Robert Katch Chief Executive Manchester Financial Inc. Westlake Village Capital Under Management: $670 Million Prior to starting Manchester Financial, Robert Katch managed the endowment of Pepperdine University in Malibu. According to the company’s website, Katch founded the company to bring the investment methods used by institutional investors – such as pension funds, foundations and endowments – to retail investors. The firm has developed specializations in helping retirees from specific companies, such as Amgen Inc., with their finances. Question: How do you separate Manchester from the competition? Answer: On the investment side, it has become tougher to differentiate yourself, especially in equities, with the advances in passive investment. Where we can differentiate is with the use of structured notes, which we buy through JP Morgan and Goldman Sachs. This way we get market exposure with an upside advantage and downside protection. For example, if we buy a 1.5x upside with 20 percent downside protection, then if the S&P 500 goes up 22 percent the note goes up 33 percent and if the S&P goes down 22 percent the note goes down 2 percent. They (structured notes) are available to the general public, but the terms are not as good. We get better terms because of our size. Changes in finance industry: The investment side has become much more of a commodity. Financial planning is what sets firms apart – meaning personalized financial planning that helps (clients) make decisions. To do that, you need size. When I started almost 30 years ago, if you could get to $100 million (under management) you would survive; then it became $500 million and now we are pushing $700 million. That size really helps offer value-added services. So some scale is very important, but there’s a sweet spot – too small and you go extinct because of competition, too big and you lose touch with clients and that personal service. How come you specialize in retirees from certain companies, such as Amgen and Pepperdine University? It’s an expertise that we have developed by working with Amgen folks. Also, GTE and Verizon — there are still a lot of people who worked there, and Southern California Edison is another big local employer. As for Pepperdine, I used to work there and a lot of us went to school there. It’s not a huge number of employees, but we have developed a specialty. When we move to (the retirement program at) a new company, we can still do it very well, but it’s nice to be able to do a deep dive. Most difficult part of the investment process: Humans can extrapolate current events; if things are pretty good, they think they’re going to stay that way, and if things are bad they think they will continue badly. It’s hard for us. We want to run counter cyclical. Working against the grain, we have to educate clients and work on portfolios without extrapolating current events. Usually, the future is somewhere in the middle. What we see a lot is plan abandonment when things are bad. Fear is a stronger motivator than confidence. When people are afraid, they change at the worst possible time. With what markets are going through right now, without proper financial planning, policy abandonment is easy. We are keeping our clients on track. Alternative investments? Real estate, yes. I managed Pepperdine’s endowment. An endowment perceives itself as perpetual, so they have a time horizon of hundreds of years. Individuals don’t have that time horizon. That’s why buy-and-hold doesn’t work in the same way. (investing in) private equity and venture capital is too much for most people, but real estate throws off money. If you think you can get 10 percent out of stocks, then you get 2 percent from dividends and you need 8 percent from appreciation. In real estate, you can get 7 percent cash, so you only need 3 percent price appreciation. I would rather get the 7 and hope for 3. Best part of your job? Simplifying complexity. I have to deal with finance, accounting, economics, politics, taxes and history. All of those impact investments. The magic and fun is simplifying that to the essence of the problem so we can understand it. What’s really fun is giving that understanding to clients. What’s ahead in 2019: A continuation in the move toward more planning. Now 50 percent of my staff deals with planning with no extra revenue. We are driving down costs of investing, and that’s available elsewhere, so what’s the value added by a firm? It’s helping people make decisions in a complex world. When we deal with clients’ lives, we want to help them to simplify. That’s the paradigm going forward.