Overall, Spungen believes that Windward's strategies have performed as advertised. "We've gotten exactly what we expected," he says. "We hired them to be the anchor and counterbalance to other things in our portfolios and to provide good risk control."
Retail Business
With the exception of a husband-and-wife team who occupy a satellite office in Palo Alto, Calif., Windward's roughly 30 employees occupy the 36th floor of an office building in Boston's financial district. The firm manages about $3.5 billion in assets, a far cry from the late-'90s when company founder and president Stephen Cucchiaro was a one-man shop focused on private clients and individuals and had only about $30 million in assets under management.
The firm's institutional business from trusts, retirement plans, foundations and endowments has gained traction in recent years and now makes up one-third of Windward's assets. Clients in this area run the gamut from Major League Baseball and the Diocese of Buffalo to the Institute of Current World Affairs and the bakery employees' pension plan in Philadelphia.
Another one-third of Windward's assets come from multi-family offices and wealth management advisory firms, and the last third comes from retail advisor networks at Charles Schwab, Fidelity Investments and, more recently, Merrill Lynch. Schwab and Fidelity have been particularly fruitful for Windward.
"A good part of my business has to do with those two places as referral sources," says David Elan, a Windward principal who did investment and client portfolio work at Ernst & Young and Goldman Sachs before coming to the firm. "They also come from my own referral network."
Elan says Windward does a good deal of sub-advisory work. "We love being involved with the platforms of other RIAs and family offices."
For individual clients, Elan says, Windward has a $500,000 minimum. The annual management fees are 1% up to $5 million, and decline incrementally further up the asset ladder.
Building The Model
Cucchiaro, 57, the driving force behind Windward's investment model, began developing his investing ideas when he was an undergraduate math major at MIT. His focus then wasn't on the financial markets, but on the more mathematically abstract work of analyzing complex systems.
"Often, the behavior of a complex system of interrelated variables can be chaotic and seemingly random," he says. "We learned that when you drilled down deep and understood the key cause-and-effect relationships that relate each variable to each other, and how we explain these relationships with their time delays, nonlinearities and feedback loops, we then can get tremendous insight on how the systems behave."
Later, when he studied for his MBA program in finance at the Wharton School under Marshall Blume, a leading authority on modern portfolio theory, Cucchiaro says he saw how the complex systems he studied at MIT could be applied to the study of global capital markets. "Rather than what the industry does, which is to separate investments into different silos where various experts specialize in either equities, fixed income, commodities, currencies and the like," he explains, "I saw the capital markets as an interrelated system of markets, and that many variables have cause-and-effect impacts across the entire market system.