How does Jane Buchan feel about departing the chief executive role she had for 16 years while building Pacific Alternative Asset Management Co. into one of the world’s largest fund of funds?
“Wonderful, terrific,” she quickly replied during an interview at a PAAMCO conference room in Irvine.
She left the post Aug. 1, about a year after combining with Prisma, the hedge fund unit of legendary Wall Street firm KKR Inc. The 53 year old said she will focus on a quantitative fund that PAAMCO will spin out beginning Jan. 1.
In the combined firm that has 175 employees, she was co-CEO with Girish Reddy, who has also stepped down.
There will be no new chief executive; instead it will be a committee of six, with three from each firm. The merged firm will retain its structure with dual headquarters in New York and Irvine.
When the merger announcement was made a year ago, the combined firms were to have $34 billion in assets under management or advisement. Since then, it’s fallen to $30 billion, which Buchan attributed to “advisory money” departing and which she said didn’t cause turmoil.
She said she’s accomplished what she set out to do and said PAAMCO Prisma “is in good shape.”
“It’s been great and I’m glad we got it through this transaction, but it’s becoming more of a management job than an investment job,” she said. “My heart is in investing.”
Math Whiz
Buchan is one of the few women operating at the highest levels of worldwide finance.
Born in Seattle and raised in Portland, Buchan knew she was very good at math from a young age. She also realized that she wasn’t going to be the best in the field when as a teenager, she attended a math camp filled with 20 other teenage whizzes.
“When I knew I wasn’t in the top third of that elite math group, I knew I was done,” at being a mathematician, she recalled. That camp was the last time she ever took a math class, she said.
She graduated from Yale University with a degree in economics. Buchan, who is a shade under 6 feet tall, also became a nationally recognized high jumper in track, traveling to Division 1 competitions around the country and reaching a high mark of 6’2”. The world record is 6’10 ¼”.
After graduation, she got a job at JPMorgan in New York. Then she learned about Irvine when JPMorgan gave her leave to join Nike Coast, a Southern California track club for elite athletes. Buchan tried out for the 1988 Olympics as a high jumper.
Afterwards, she earned a doctorate from Harvard University on how to price convertible bonds. For those with technical backgrounds, she described the thesis as a second order partial differential equation with a free boundary.
After teaching for three years at the Amos Tuck School of Business at Dartmouth College, she returned to Irvine, working for a year at a firm before striking out on her own, along with Judy Posnikoff, Bill Knight and James Berens.
With the backing of two institutional funds, the firm began with about $300 million in assets. In the first two years, they all ran the firm until Buchan “was nominated” to become chief executive. It wasn’t a natural fit for Buchan, who hadn’t taken business courses, learned on the job and called it “tiring.”
“Sitting in the CEO seat is a very lonely space,” she said. “Management is hard. The investing, technical parts are easier.”
Buchan, who is married to Corona del Mar track coach Jim Driscoll, described herself as an introvert who loves reading non-fiction, history and science. She’s known to pick up textbooks to solve problems.
“I like working numbers,” she said. “I love buying physics books and doing problems.”
No Home Runs
While the hedge fund industry has a reputation of shooting for home runs, Buchan said her company sought to provide analysis of funds that could generate consistent returns between bond funds and equity funds.
Clients included large institutional investors who wanted returns higher than bonds, but not the volatility of the equity markets.
Nowadays, large institutional investors are often pouring money into the 10 largest hedge funds without the extra fees charged by a fund of funds. PAAMCO’s edge is conducting analysis on new hedge funds to advise institutional investors.
“New hedge funds require lot of work,” she said. “You can make or break a lot of people.”
While she cannot discuss the actual returns generated by her firm’s advice, she said it has beaten its benchmark, the HFRI Fund of Funds Composite Index, which rose 7.8% in 2017 and is down less than 1% in the first half this year.
“Trust me, we wouldn’t be as big as we are today if it was bad.”
SoCal Pitch in Winter
Buchan sees a bright future for financial circles for Orange County. She noted that when she came here in the 1980s, Newport Beach’s Pacific Investment Management Co. (PIMCO) only had $50 billion; it now has $1.7 trillion.
She built PAAMCO by hiring “the best and brightest.” It was tough to convince talented recruits to leave New York, the center of worldwide finance.
“For many people [in New York], Southern California is a combination of a Valley Girl with a San Diego surfer dude,” she said. “When they come here, they’re shocked to find all the technology and UC Irvine with this big research university.”
She also added that bringing potential recruits to Irvine at the height of the New York winter “works incredibly well.
“If we can get them out here, we have a good chance of closing them.”
Quants a Coming
Even though her last day as CEO was Aug. 1, she didn’t take a vacation and instead went on a business trip for PAAMCO. She will remain a partner until the end of the year.
Buchan’s new firm, which doesn’t yet have a name, opens for business Jan. 1 and includes PAAMCO’s Alternative Beta fund, which has more than $100 million in assets. Seven PAAMCO employees will join the new firm.
It’s a quantitative fund relying on probabilities of different outcomes and whether securities are appropriately priced, an investment style similar to Ed Thorp, the Newport Beach resident who became famous for his books on beating the market and Las Vegas. Buchan said she’s not like Warren Buffett, the famous value investor who invests based on the intricacies of a company and industry.
“Intellectually, I belong to the Ed Thorp tradition more than the Warren Buffet tradition,” she said.
“I’m going back to my roots.”
