where Paul, say Darrel founded the firm in 1976. We had these perfect tailwinds. There was Post Erisa getting passed. It should have been really easy to be a money management firm. He was a radio personality in Southern California. The founder was. The firm never really grew past $200 million in the 10 or 11 years that preceded Paul's arrival. And the founder son, Kurt, was part of that package as well. Paul came in to help raise assets. He's young, he's eager. Honestly, I think he was a little intimidated, which is funny. It's a paradox if you know Paul because he's such a confident, extroverted guy. But that's what the environment did to people. Six months in, founder invites Paul to lunch. They go to drive there. And founder's got the most expensive production car in existence at the time. It's an Acura NSX. There's like a $90,000 car. They drive around the block, they go to Taco Bell, and founder pays for his tacos. Lets Paul or. And then lets Paul pay for his own.

Scott McDonald (18:07)

It's a value shop.

Sloan Payne (18:09)

They're like knee to knee in these plastic chairs, you know, at the Taco Bell and Fallon. Darrell asks Paul, what do we need to grow the firm? We brought you in to grow it. You're not really raising any money. What do we need? And Paul tells him point blank, our investment performance sucks. We need numbers. So at that point, basically, meeting's over. Darrell gets in the car, says to Paul, you don't mind walking back, do you? So he pulls away and there's Paul walking a mile back in a suit in 95 degree weather in Lake Forest. To your question, did we write all this down? No, but my sense is that all of us, and at that time, Paul in particular was taking notes the whole time. He didn't know it yet. Eventually, he left the firm. He went to another money management firm in Southern California. He got fired there after 11 or 12 months. Two weeks before Christmas, he gets a call from an underling, gets fired on the phone, calls his wife on the way home. Then he calls Kurt, the founder son at wcm, and tells him he really wants his job back. There's a rival. The founder's moving on. Kurt's not sure what to do. But in the end, he hires Paul. Fast forward a few years. They've bought out the founder and the question became, what did we do? Under that regime, what can we do different? How do we not make talented people feel small? And we went 180 degrees the other way. And the cool thing, the kicker is that at that point in time, Kurt, who's now retired, owned 90% of the firm. When he retired three years ago, he owned 24% of the firm, a firm that was hundreds of times larger than it was when he started. And he handed the rest of that equity to the rest of the employees at virtually no cost. Paul tells a story to the whole firm. He's laughing at himself all the way through it because he knows none of us really deserve what we have. The firing and the Taco Bell that preceded it was, in a way, the best thing that happened to him. We talk about our core values. Fun and gratitude. That's where it comes from.

Scott McDonald (20:12)

If you canvas the industry, if you'd wave your hand over what you guys are built is unusual for somebody to do that.

Sloan Payne (20:19)

It is. It's unorthodox. A lot of the guys, the first generation, I guess we call it Gen 2, which was Paul, Paul, Kurt Winrich, a guy named David Brewer, Jim Owens, Tom Rudzetsky. A number of them have retired. Most of them have retired. Paul's still here. But those guys all knew each other partly because of their faith. They knew each other through church connections. And I'm basically the resident atheist, so it's not like that's a prerequisite for belonging or connecting here. But if I'm being really honest, there is something fundamental in our values and ethos that's really nicely aligned with a Christian ethos and a sense of morality and helping other people and giving and generosity. It's not an accident that that's been running through the firm for the last 30 or 40 years. It's fun to joke about it being an inversion story. We saw what one guy did and we just did the opposite. But there's something deeper than that about the ethics of the people and their affiliations with each other.

Dave Jerger (21:14)

Writing values down, writing stuff down and putting it on paper. I think we obviously do that. We have certain documents. When I first came on board with wcm, the first thing that I got was this three page memorandum from Kurt Winrich called WCM Constitution of Values. And it was beautifully written, encapsulated pretty much everything you ever need to know about wcm. It was a phenomenal reference point. But I think everybody realized that the second you write something down, you give yourself an excuse not to do anything else. And I think that's what's the hard part about our culture is it requires a lot more work than just putting these concepts on a piece of paper. It's acting on those concepts, behaving aligned with those values. And you can't just do that every once in a while. And we're not saying that this is a recipe that could be necessarily replicated and copied across every single company, but for us, it works.

Sloan Payne (22:10)

You can see it on our website. We are serious about our values. Fun, gratitude, and serving others. And when we say serve others, we mean serve our clients, serve our constituents, serve our employees, serve one another. And I don't know what the mission is, but those values, I think, are real. If you ask people on the ops team what is the ops team's mission statement, they probably say something like, get shit done. Which is true.

Scott McDonald (22:33)

But have fun with it.

Sloan Payne (22:34)

Yeah, and have fun with it. Which we do. I mean, we work really hard on fostering connection and doing fun stuff together. My wife, Lauren, that's her whole job, she and another person named Ashley Moritz. And we're literally building an off site. It feels like every two and a half months we're doing something with either the whole firm or some subset of people and really focusing on relational stuff. This whole idea that if people like each other and work together, that it's just got this massively reinforcing benefits.

Scott McDonald (23:03)

And how often are you doing that? I want to talk about this. Because people do off sites, it usually comes as a big splash, the wave ends, and then nothing happens. How do you guys think about that?

Sloan Payne (23:13)

There was a period where off sites, we would do one or two big ones a year. We were emphasizing the fun and the sense of gratitude, which is easy to cultivate if you're somewhere nice. Eating and drinking and doing fun things together, having shared experiences and connecting. But then the service to others, that starts to raise the standard. I would say in the last five or six years, the off sites have been more purpose built. For instance, we're doing an off site in Sonoma with everything that rolls up to the operation side, which would be finance, trading, compliance, the marketing team, the RFP team, the portfolio admin team. It you get the gist of it, and that'll very much be a fun experience. We have lots of extracurricular things planned in small groups and in large groups. So you do have that shared experience, reflection, the fun together, the new exploration. But then every day there's programming. What are we working on? And actually, this is about trust. We talk about trust. What are the behaviors that we want to reinforce. There's just three or four things that we know are super impactful that are good hygiene in any relationship. Things like don't talk about people when they're not in the room. If I've got something that's bugging me about Dave Jerger, I don't talk to Juliana about that. And if I do, Juliana redirects me and says, you should share that with Jerger. We try to honor the absence. That's a standard of behavior. The other one is actively listening. The whole idea that someone's telling you something, sharing something, and you immediately want to make it autobiographical. You're trying to think like the human condition. Well, what does that remind me about me? Instead of being curious about their perspective and what it is they're trying to share. So there's some behaviors like that that we'll focus on at an off site that we build on and remind people. These are core to this whole foundation of trust. Connecting the dots that the reason trust matters, it solves for a whole permission layer. That at most firms, that's what slows you down and impedes your desire to do stuff, is you've got to go get permission. You've got to get buy in from a bunch of different constituents in order to do anything new. Our view is have a really big field with really ride fences and let people run. This weird thing happens where people know where the fences are 95% of the time they don't have to check, they know. And when they don't know that 5% of the time where they run into a fence or run through a fence, it's usually somebody on their team. It's not Dave or me or somebody on the leadership team correcting. It's usually self correcting, which is amazing.

Dave Jerger (25:42)

And those off sites are so much fun. But you can't just rely on those off sites to instill the culture. It's a daily practice. It's the conversations Sloans are talking about where it's not just building the trust, it's not just maintaining the trust, but it's finding those people in the moments where they're questioning their loyalty and trust the most. When they make a mistake, for instance, when someone makes a mistake, that's where the creep of losing trust has, I think, the best capability to move in. And it's what you do in those moments that for me, as a leader of a compliance team and a couple other departments, how you respond to that person's flaw will define their performance or possibly their entire career at WCM and You have to do that consistently, over and over again. I remember the first time I made a mistake when I was not doing lawyer things, when I was working for my high school friend, and he was managing me, and I had finally made an error that I knew was possible, but when I did it.

Sloan Payne (26:37)

But you. That deserves a repeat. Your boss is now your best friend from high school. Who got you the job.

Scott McDonald (26:43)

There's a whole blue book on this one.

Dave Jerger (26:45)

I was trying to move pretty fast through that nipotizing point, which made the conversation even harder. Here's a guy who stuck his neck out for me to not only get me the job, but his reputation is now on the line as I'm trying to figure out how to do this thing I've never done over the last seven years of my career. And here I am, finally making the first mistake. It was a small trade error, looking back on it, but to me, it was everything. I thought I had blown up the firm. Fortunately, I didn't wait. I went to him. I got the trust aspect of the culture first. The conversation was happening early, and instead of bludgeoning me with critique and making me feel bad and humiliating me for making a mistake, it was him going over the Bloomberg terminal, looking up the trade exposure, and making a joke about how if I'd waited five more minutes, I would have probably cost the firm a couple $200,000 more. He was like, thank you for telling me, and asked me a question and said, how do you think we could prevent this going forward? He knew the answer. He knew the answer how we could do it. But he made my opinion matter in my most vulnerable moment. And when you do that, when you treat mistakes like that, you tell people that they're survivable, and then when they believe that they tell you the truth, they tell you it earlier. And then when they tell you the truth about anything, you just solve problems faster and better. And then that's how we operate through and through.

Sloan Payne (28:05)

Yeah.

Scott McDonald (28:06)

It's so important to have a culture that you raise your hand and it gets recognized, and you speak up and your hand doesn't get shut off. But I'm curious on that, David. It feels like for somebody in the CCO role, does that culture make your job easier?

Dave Jerger (28:21)

At some level, it's a paradox. It definitely makes it easier, but there's times where you don't necessarily want to know everything that happened. And the chief compliance officer. There's a reasonable standard in the statute for a reason. You don't have to have a perfect system. You have to pick up every little mistake. But yes, it absolutely makes my job easier because my job is trying to figure out how to protect the firm from making those mistakes that humans are prone to make. And when you have a small team like me, you can't catch everything. But when you expand that scope out to the whole firm, you essentially turn your compliance team of five to six to a compliance team of 100. You have everybody looking out for the firm in the same way. And because they know they're not going to come to me and get punished, they're going to get rewarded for telling me when things happen happen earlier. You get a lot more volunteering and a lot more cooperation towards that same goal.

Sloan Payne (29:15)

It does go back to all this relationship stuff, the things that we try to practice at work in relationships, seeing other people's perspectives, being curious, trying to honor the absence, being honest, giving hard feedback when it's needed. Those are the same things you do in good relationships outside of work. It's the same damn stuff. And it's not that complicated.

Ted Seides (29:40)

We're going to take a quick break in the action to tell you about SRS Acium. Want to make sure your M and A processes aren't stuck in the past? Partner with a company that's been defining the future of dealmaking for nearly two decades. Instead, when it comes to M and A innovation, SRS Acium has reshaped the way that deals get done. Streamlining processes for maximum efficiency and minimum headaches. Professional shareholder representation, online MA payments, digital stockholder solicitation. SRS Acium pioneered each and continues to set the bar for game changing innovation. So leave the days of disjointed deal management behind and define your future with SRS Acium. The smartest way to run a deal. Learn more@srsaquium.com that's SRS A C Q U I O M dot com and now back to the show.

Scott McDonald (30:43)

I want to talk a little about scaling and growth. How do you hire keep that culture intact. It's going to be hard to bring in senior people that fit that bill without corrupting the pool.

Dave Jerger (30:55)

Yes, I think this is where a lot of companies probably can't do what we do because it's hard to keep it up. We have such a good understanding what makes us us and what values drive us towards the same goal. But you can't just let it stop there. It's that daily affirmations of all the behaviors and all the stories that we go through that make those values live. And someone coming from the outside like me When I came over or someone we just hired recently on my team who came from a very different culture, it takes effort to show him what it means to be a good WCO employee, what it means to have fun, what it means to be grateful. It means to be serve others. And the only way that I can do that is model the behavior. I can only show him. In those moments every single day, when someone comes to you and talks about mistake, how do you approach them? I think about as we scale. We always thought it was going to be more difficult to keep our culture as we grew up, because smaller groups, it's easier to find each other on these values. You have more touch points. It's easier to stay connected when there's less people. But ironically, I think as we grow, the culture is actually scaling almost by itself. So long as we're modeling the behavior frequently in the right way, everyone picks it up and self replicates and reciprocates.

Sloan Payne (32:09)

This is funny for so many reasons. It is the counterintuitive answer because I think the culture's stronger now at a hundred people than it was at 30 or 35. And it's not systems and process like Dave said, it's modeling behaviors. It's paying people generously, it's giving candid feedback, it's trusting that the values will self replicate. When you hire right, you've got to hire right. But it's this bottom up creativity versus top down planning and it reinforces and starts to grow itself. It's honestly better than it was 10 years ago. So one person I didn't mention is Matt Miller. We call him Coach Matt. He's our chief culture officer and he's a big part of the answer to your question. Some of the specific behaviors we mentioned, like honor the absent, listening to others without making it autobiographical, listening with curiosity and giving lateral feedback to peers, feedback to people you report to, feedback to people that report to you. Doing that sooner before it becomes loud. We call it feedback sooner, not louder. Those behaviors, they came from Matt. The thing that's important isn't that Matt named these behaviors. It's that he's one on one with people every single day, every week, across the entire firm, constantly reinforcing best practices and good habits. And habits require repetition and deliberateness. At least the good ones. Right. So what Matt does as chief Culture officer is he holds the space for all of that. He meets with people, they feel heard, they have somewhere to take a conflict or confusion. And then when they've done that, his motto basically is, what's your best next step? What are the behaviors? You already know that work? How are you going to implement those? How are you going to move this forward? And that's his whole job. And a lot of firms assume culture will scale on its own, especially if you hire well. And I think we're guilty of this. The idea that we hire for people that are hungry, we want to hire people that are humble, and we want to hire people that are smart. That's a really good foundation for a culture, but it's not enough. You need a dedicated person building into the culture, reminding people of good relationship habits, helping people interact in ways that reduce friction, that encourage connection and collaboration. And that's Matt's job. It probably would have been useful at 20 people. At 50 or 60, it's absolutely essential. I can't imagine the firm scaling without the work that Matt does.

Dave Jerger (34:40)

But we have examples where we've run into the opposite outcome, where we've known what we had to do and we just didn't do it. And then we realized where that goes, and it doesn't result in a hire that we can keep. We had a sales guy we had to let go specifically because we were avoiding hard conversations, because we were waiting to talk to him about things that he wasn't doing right in align with our values. We pretty much did the exact opposite of our playbook. And not surprisingly, it didn't work out. So it takes that conscious, intentional effort to not just have the values written down somewhere, but to live them every day and model them for the rest of.

Sloan Payne (35:15)

See, I thought for the longest time I'd read some Harvard Business School study or something, thing that said that interpersonal complexity goes up orders of magnitude when you go from a team of two to three to five, et cetera. That it's an exponential increase in the number of connections. And then so there's some natural law that happens over an organization of 40 or 50 people where it just becomes untenable. A whole new paradigm needs to be introduced to have cohesion and connection. And I was like, oh, this is absolutely gotta be right. The philosophy guy, sticking to a principle. It's utter horseshit. I stuck to it. I was like, we can't grow over 45 people. It couldn't have been more wrong. I'm proud of that. You model the behavior and it replicates itself.

Scott McDonald (35:58)

The rough guidelines I've read must be from Harvard Business School as well. But once you hit 50, the tacit information flow, you get big enough that not everybody's hearing it directly. It's all indirectly. And that's the part when in many organizations, the competition isn't really out there. It's in here, inside. And that's where things get tricky. And that's a pretty common stress point for a lot of organizations.

Sloan Payne (36:20)

I remember the quote Dave said last week, which I thought was, again, it goes back to hiring. He said, we don't hire people we have to protect from each other. We hire people who protect each other. This stuff sounds so goofy when I say it, but I also know it's true. We haven't always been this way. One of the things that's been really hard to evolve at WCM as we've gotten bigger. We used to think that the culture was built on connection. It still is. But the idea that I had to know what your kids names were, what sports they were in, what they're doing next week, I was really obsessed with that. That's how people know we care about them, we're interested in them. Cultivate that across the whole firm. That's pretty easy to do with 20 or 25 people, if you like the people genuinely, which we did and do. But it's not scalable. Something that went hand in hand with that was kindness without accountability. At early wcm, the firm was still small. We had this woman who was the office manager. She was just awesome, super warm, genuine, kind of person you'd want to work with. But she also handled Paul's travel. And she had about a 65% hit rate on reservations. Maybe it was less. I remember one time Paul and I fly into Chicago. We were on a prospecting meeting on a Tuesday. We grind through a full day of meetings. It's a Sheraton Five Points Hotel or something. It's 11:30 at night. Go to the front desk, and the desk person's like, paul Black, Sloan Payne. I'm not finding anything under that name. Pause some typing, and she's like, oh, wait, I see something. Today's April 4th. Your reservations on May 4th. God, she made a reservation for us. It's a month wrong. And Paul would laugh. And not like a tight laugh and not a frustrated laugh, just a genuine belly laugh because it was so perfectly, consistently her. So we'd find the nicest hotel within 10 miles, check in at midnight, and move on. The point is, nobody made her feel terrible. That was just the weather. That's just what you got. And that was the culture at the time. Nobody was thinking about it explicitly. But Paul laughing first, set the temperature for everything. And if he could find it so could everyone else? I think we still have that. But here's the turn. At some point the firm grew. And those road trips weren't just about prospecting runs. They were client meetings. People who had trusted us with money. So missing a reservation went from being a charming inconvenience to an actual liability. The honest thing is that everybody loved her too much to have the real conversation. She was so warm, she was so genuinely good. Nobody wanted to be the person who told her the job wasn't right for her. So we waited and she probably stayed longer than she should have and in a role that probably wasn't making her happy. And it's because the people around her were too kind to be honest. That's not kindness, that's avoidance dressed up as kindness. And she eventually left. And the cool thing is she became a minister, which, the moment you hear it, it makes complete sense.

Scott McDonald (39:31)

That's awesome.

Sloan Payne (39:33)

So there's two things that are both true. One thing that we still do is having the equanimity to laugh stuff off. Find a solution. Don't make somebody feel small. That's a cultural asset that's worth protecting and we still run on it. But I think holding people accountable to the job is also a way that you respect them. And you can't have one of those things without the other. And it took us a long time to figure out that second point that you really do have to hold each other accountable. And that's part of the relationship hygiene that Dave was talking about. We've got to remind people to do it, to do it sooner. We say we have a saying that you do that sooner, not louder, before you build up a story about it. You give the person feedback before it's expanded in a narrative that's a fiction as much as the truth. So it's not like we just figured this out instantly. It's taken a lot of growing and evolving.

Scott McDonald (40:23)

Let's turn to tech and initiatives. What are you guys working on these days?

Dave Jerger (40:28)

The two letter acronym and only that Everything AI Team hates us right now with how many projects we have on board. But because we have such a flat structure and we like to move fast. I hate to steal Zuckerberg's phrase, break things, but especially as a chief compliance officer because I hate when things break. But we move with speed and purpose because we know there's just so much value and optimization potential with tools. And it's really fun what we're doing on the research side, but it also flows over pretty much everywhere. Anybody who wants to take on A project with a tool that they have access to on an AI side, they can just jump in and do it without question, without permission, without any bureaucracy. I have a couple of things that we're working on the compliance side, but I think there's a lot of fun stuff that we're doing with research, particularly with our best friend Claude over at

Sloan Payne (41:16)

Anthropic, we have a thing called Sherpa, which is this internal AI research assistant. It's built by the investment team and it's a data scientist and an AI guy we brought in. It does deep research on earnings transcript, expert data networks aggregating colossal amounts of information with very specific cues and prompts around what matters to us. Prompts around what's changing. Not give me a static research report. And all of it grew from within. There's an adjacent thing called Everest. On the investment side, we think a lot about company culture. So it's a whole culture analysis tool that's connected to our investment research apparatus. And it scales us in ways in terms of our understanding of culture and competitive advantage. When we're looking at investment companies that are astonishing and these things, like I said, they've emerged organically with our support and encouragement, but not because somebody on LT had the vision or the strategic idea that we needed it. It comes from the bottom up, which I absolutely love.

Scott McDonald (42:19)

Do you feel like that's a competitive advantage for you today, building your own research tool?

Dave Jerger (42:24)

I think the more competitive it comes from not just building the tool, but being willing to throw out the tool two weeks later because of how fast technology is progressing. And I don't even say that facetiously, because Sherpa, Everest, those tools were literally actively changing them right now. Flexibility and being able to pivot, not getting stuck in these lost opportunity cost biases, I think that's where the true competitiveness will come. With people leveraging AI, you gotta be flexible.

Scott McDonald (42:54)

Are you sandboxing it where you're seeing what the output is, or are you just deploying this into the wild?

Dave Jerger (42:59)

There's definitely validations built in. We just created what we're calling an AI task force. Probably a silly name, but there's a group of people, representatives of pretty much every single department, all working together towards three initiatives which have been defined by one of our head PMs, and it's build tools. That one, build better portfolios, and if not, that allow us to pick better stocks, and if not, that make our analysts more efficient. And so everything that we're building hopefully flows in the top priority number one. Build better portfolios. If not, that at least flows down to number two. And number three, if we have a mission statement right now with leveraging tech and AI, that's our mission statement that we're trying to march forward to.

Scott McDonald (43:40)

You guys have a couple of different offices. How does that fold into the adoption?

Sloan Payne (43:45)

Culturally it's not hard because typically reason we have other offices. There's a number of people that work remotely, but we have some discrete, purely separate offices. One's in Cincinnati, one's currently in St. Louis. We've had a couple others that didn't work out. They're teams that came out of other firms that needed a landing spot that for some reason, again, it's probably got introduced. And actually both cases they were personal relationships that we got introduced to. Either preexisting relationships with somebody at WCM or somebody very close. We felt like the chemistry was good. It goes back to wanting to serve other people, people. Not necessarily are these great economic opportunities for wcm, not necessarily given our size and the potential size of some of these other firms and their products. But it's a way for us to give back and spread the gospel of good culture and generosity and caring for people and doing good stuff. Our rule is you need to come to WCM and Laguna as much as you can and you need to join us on off sites as much as you can. And you should be connected to us as much as you can and spare no expense in that pursuit, which is pretty easy. Some of this stuff, I sound like I'm being virtuous. One very obvious thing I haven't said is we are in a high margin business with recurring revenue. If you make it in this business, it's hard. It's incredibly risky. Business managers blow up all the time. We're not immune to that. We've almost blown up at least three times that I know of. But because it is a high margin business with good recurring revenue, you can't afford to pay people well. You can't afford to be generous and that creates a whole host of benefits. And you can afford to invest in your culture in ways that might seem extravagant from the outside but that pay dividends in perpetuity. We think really, really hard about that. Another example of just how powerful it is to over trust people is we have a guy named Scott Peters who hired him about a year and a half ago. Again, it was a friend of a friend. He called me one day. He was between jobs. He wasn't sure what he wanted to do. He wanted career advice. I like him so much. I'm like, Scott, why don't you come work for us? We'll figure something and know a few things you're good at. You've got a weird backgr. Had a business where he created luxury cowboy boots. He ran a bunch of Amazon stores. It doesn't look like he was cut from central castings to be in his investment management firm, but he's been incredible. And one of the first things he did after being here for six months was figured out that Salesforce is utterly broken and that there's a much better way for us to handle a CRM and a sales tool. He figured out that it was HubSpot and he told us that we needed to migrate Salesforce to HubSpot and that he was going to do it. We had some outside consultants that told us it was going to take, I don't know, two years to get migrated and all the relational connections between the data. He did it with very little help in less than two and a half or three months. Etsy overcompensation and over trust Dynamic live and recent. And it was so fun for him. It's not heroics. Everybody's grateful for it and I'm just amazed by it.

Scott McDonald (46:46)

You guys are based in Laguna Beach. I'm curious as to the culture element and the diversity of thought, but also is it easier or harder being in that part of the world to have an asset management business?

Dave Jerger (47:01)

Easier in some ways, probably more difficult than others. It's easier because I'm wearing flip flops right now and I wore them to work. I get to look over across the aisle to see my CEO wearing his flip flops and shorts and golf polo and I get to look outside and look at the glistening ocean when I ever want to. It's definitely easy to get people to come and be excited about working here and having fun, but the talent pool is much smaller if we're hiring locally. Obviously there's not as many people working in finance in Laguna Beach. We have to spread the net out a little bit wider, which is why we do actually have a lot of people who are working outside the firm. We have some remoters that are really good at what they do and are able still to find the moments and and connection points to gather enough culture in the headquarter office where we can all stay aligned in that same value vector we're talking about. But it's intentional. We don't want to be on Wall Street. The whole point of this place is to not just think differently, but act differently and what better way to do that than stick ourselves 50ft from the ocean and go jump in it? As opposed to stepping out of a high rise and getting on a subway and running into the rest of the thousand analysts in New York City and talk about all the things that they're working on. It's really intentional to do it in a very strange, irreverent way to how many investment advisor shops are started. So yeah, I think it's a paradox. It's easy in some ways, it's hard in others with the talent pool, but it definitely works for us.

Sloan Payne (48:29)

I think it's gotten easier too, because there is a brand and a reputational awareness and people do now want to work here. Whereas 15 years ago it was harder, especially if you're hiring on the portfolio management analyst side to get people that were really finance driven to pull them out of Chicago or New York and get them to come to Laguna Beach. That was a weird proposition for many of them. That ends up producing cultural attributes that are beneficial that then become this again. It's a self perpetuating kind of phenomenon. I see it everywhere and paradoxes are cool. It's another cool thing that we operate around, that the more latitude you give people, the less rules you need, they become self regulating. That is definitely a paradox, but it definitely works.

Scott McDonald (49:11)

Sloan, so you're going to retire in two years. How did you come to that conclusion?

Sloan Payne (49:17)

I'm loving my job right now. I work all the time, generally speaking, I think most of us enjoy each other and I love my job. I think I've finally gotten good at it. But there's all these other things I love to do. I love to fly fish, I love to ski, I love to snowboard, I love to mountain bike and I don't have time for any of those things. And I love my friends, I love to cook. I have all these great relationships and I just have a switch, not a dial. And when I'm switched on at work, it's all work. I want to do some of those other things while my body still works. And I don't. You know, my knees, my hips work, my brain sort of works. And that's really all it is, going back to generosity. We've set up a succession. Planning this, this thought for the leadership team started when Kurt was still here. There's something reassuring about, hey, we're building this thing. We really love the people that we've hired, that we've trusted. We want it to be self perpetuating when we're gone, that it continues to Create prosperity in our communities for our clients, for employees. But what happens, a lot of investment management firms getting rid of the founder or second gen, whatever, the ownership layer is heavy because they want to realize some economics of what they've helped create becomes really burdensome. And a lot of firms historically have taken out debt to buy out founders or they sell themselves to another firm. And then whatever culture you've built, if not jeopardized, it certainly becomes tenuous. One of the things we figured out was when we leave, or if you wanted to pay a market multiple for it, and if the firm had to go out and take a loan, or when Kurt retired 24, 25%, we paid a market multiple. That's a. A big loan, probably with a B on it. That becomes a liability. You go through a period of underperformance, you lose some clients, it becomes hard to service that a lot of firms have done that and failed or gotten into trouble. And so what we did is said, wait a minute, we don't want to do that. The goal is for this thing to move in perpetuity. When I'm gone, I don't really care what everybody else does. Hopefully they'll do the right thing. But when I leave, just pay me for a few years. So our thing is, the own equity will continue to pay your dividend. You participate in the profitability of the firm for seven years. After that, you give your equity back at book value, which at an investment management firm is nothing. So it's a really nice glide path because what it does for somebody like me is I'm incentivized for the next seven years to be really good. Well, I mean, it's two years from now that I retire, but I want to set Dave up for success. I already want that. But now I have a financial incentive. The alignment is really, really good. No, I'm not getting a market multiple. No, I'm not. Hundreds of millions of dollars. But I'm being well compensated. I stay on the board. I get to support Dave, I get to support the firm's prosperity, and I get to support a trajectory that I think is awesome and going to reward a lot of people. That whole thing, I think it's beautiful.

Dave Jerger (52:09)

It also gives me a nice little carrot. If I'm not feeling comfortable one day about handling a certain issue, I can remind Sloan.

Ted Seides (52:16)

Hey.

Sloan Payne (52:16)

Oh, yeah.

Dave Jerger (52:16)

You still have to have this firm in operation.

Sloan Payne (52:19)

Still on the dole.

Dave Jerger (52:20)

Come back in and help me.

Scott McDonald (52:25)

We've covered a lot of good stuff that we don't normally talk about. We're in a people business culture. Anything else that you guys want to touch upon that we haven't?

Sloan Payne (52:33)

I wish people understood how simple it is to run a good business. And by that I mean you got to measure things, you have to hold people accountable. But doing it systematically and systemically I think is a fool's errand. And instead this idea of treat people really well, be generous over, trust them before they think they're ready, show them, trust them, be honest, be candid, make work, feel safe, make mistakes, feel safe, celebrate errors, encourage people to learn and get better. It's just not that hard. And be curious, you know what? And sometimes we fuck up, Sometimes I'm actually an asshole. And then when I do, I say sorry, absolutely. I'm super self conscious about the fact that all of this sounds so mushy and like just love everybody and everybody just get along, it'll be fine. And you'll have an amazing firm. I know that I've tried to express that it's a lot more deliberate than that and that we do have hard conversations and we do fire people and I am demanding and Dave's demanding and the leaders we have standards. It's just that for the most part they're self reinforcing.

Dave Jerger (53:42)

It sounds so cliche. We start talking about these values together, but the company is still made up of people. It's just people that you're trying to get through the day and perform better inch by inch. And all you have to ask yourself is, how can I make this person better? Forget the company, forget the entity, forget the structure, just focus on the person and what would make that person do something great. And that's all you have to focus on. All the other pieces form themselves when you focus all that purpose behind the people as opposed to the entity. It sounds cliche, but it works.

Scott McDonald (54:17)

So much good stuff here. So I want to turn to close and we've got two questions for you guys and I want you both to each answer it. The first question is what advice would you give to an emerging manager?

Dave Jerger (54:28)

First I would say don't do it, just give up. It's not going to be worth it. Yeah, but it's going to touch upon a theme that we've already talked about. You got to hire the right people, don't do anything before you figure out who you want to hire. You don't necessarily have to follow our recipe and rulebook trying to find, you know, humorous, self aware, no pedigree, figure out what you want to accomplish and find those people that are Going to be aligned with those values and hold yourself to it. Don't bend, don't break. If you're going to start a place that's made up of people and the output of those people, you got to make sure you hire first. Right?

Sloan Payne (55:09)

I go back to the behavioral stuff, which is what you just said, the over trust thesis. Hire people that you know can figure it out. You don't need to hire a guy that understands everything you could about a trade desk or everything you could know about compliance. You just need people that are self reflective, curious, honest, low ego, have a sense of humor. There's so much power in that. And don't hire based on pedigree and credentials. Hire people with raw capability and let them build things. That just works so well for us. An analog to that or something adjacent to it is since I've been here, we have never had a five year plan. We have sales targets and we have some projects we're trying to complete every year, but we don't have a business plan for the next 1, 2, 3, 4 or 5 years. Overemphasizing that stuff is often an error people make when they're creating something. And I think instead you just get the right people together and just run, let them run and see what happens.

Scott McDonald (56:07)

The other question I have is what one book, article or other resource you commonly recommend to others.

Dave Jerger (56:13)

I love food, so pretty much the only thing I'll read is something that deals with food these days. It's a book called Unreasonable Hospitality Will Guidera. Honestly, if you read that book and replace WCM with the restaurant, you'll get an absolute taste of what we're talking about. It's leading and building a firm and a company where you're just absurdly generous. You could create a culture just on being that and it bleeds through everywhere, whether you like it or not. So that's one book. If you want to figure out what WCM is like, just replace eleven Madison park with WCM and you have how

Sloan Payne (56:49)

we operate around here.

Scott McDonald (56:52)

Love it.

Sloan Payne (56:52)

My favorite book is I'm reading Rory Sutherland. He came out of Ogilvy. The book is called Alchemy. Probably why I'm so obsessed with this idea that when you demand logic, there's a hidden price that you pay. You destroy magic. The whole world's run by logical people. But if that's the case, if it were only run by logical people, you'd only discover logical things. And I guess the point is in real life a lot of things aren't logical. They're psychological, so you need both. I think sometimes that's lost at investment management firms. It's especially lost in the operational compliance side of things.

Scott McDonald (57:28)

Well guys, thanks for the time. This was really a lot of fun and I look forward to staying in touch. Us too.

Dave Jerger (57:34)

Thanks Scott.

Sloan Payne (57:34)

Thanks Scott. Really enjoyed it. Thank you.

Ted Seides (57:37)

Thanks for listening to the show. If you like what you heard, hop on our website@capitalallocators.com where you can access past shows, join our mailing list and sign up for premium content. Have a good one and see you next time. All opinions expressed by TED and podcast guests are solely their own opinions and

Sloan Payne (57:56)

do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

Ted Seides (58:04)

Clients of Capital Allocators or podcast guests

Sloan Payne (58:07)

may maintain positions in securities discussed on this podcast.

Ted Seides (58:11)

Capital Allocators and its affiliated entities receive

Sloan Payne (58:14)

compensation from WCM Investment Management under a consulting agreement.

Ted Seides (58:19)

We are not a current client of wcm.

Dave Jerger (58:22)

The views expressed today are those of

Ted Seides (58:24)

the speakers and should not be considered

Sloan Payne (58:26)

investment advice or a recommendation to buy

Ted Seides (58:29)

or sell any securities.