On a side street in southern Laguna Beach is an unlikely story of a wealth management firm that went from riches to rags to become one of the nation’s biggest wealth managers.
WCM Investment Management grew to $4 billion in assets in 2005 only to see it shrink to $833 million by 2011.
“According to industry logic, we had no right to fight another day” in 2011, Chief Executive Paul Black wrote in a paper on the company’s website.
“From all these experiences, we have developed a motto at WCM: Keep showing up!”
That perseverance has paid off; WCM’s assets have since exploded to $100.5 billion as of Sept. 30.
The firm, which requires a $10 million minimum to open a managed account, manages wealth for institutional clients such as pension and profit-sharing plans, business entities and charitable organizations.
WCM has kept a low profile, as Black has wanted to give the firm an aura of mystique. It’s declined most requests for interviews, including those by the Business Journal.
In the past year, Black has pulled back the curtain through a white paper on his website, and a couple of interviews with financial publications.
The Beginning
Winrich Capital Management was founded by Darrell Winrich in 1976. His son, Kurt Winrich—who joined in 1984, along with Paul Black, a former Wells Fargo portfolio manager who came onboard in 1989—bought the firm in the 1990s.
They began successfully in the early 2000s, when they were able to reach $4 billion in assets.
Then the firm entered a six-year long drought, a time that included a portfolio manager’s death and “too many mistakes.”
Assets dwindled as it bet wrongly, such as favoring Yahoo and Dell over Google, Apple and Amazon.
It hired younger, inexperienced portfolio managers because it didn’t have the model or cash to attract expertise.
Instead of firing its managers and analysts during these hard times, they kept them on.
“We never gave up on each other,” Black wrote on his website last July. “We survived, in spite of all our mistakes, because caring for each other means we almost didn’t know how to fail.”
Truth Tellers
While the firm at the time emphasized caring, they also insisted on “truth telling.”
That dialogue included ditching its strategy of investing in companies with competitive advantages, also known as moats, a theory popularized by the famous investor Warren Buffett.
They found that buying companies with large moats is a “deeply flawed idea.”
“It’s not the size of the moat that matters; it’s the direction of change,” Black wrote.
“When the blinders of conventional wisdom finally came off, we painfully realized that because every business is always either strengthening or weakening versus its peers, simply buying the widest moat—a rearview mirror perspective—is a fool’s errand.”
Large Fund Delivers
In the past decade, WCM’s new model took off.
Its largest fund with $28.9 billion AUM, the WCM Focused International Growth fund (WCMIX), last year returned 17%, beating its benchmark by a whopping 914 basis points.
It holds shares valued at $2 billion to $3 billion in foreign firms like Mercado Libre Inc., Latin America’s version of Amazon, and Taiwan Semiconductor Manufacturing Company Ltd., which has soared during the worldwide semiconductor chip shortage.
The fund’s performance has ranked it among the top 3% of its peers for the past decade, according to Morningstar.
Another fund, WCM International Small Cap Growth Institutional (WCMSX), returned 17% last year, outperforming its benchmark by 695 basis points. It ranks No. 1 in its category for the last five years, Morningstar said.
A third internationally focused fund, WCM China Quality Growth Institutional (WCMCX), was up only 4.1% for the year, but it beat its benchmark by a whopping 1,297 basis points.
Nowadays, the company has 75 employees, including 40 who have ownership stakes. Natixis Investment Managers, a part of the giant French financial services firm, owns a minority stake in WCM.
Kurt Winrich, who recently retired as co-CEO, remains as chairman and likes to edit the company’s quarterly newsletter. While his share of the company has been diluted to 20%, its value has risen because of the increase in assets, Black said on a recent podcast.
“We know we’ve all done extraordinarily well,” Black said. “We’ve won the lottery.”
The Rough Road to My First $100 Billion
Editor’s Note: Paul Black, CEO of WCM Investment Management, wrote the following post last July about managing and overcoming challenges during the past 20 years:
Manage a $4 billion large-cap domestic growth firm. Underperform dramatically for five years. Get fired from almost all $4 billion of assets.
Never fire an employee or lower their compensation. Take all the income hit at the principal owner level.
Launch an international growth strategy, which your firm has never done, and have it run by a PM (portfolio manager) straight out of operations with no portfolio management experience. Figure out how to trade foreign ordinaries and currencies for the first time.
Add an inexperienced analyst after three years to join the inexperienced operations PM. Tell the new international PMs—with no experience crafting or telling a story and only a few years of experience managing money—to get on the road to tell the story.
To make it more difficult, only have $3 million in the three-year track record.
For fun, add a new analyst who dropped out of Columbia Business School thinking he ought to just open a hamburger stand.
Don’t expect any help from the founders—they’re all experiencing PTSD.
Go for it!
