OC Business Journal

WEALTH MANAGERS:

FINANCE: Laguna Beach firm invests overseas

■ By PETER J. BRENNAN

$100B in AUM for under-the-radar WCM Investment Management

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 coCEO, 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.” ■

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2022-01-17T08:00:00.0000000Z

2022-01-17T08:00:00.0000000Z

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