Scott Minerd wadded up another piece of paper and looked out at the Pacific Ocean from his Santa Monica, Calif., office. He needed a better blueprint for his organization—a foundation for his investing process that could support consistent performance—and his ballpoint drawings still weren’t right. So Minerd kept sketching: boxes, arrows, words, whatever came to mind. When he found himself swimming in “spaghetti” doodles again, he’d ball up the paper and start anew.
Minerd had dealt in bonds, structured securities, currencies, and derivatives during highflying stints at Merrill Lynch, Morgan Stanley, and Credit Suisse First Boston in the 1980s and ’90s, running desks for bosses such as John Mack and Bob Diamond; the work burned him out at the ripe old age of 37. “I walked away from extremely large offers on Wall Street,” he says today. “I realized this wasn’t a dress rehearsal for life, this was it.”
He’d been away from the business for two years when Mark Walter, a former client who ran the investment firm Liberty Hampshire, came to lure him out of early retirement in 1998. Minerd had two conditions: He would retain his autonomy and remain in California, his home since walking away from trading. Soon, Liberty merged with the family office of 19th century mining baron Meyer Guggenheim’s heirs, transforming the little-known investment house into Guggenheim Partners, a boutique asset manager.
By 2002, Minerd realized he needed to be systematic to make Guggenheim a force, hence his ballpoint attempts at a new blueprint. Eventually, a concept from Adam Smith’s The Wealth of Nations—about how the division of labor leads to higher productivity—popped into his head. “The idea is if you segregate duties, you get greater efficiency and better results,” Minerd says. Inspired, he drew four boxes inside a wheel. For Minerd, each box represented a specific part of the investing process: macroeconomic analysis, security selection, portfolio construction, and portfolio management. The simple structure let “the data talk,” he immediately realized. Managing money could be a coolheaded, calculated process with scalable, replicable results, “not me just sitting in a room saying, ‘We need to do mortgage-backed securities.’ ”
It’s common for money managers to break investing into specialties, but Guggenheim, which today oversees an impressive $260 billion, shows how structure can drive results. “Scott is methodical and patient,” says Walter, the firm’s chief executive officer. “He was a prime architect of Guggenheim Partners’ disciplined investment process—a process we have inculcated throughout our asset management business.”
In fixed income, in particular, Minerd has racked up a prolonged hot streak. According to data compiled by Bloomberg, the $5.7 billion flagship Guggenheim Total Return Bond Fund has beaten 97 percent of its peers over the past five years, chalking up a better record than similar funds headed by fixed-income gurus such as Jeffrey Gundlach, Bill Gross, and Dan Fuss. Assets doubled over the past 12 months, as more investors discovered the fund, which celebrated its five-year anniversary in November.
“I let the data talk to me and try to keep the emotion out of it,” says the 58-year-old Minerd, who’s barrel-chested from years of bodybuilding. His $5 billion Guggenheim Macro Opportunities Fund—a credit-focused fund that invests in a range of equities, commodities, and alternative investments, as well as bonds—has returned an average 5.6 percent over the five-year stretch, beating 95 percent of its peers. The $3.5 billion Guggenheim Floating Rate Strategies Fund, which focuses on bank loans and other adjustable-rate debt, has bested 96 percent of its peers over five years. About 57 percent of Guggenheim’s assets are separate accounts for insurance companies, endowments, and other institutional investors who don’t publicly disclose their results.
“I have never met anyone who’s a better judge of credit or structurer of transactions than Scott Minerd,” says Jim Dunn, CEO of Verger Capital Management, which oversees $1.5 billion for nonprofits, including Wake Forest University’s endowment. “We call him the bond savant.”
A built-in benefit of Guggenheim’s structure, Minerd says, is a system that slows decision-making, preventing traders and portfolio managers from making hair-trigger moves based on fear, greed, or personal biases. “If you want to do emotional investing and call all the shots, Guggenheim is not the place for you to work,” he says. “If you don’t allow one person to make all the decisions, it really slows the process, resulting in better decisions.”
Slow decision-making dovetails with research by Daniel Kahneman, a behavioral economist, 2002 Nobel Prize winner, and subject of Michael Lewis’s 2016 book The Undoing Project. In 2006, Kahneman helped Guggenheim develop and trademark individualized profiles for high-net-worth clients called “Riskometry,” which matches return expectations and risk appetite. It provides a framework for thinking slow in the fast and furious field of investing, an approach Minerd says has paid dividends in bear and bull markets.