2015 annual review
TRANSCRIPT
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ACUMEN & INGENUITY 2015 ANNUAL REVIEW
The Glenmede Trust Company, N.A.Glenmede Investment Management LPglenmede.com
Cleveland, Ohio25825 Science Park Dr.Suite 110Beachwood, OH 44122-7315
216-378-2900
Morristown, NJ1200 Mount Kemble AvenueMorristown, NJ 07960-6797
973-451-3800
New York, NY 590 Madison Avenue31st floorNew York, NY 10022-8526
212-328-7310
Philadelphia, PA1650 Market StreetSuite 1200Philadelphia, PA 19103-7391
215-419-6000
Princeton, NJ16 Chambers StreetPrinceton, NJ 08542-3708
609-683-1005
Washington, DC1717 Pennsylvania Avenue NWWashington, DC 20006-4614
202-292-3131
Wilmington, DE 1201 N. Market StreetSuite 1501Wilmington, DE 19801-1163
302-661-2900
2015 ANNUAL REVIEW
THE EXAMINATION OF A 60-YEAR-OLD STARTUP
STAY INDEPENDENTPrivate ownership means our interests directly align with our clients’ and provides a long-term, multi-generational perspective focused solely on serving their needs.
ACT RELIABLYFounded with a fiduciary mindset, we hold ourselves to the highest standards. We place clients’ interests first so they can rely on the objectivity of our advice and recommendations.
BE CREATIVEAll clients deserve solutions tailored to their specific needs. Our collaborative culture integrates innovation and diverse perspectives to ensure clients benefit from our best thinking.
WHAT SETS GLENMEDE APART IS WHAT DEFINES US AS AN ORGANIZATION. We are a company of reliable stewards that provides innovative solutions and the highest
level of investment and wealth management services to suit only the best interests of our
clients: individuals, families, endowments, foundations, institutional investors and consultants.
OUR COMMITMENT
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TO OUR SHAREHOLDERS, CLIENTS AND FRIENDS,
Pew family founded Glenmede as a private company in 1956, they
did so with purpose and vision. They were, in their own quiet way,
idealists. They set a tone from the top, dedicated to maintaining a
set of values that would engender reliable business practices that
balance the interests of shareholders, clients and employees. At
the same time, Glenmede’s growth has been fueled by the pursuit
of new ideas that keep pace with our clients’ changing interests,
evolving market conditions and regulatory considerations.
Our focus on our ideals and ideas has served Glenmede, our
shareholders, clients and employees well. In 2015, we reached
record-level revenue, net operating income and assets under
management. This success has allowed us to enhance our wealth
planning capabilities, product development, online access and
risk management systems, while also building a skilled and diverse
workforce.
Over the last year, we implemented organizational changes
designed to better serve our broad client base. For example,
we more clearly delineated our practice areas into three groups:
Private Client; Endowment & Foundation; and Glenmede
Investment Management. Each meaningfully contributes to
corporate revenue and income and serves a distinct client base.
The first two, Private Client and Endowment & Foundation, have
historically been the core of our business operations. For both, we
manage multi-asset accounts as a “Chief Investment Officer” and
serve as an advisor and administrator on wealth planning and
philanthropic strategy, or as a trust or endowment advisor and
administrator. The third group, Glenmede Investment Management,
was created in 2007 to offer our equity and fixed-income separate
accounts and funds to an institutional client base, including 401(k)
plans, pension and endowment investors, retail platforms and
registered investment advisors.
ON FEBRUARY 29, 2016, THE GLENMEDE TRUST COMPANY, N.A., HIT AN IMPORTANT MILESTONE, marking 60 years since our founding by children of Joseph N. and
Mary Anderson Pew. Given that we were “born” on a leap day,
it is possible to argue that Glenmede has only now passed its
15th birthday. While others could struggle with this ambiguity, we
embrace that we are simultaneously an established and enduring
organization while also a relatively young and vigorous company
excited by its future.
Our new tagline, “Founded on ideals. Built on ideas.” offers a
compact explanation of both sides of our character. When the
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played an instrumental role in turning the once-new office into a successful venture. All of these individuals deserve special thanks for providing
the firm with thoughtful advance notice of their retirement plans, allowing for a smooth transition to a new group of leaders and professionals.
At this time, on behalf of everyone at Glenmede, it is with deep sadness that I remark on the untimely passing of Fran Thomas, Director
of Audit. Fran was not only one of our longest-tenured colleagues, but also a recognized leader in the risk management industry and the
Philadelphia community. He was greatly admired and will be sorely missed.
In closing this year’s letter, it is an honor to cite the tenure and caliber of our professionals, in part because they pass on the values of
our founders. These values distinguish our firm and are important in our recruitment of prospective employees and clients.
We realize, however, that tested values alone are not enough. It is the combination of our history with our willingness to pursue and
adopt new thinking that empowers our ability to grow and serve the changing needs of our shareholders, clients and employees.
GORDON B. FOWLER, JR.President and Chief Executive Officer, Chief Investment Officer
The business development and client relationship management functions of each group are able to provide our clients with a more specialized
level of service, and outside our firm, employ a more targeted business development effort. These changes bring our organization into alignment
with the clients we serve, but do not limit our thinking.
The first article in this year’s report, Institutional Advances: Incubating Ideas for Growth, offers examples of how creatively addressing the needs of
one client group can benefit the objectives of all Glenmede clients. Focusing on our investment business, it highlights how solving the intellectual
and practical challenges of different and varying client needs informs our perspective and hones our skills.
The second article, A Sailboat Can’t Sail Itself: The Importance of Wealth Administration, considers our steadfastness in maintaining a top-tier wealth
administration business. While the industry seems to be scaling back and de-emphasizing its commitment to these services, we continue to build out
our strengths in this area. We believe administration is a vital adjunct to the planning process and essential to successful outcomes for our clients.
Our third article, A Wealth of Technology: The Smart Evolution, explores more deeply Glenmede’s growing investments in technology. We are
conscious that our clients value, above all else, the personal relationships they develop with their relationship team, and I certainly don’t anticipate
Glenmede becoming any less people-oriented during my tenure. However, as our clients continue to look for more advanced technology-based
services, I am confident we will continue to greatly improve the speed and efficiency with which their needs are met.
Every year, we make note of those employees who retired after significant service. Kate Koch, former Director of Operations and Management
Committee member, stepped down after 33 years. Kate oversaw the significant evolution of our operational systems, processes and people during
her long tenure. Lou Miller and Jim Mercer, who retired from our Wealth Advisory business, each served their clients for many years as Relationship
Managers, trusted family advisors and good friends. Finally, Glenn Switzer, former Director of New York, stepped away from the business having GLE
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INSTITUTIONAL ADVANCESINCUBATING IDEAS FOR GROWTH
IT MAY COME AS A SURPRISE TO LEARN THAT NEARLY HALF OF THE ASSETS UNDER OUR MANAGEMENT TODAY ARE ON BEHALF OF ENDOWMENT & FOUNDATION AND GLENMEDE INVESTMENT MANAGEMENT CLIENTS.
Much of the growth of our institutional footprint has occurred during the past decade, and is the result of
thoughtful innovation and naturally occurring synergies within our investment platform.
Since our founding six decades ago, Glenmede has maintained a singular focus: to provide the highest level of
investment management services aligned with the interests of our clients. A fundamental principle driving our
culture and processes is our commitment to thoughtful innovation. Take, for instance, in 1969, when sweeping
changes to the federal tax code posed dramatic implications for philanthropies. While other corporate trustees
might have viewed the newest laws as a hurdle, Glenmede approached the changes as an opportunity to
re-evaluate the concentrated stock holdings of The Pew Trusts, leading to the diversification of the portfolio.
In the decade that followed, our focus was driven by the need to develop forward-looking investment strategies
that turned regulatory challenges into opportunities for increased giving. In 1978, we built on that experience
when we made our fiduciary, tax, financial and philanthropic services available to outside investors.
From the 1980s to the early 2000s, we continued to grow our investment management business with a bent
for doing things differently. For instance, we supplemented our suite of proprietary investment products with
external managers and introduced private equity and hedge fund strategies to provide clients with opportunities
for non-traditional sources of return. Along with a number of public market strategies, these asset classes have
allowed us to hone our expertise in Sharpe Ratio investing, an approach for selecting managers based on the
ratio of return to risk rather than performance relative to risk.
OF $31 BILLION IN ASSETS UNDER MANAGEMENT45% ARE INSTITUTIONAL ASSETS
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OUR GROWTH From our founding mandate to serve a single client, we now serve
more than 200 endowment and foundation relationships. With our
history and by leveraging our existing platform, we continue to
develop resources and expertise dedicated to serving the needs
of nonprofit clients.
In 2007, the formation of Glenmede Investment Management (GIM)
ushered in another new beginning. GIM centralized the management
of our many proprietary investment strategies, making them available
to investors outside of The Glenmede Trust Company, such as pension
plans, consultants, financial advisors and registered investment
advisors.
Nearly a decade after its launch, GIM has grown from 13 strategies
and $1.3 billion in assets to 19 strategies and $6 billion under
management.1
At the root of this substantial growth is an approach that leverages data in an effort to model forward-looking
indicators of economic trends, market momentum and individual securities. Having emerged from an entity
that serves private clients, GIM’s strategies never lose sight of these needs while developing products for an
institutional marketplace.
HAVING IMPACTOur institutional business allows us to scale our thinking in order to incubate, challenge and test new ideas.
Impact investing, which seeks to generate a measurable social or environmental impact with a competitive
investment return, is an area where, for more than a decade, Glenmede has partnered with clients to focus
on investments specific to their interests in private and public markets. Our Quantitative Research team develops
customized screens that serve as a starting point to narrow the universe of investments by ranking companies
according to a range of considerations, including environmental, social or governance (ESG) preferences.
Last year, we converted the insights from recent path-breaking academic research studies into two new ESG
investment strategies.
As we enter our 61st year of providing investment management services, we will continue to cultivate and
adapt our institutional business alongside our private client business. Our culture of thoughtful innovation helps us
leverage new investment ideas across all types of clients, and our legacy as a trustee brings a heightened level
of transparency, expertise and personalized service to the institutional marketplace. It is a rare combination, and
one we expect will help fuel our growth for many years to come.
“Glenmede’s culture promotes a think-tank mentality. Our institutional business allows us to scale our thinking in order to incubate, challenge and test new ideas.” — Peter J. Zuleba, III, CFA® President, Glenmede Investment ManagementIN
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1 GIM’s AUM rises to $13.0 billion when including assets managed by it on behalf of The Glenmede Trust Company clients either through mutual funds or managed accounts.
A SAILBOAT CAN’T SAIL ITSELF THE IMPORTANCE OF WEALTH ADMINISTRATION
READY TO SAILLike a trans-Atlantic crossing, the administration of a wealth strategy comes in stages. A well-trained administrator
brings a seasoned eye to the pre-departure assessment process, identifying, gathering and even transferring critical
documents into electronic form—including that forgotten insurance policy from 1960. Using GlenmedeConnect’s
virtual safe, a secure cloud-based storage solution, is one means to protect important records. Before leaving port,
a crew needs to ensure the equipment is in working order. Similarly, before launching a wealth strategy, the wealth
administrator needs to carefully consider and test for every possible contingency. The names and titles used in estate
documents must match the titles used to set up trust and investment accounts. Accounts must be funded in the
proper amounts and with the right assets. IRA designations must be carefully coordinated with the estate plan.
Even a minor oversight at this stage could endanger a successful passage.
THE ART OF A SAILOR IS TO LEAVE NOTHING TO CHANCE.”
“
When Annie Van de Wiele, one of the first women in history to navigate a boat around
the world, said this, she most likely didn’t consider her words could also apply to
navigating the currents of wealth administration.
At Glenmede, wealth advice comprises two distinct disciplines: wealth strategy
and wealth administration. Where creating a wealth strategy is analogous to the
contributions of a boat designer and architect, wealth administration is comparable
to the role of the professional crew entrusted to operate the boat.
CHARTING YOUR COURSECollaboration between a client and their attorney, accountant, portfolio
manager and wealth strategist is an important first step in creating a wealth
plan. A good strategy will plot a comprehensive and forward-looking course
and include myriad records such as a will, trust documents and financial
projections, just to scratch the surface.
Implementation of these strategies requires an experienced
administrator. The truth is, the finest wealth plan—like a well-crafted boat—
can’t sail itself. Beyond the planning and building phases, there are
critical steps that need to be rigorously and repeatedly followed
over time. A well-executed strategy requires persistence, attention
to detail and a deep knowledge of estate planning, trust
administration and tax law. In addition, wealth administration
needs to be flexible to accommodate inevitable and
often unpredictable life events.
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Once a wealth strategy leaves port, the
wealth administration team kicks into high
gear. It is not enough to raise the sails and
hope a client and their family drift in the
right direction. The crew’s job requires a
disciplined work ethic and ongoing vigilance.
Key events, such as age of attainment
and annual rights of withdrawal on trusts,
must be tracked. Good judgment, the
hallmark of a fiduciary, must be exercised
so that discretionary trust distributions are
both tax-efficient and consistent with the
intent of the grantor. The administrator must
facilitate charitable and family gifts so that
the amount, timing and source of funds has
been carefully optimized. Trust provisions
need to be explained and interpreted for
beneficiaries. These and countless
other details are part of the day-to-day
proficiency required for a successful wealth
journey. An experienced administrator is
invaluable in keeping even the best-laid
plans from drifting off course.
SMOOTH SAILINGPart of enjoying wealth is having the peace of mind that comes from knowing a professional crew is managing
the details and also standing watch for any out-of-the-blue occurrences.
Thanks to the complexities of life, tax codes and trust law, navigating your wealth strategy requires a skilled wealth
administration crew. Unlike many other wealth management organizations, Glenmede has always invested in a well-trained
and experienced team of advisors and administrators. These professionals are a great source of pride and continue to
differentiate our firm at a time when the industry seems to be scaling back its commitment to these services. Instead, we
continue to build upon our strengths in this area and believe administration is a vital adjunct to the planning process and essential
to a successful outcome for our clients.
“There is intent, there are documents and there is reality. This is where Glenmede adds value. When it comes to wealth administration and advisory, we ensure alignment among all three.”
— Susan P. Mucciarone Director of Private Client Relationship Management
STAYING THE COURSEOcean waters, like life, rarely guarantee smooth sailing. Minor squalls and
major storms require midcourse corrections and, occasionally, a Herculean
all-hands-on-deck effort to remain headed in the right direction. A newborn
grandchild, for example, is a cause for celebration, and with this joyous event,
a new account or trust may be needed. Unexpected family developments,
however, either a divorce or an unanticipated marriage, can have a more
serious impact on the original intent and objectives of a wealth strategy. In these
instances, a wealth administrator is relied upon to coordinate among a client’s
attorney, accountant and other advisors. Sometimes, significant life events, such
as a death of a spouse, can lead to spontaneous decision-making. At such
times, reasoned and impartial counsel becomes imperative, not only to ensure
that the investment and tax implications won’t trigger unfavorable
consequences, but as a calming influence during a transition.
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THE SMART EVOLUTIONA WEALTH OF TECHNOLOGY
IT’S HARD TO BELIEVE THE TERM “SMARTPHONE” WASN’T PART OF THE VERNACULAR LESS THAN A DECADE AGO, or that “internet” didn’t become a household term until the
mid-to-late 1990s. Now go back in time to 1956, the year Glenmede
was founded, when rotary dial phones and telegrams were the
prevalent modes of communication. No Facebook, no texting.
Change in technology continues to accelerate. Throughout periods
of remarkable progress, Glenmede has kept pace by advancing
the security of our systems, enhancing the client experience and
preparing for future growth.
As with our investing style, we’ve managed to avoid flavor-of-the-
week trends in order to focus on innovation that’s appropriate
for our clients and for the long-term success of our business.
Our approach to technology remains relevant, exact and
straightforward. Yet, no matter how automated our world becomes,
the value of a handshake and face-to-face dialogue will never go
out of style.
ENHANCING YOUR EXPERIENCE At Glenmede, we’re committed to enhancing the client
experience—whether it’s online, by phone or in person.
Here are some ways we’re harnessing technology to
promote communication and foster a genuine rapport
with the single most important part of our business: you.
GLENMEDECONNECTThis custom interface provides clients with 24/7 access
to account information. The newly redesigned portal
includes a vault, an encrypted cloud-based solution,
to store your critical documents, and will
soon feature WealthView, our aggregation
and wealth-planning tool that will provide
real-time views of your activity and goals.
Look for ongoing enhancements
to GlenmedeConnect throughout
the coming year.
STREAMLINED SYSTEMS & STATEMENTSThanks to your feedback, monthly
statements are now easier to read and
navigate, and can be viewed online at
GlenmedeConnect. Opening new accounts
has become more complex, due in part to
increased regulatory requirements, and
streamlining our client experience through
new systems and processes is a priority.
GRANTS MANAGEMENT This easy-to-use portal facilitates our work with foundation
and nonprofit clients. A robust grants management system,
the interface allows clients to manage the lifecycle of a
grant, including the ability to receive and review online
grant applications and track grant activity. These and other
efficiencies should simplify workflows, helping our clients to
more easily pursue their philanthropic goals.
VIDEO CONFERENCINGGlenmede’s state-of-the-art video conferencing system
makes it possible for our teams to connect with clients
regardless of geography or weather. Similarly, video
conferencing allows our offices to communicate in real time,
supporting increased and timely collaboration.
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KEEPING YOU SECURERisk is unavoidable and, in a portfolio, a necessary
trade-off for return. But we can reduce risk for our clients
when it comes to our systems.
Glenmede supports multiple layers of cyber security and
protection to safeguard our systems and client data from
the ever-evolving threats posed to electronic information.
We continually monitor our digital environment and
employ biometrics and advanced authentication
methods to ensure that account credentials and other
critical information are protected.
Glenmede also conducts disaster recovery and business
continuity testing to prepare for unexpected events, such
as extreme weather or power grid failure and even the
low-probability but high-risk scenario of a pandemic.
“Our approach to technology is the same as our philosophy for our business: invest in the best interests of clients.” — Louis J. Pellicori Chief Technology Officer
Technology is a powerful tool,
and one that we embrace
thoughtfully. It allows us to be
more transparent and has near-
unlimited potential to provide our clients with
secure, customized access to their account
information and relationship team. As we look
to the future, we’ll continue to carefully vet
new ways to leverage technology to improve
that access.
PLUGGING INTO THE FUTUREWhat’s in store for 2016 and beyond? We will
continue to invest in our systems and partner
with premier technology companies to keep
pace with our clients’ needs and preferences,
achieve process efficiencies and maintain
state-of-the-art cyber security protocols.
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2015 FINANCIAL OVERVIEW
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31
In thousands 2015 2014
ASSETS
Cash and cash equivalents $ 26,256 $ 38,363
Investments 89,234 66,816
Fees receivable 15,630 16,152
Premises and equipment, net 14,295 14,636
Other assets 18,618 16,799
Total assets $ 164,033 $ 152,766
LIABIL IT IES
Accrued expenses and other liabilities $ 45,883 $ 46,716
STOCKHOLDERS’ EQUITY
Common stock and surplus 30,717 23,042
Accumulated other comprehensive loss (11,050) (11,237)
Retained earnings 122,457 113,765
Treasury stock, at cost (23,974) (19,520)
Total stockholders’ equity 118,150 106,050
Total liabilities and stockholders’ equity $ 164,033 $ 152,766
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31
In thousands 2015 2014
OPERATING REVENUE
Investment advisory, trust and other client service fees $ 101,553 $ 100,421
Mutual fund fees 50,593 28,018
Pew Trusts fees 17,552 17,604
Interest, dividends and other income 1,368 1,612
Net securities gains 2,223 3,262
Equity in earnings of Philadelphia International Advisors, LP - 83
Total operating revenue 173,289 151,000
OPERATING EXPENSES
Compensation and benefits 85,468 76,378
General, administrative, depreciation and amortization 33,680 31,240
Shareholder servicing and subadvisory 15,039 7,729
Total operating expenses 134,187 115,347
Income before income taxes 39,102 35,653
Provision for income taxes 13,888 13,345
Net income $ 25,214 $ 22,308
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSYear ended December 31
In thousands 2015 2014
CASH FLOWS FROM OPERATING ACTIVIT IES
Net income $ 25,214 $ 22,308
Non-cash items and changes in assets and liabilities 3,958 2,018
Net cash provided by operating activities 29,172 24,326
CASH FLOWS FROM INVESTING ACTIVIT IES
Proceeds from sales of investments available-for-sale 19,879 22,398
Proceeds from maturities of investments available-for-sale 7,518 250
Proceeds from sales of other investments 949 -
Return of capital from other investments 1,000 1,410
Purchases of investments available-for-sale (50,239) (22,401)
Capital expenditures (2,695) (1,466)
Net cash (used in) provided by investing activities (23,588) 191
CASH FLOWS FROM FINANCING ACTIVIT IES
Cash dividends paid (9,012) (6,954)
Repurchase of common stock (10,813) (3,148)
Net purchases of common stock from defined contribution plan (977) (1,387)
Proceeds from exercise of stock options - 1,043
Tax benefit of stock option exercises and share-based vesting 3,189 1,082
Principal payments on note payable (78) (78)
Net cash used in financing activities (17,691) (9,442)
Net (decrease) increase in cash and cash equivalents (12,107) 15,075
Cash and cash equivalents at beginning of year 38,363 23,288
Cash and cash equivalents at end of year $ 26,256 $ 38,363
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for income taxes $ 12,177 $ 10,116
Cash paid during the year for interest $ 10 $ 14
These financial statements are a condensed version of statements that have been audited by Glenmede’s independent auditors.
2015
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THE GLENMEDE ORGANIZATIONNet income earned by The Glenmede Corporation (Glenmede or the Company) for 2015 totaled a record $25.2 million, an increase of 13% compared to $22.3 million for 2014. Assets under management also reached a year-end record $30.6 billion in 2015, rising 6% from the end of 2014. Revenue totaled $173.3 million in 2015 compared to $151.0 million in 2014. Diluted earnings per share totaled $40.99 and $36.66 in 2015 and 2014, respectively, as a result of the increase in net income.
THE BUSINESSThe Company delivers its services through The Glenmede Trust Company, N.A. (GTC) and Glenmede Investment Management LP (GIM).
GTC serves private clients, endowments and foundations with a full range of investment, planning, trust and administration services. GTC client relationships comprised $24.6 billion in assets under management as of December 31, 2015, including $5.2 billion held by The Pew Trusts, for which GTC has served as sole trustee since the Company’s founding in 1956. The Endowment & Foundation group at GTC provides full discretionary management, acting in a capacity often referred to as an outsourced CIO (Chief Investment Officer), which is often complemented by our administrative expertise.
GIM is a registered investment advisor managing equity, fixed income and option strategies. GIM is the advisor to Glenmede’s proprietary mutual funds, The Glenmede Fund, Inc. and The Glenmede Portfolios (the Funds), and its investment research capability supports the firm-wide investment process. GIM manages $6 billion in assets under management for its clients in addition to $7 billion for GTC clients. Net new assets from GIM clients in 2015 totaled $2.8 billion in the Funds and in separately managed accounts sourced from third-party investment platforms and consultants.
REVENUERevenue for 2015 totaled $173.3 million, an increase of 15% from 2014, driven by the growth in assets under management.
Fee revenue for 2015 reached $169.7 million, increasing 16% from 2014. Fees are predominantly assessed as a percentage of the market value of assets under management. New client assets and, to a lesser extent, market appreciation, contributed to the increase. Securities markets across the globe produced mixed results for 2015: the S&P 500 Index value declined 0.7% in 2015, while the average month-end closing value was 5.5% higher than the 2014 average. Meanwhile, the Russell 2000 and MSCI EAFE indexes lost 5.2% and 3.3%, respectively, in 2015.
FEE REVENUE
In millions, except as noted 2015 2014
GTC Clients
GIM Clients Total
GTC Clients
GIM Clients Total
Investment advisory and trust fees $ 114.5 $ 4.6 $ 119.1 $ 114.5 $ 3.5 $ 118.0
Mutual fund fees 20.8 29.8 50.6 16.0 12.0 28.0
Total fee revenue $ 135.3 $ 34.4 $ 169.7 $ 130.5 $ 15.5 $ 146.0
Assets under management (billions) $ 24.6 $ 6.0 $ 30.6 $ 25.6 $ 3.4 $ 29.0
Mutual fund fees are earned for advisory and administrative services provided to the Funds. These fees totaled $50.6 million in 2015 compared to $28.0 million in 2014. The increase arose primarily from new GIM client assets and is accompanied by an increase of $7.6 million in shareholder servicing expenses.
Fee revenue from GTC clients reached $135.3 million in 2015 compared to $130.5 million in 2014, an increase of 4% driven by higher average market values during 2015 and strong client retention. The total trustee fee earned from The Pew Trusts, including mutual fund fees associated with The Trusts’ holdings, was $18.7 million in 2015 and was comparable to 2014. The average market value of The Pew Trusts in 2015 was $5.2 billion compared to $5.3 billion in 2014.
In GTC, diversified client portfolios often include both internally and externally managed strategies. At the end of 2015, $5.3 billion of assets under management held by GTC clients represented mutual funds and separate accounts managed by third parties. An additional $2.8 billion of assets under management represented private funds and hedge funds, including ten GTC-advised private investment and hedge funds-of-funds with an aggregate market value of $412 million. Fees from proprietary funds-of-funds totaled $3.4 million in 2015 compared to $4.1 million in 2014, which included $0.4 million of performance fees that did not recur in 2015.
GIM client revenue more than doubled in 2015, rising to $34.4 million. During the year, new asset inflows totaled $2.8 billion compared to $1.8 billion in 2014. In both periods, inflows were generated predominantly from the quantitative and small-cap equity products. Approximately 83% of GIM client revenue carries a cost for the shareholder servicing provided by third parties; net of this variable cost, GIM client revenue rose $11.3 million in 2015.
INCOME FROM INVESTMENTSGlenmede’s diversified investment portfolio is managed for long-term capital appreciation. Interest and dividend income totaled $1.4 million in 2015, which was comparable to the prior year. Net securities gains include the results of security sale transactions in the portfolio and changes in value of the Company’s investments in its funds-of-funds. Net securities gains totaled $2.2 million in 2015 compared to $3.3 million in 2014.
Glenmede has been a limited partner in Philadelphia International Advisors LP (PIA) since 2003. In 2015, PIA announced that the partnership would be dissolved following the retirement of its founder and president, Andrew B. Williams. Glenmede’s earnings associated with the partnership had gradually declined from its peak in 2007 and the development this year had no material impact on Glenmede’s results of operations.
EXPENSES Total operating expenses rose $18.8 million, or 16%, to $134.2 million in 2015. Approximately 40% of the increase represented shareholder servicing expenses associated with the growth in GIM revenue. The remaining increase of $11.5 million was driven by higher compensation and benefits, as well as investments in technology.
Base compensation costs rose by 8% or $3.4 million in 2015, reflecting additions to staff and salary increases. Performance-based compensation expense increased 9% or $2.2 million, reflecting favorable financial results, investment performance and new business development compared to objectives.
Retirement benefit expenses rose $2.6 million in 2015, with defined benefit pension costs increasing due to lower interest rates, adoption of a liability-driven investment strategy and revised actuarial inputs associated with participant longevity. In the future, the defined benefit cost will fluctuate with interest rates and other actuarial inputs.
ASSETS UNDER MANAGEMENT BY CLIENT TYPEIn billions, as of December 31, 2015
GTC CLIENTSEndowment
& Foundation$7.7 B
GIM CLIENTS$6.0 B
GTC CLIENTSPrivate Client
$16.9 B
2015
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SELECTED FINANCIAL DATA Year ended December 31
In thousands, except per share data 2015 2014 2013 2012 2011
RESULTS OF OPERATIONS
Investment advisory, trust and other client service fees $ 101,553 $ 100,421 $ 90,750 $ 78,726 $ 73,786
Mutual fund fees 50,593 28,018 17,357 14,458 12,510
Pew Trusts fees 17,552 17,604 16,105 14,747 13,716
Interest, dividends and other income 1,368 1,612 1,712 1,803 1,781
Net securities gains 2,223 3,262 3,249 1,637 2,409
Equity in earnings of Philadelphia International Advisors, LP - 83 1,118 1,485 1,997
Total operating revenue 173,289 151,000 130,291 112,856 106,199
Operating expenses 134,187 115,347 104,355 94,678 89,962
Income before income taxes 39,102 35,653 25,936 18,178 16,237
Provision for income taxes 13,888 13,345 10,003 6,428 5,808
Net income $ 25,214 $ 22,308 $ 15,933 $ 11,750 $ 10,429
PER SHARE DATA
Earnings per share $ 41.96 $ 37.49 $ 26.59 $ 19.75 $ 17.95
Earnings per share - assuming dilution $ 40.99 $ 36.66 $ 26.13 $ 19.51 $ 17.65
Cash dividends paid* $ 15.00 $ 11.70 $ 5.60 $ 15.45 $ 5.00
BALANCE SHEET
Assets $ 164,033 $ 152,766 $ 130,272 $ 114,625 $ 102,906
Liabilities $ 45,883 $ 46,716 $ 29,533 $ 38,949 $ 27,747
Stockholders’ equity $ 118,150 $ 106,050 $ 100,739 $ 75,676 $ 75,159
* Includes the effect of special dividends paid of $9 per share in 2015, $6 per share in 2014 and $10 per share in 2012.
NET INCOME
0
5,000
10,000
15,000
20,000
25,000
$30,000
201520142013201220110
5
10
15
20
25
30
$35
20152014201320122011
AUM
0
10
20
30
40
$50
20152014201320122011
EARNINGS PER SHARE
0
5
10
15
$20
20152014201320122011
DIVIDENDS
REGULAR DIVIDEND
SPECIAL DIVIDEND
ASSETS UNDER MANAGEMENT In billions
General, administrative and depreciation expenses increased by $2.4 million in 2015 to $33.7 million, with higher spending in technology and marketing. The Company expects technology spending to continue to rise as it implements new systems. In 2015, major system releases included a new client relationship management platform, a new online client portal and expanded financial planning capability. In 2016, Glenmede will implement a new financial accounting and human resources system, and a multi-year initiative to replace the Company’s trading and investment systems will begin.
LIQUIDITY AND CAPITAL RESOURCESGlenmede’s balance sheet remained highly liquid at the close of 2015, with stockholders’ equity of $118 million and cash and cash equivalents, marketable securities and fees receivable totaling $123 million, or 75%, of total assets.
Investment securities available-for-sale, with a fair value of $81.3 million as of December 31, 2015, included capital managed under the same investment process applied in client accounts, as well as investments in new product strategies to support diversification of the GIM product offering over time. Net unrealized gains in the investment portfolio totaled $2.5 million at the end of 2015. Other investments included $7.9 million of limited partnership interests and investments in GTC’s proprietary funds-of-funds.
Comparable to 2014, liabilities included $30 million of defined benefit retirement obligations at year-end. Glenmede has taken steps to manage the balance sheet risk associated with its defined benefit pension plans. The Company employs a liability-driven investing strategy for qualified pension assets to reduce the volatility of the funded status, which stands at 79% in the continuing low interest rate environment. This is a long-term obligation that will be satisfied by future cash contributions and investment returns. The plans are closed to new entrants and certain participant benefits are frozen.
Glenmede provides share-based compensation to align employee interests with those of its shareholders and to promote achievement of the Company’s objectives. Share-based awards carry vesting terms that are tied to the provision of service (time-based vesting) and, in certain cases, to the achievement of long-term performance objectives as defined by the Board of Directors. Non-vested share-based awards represented 55,449 shares of Glenmede Class B stock as of December 31, 2015, with vesting through 2020.
NET INCOME
0
5,000
10,000
15,000
20,000
25,000
$30,000
201520142013201220110
5
10
15
20
25
30
$35
20152014201320122011
AUM
0
10
20
30
40
$50
20152014201320122011
EARNINGS PER SHARE
0
5
10
15
$20
20152014201320122011
DIVIDENDS
REGULAR DIVIDEND
SPECIAL DIVIDEND
NET INCOME
0
5,000
10,000
15,000
20,000
25,000
$30,000
201520142013201220110
5
10
15
20
25
30
$35
20152014201320122011
AUM
0
10
20
30
40
$50
20152014201320122011
EARNINGS PER SHARE
0
5
10
15
$20
20152014201320122011
DIVIDENDS
REGULAR DIVIDEND
SPECIAL DIVIDEND
NET INCOME
0
5,000
10,000
15,000
20,000
25,000
$30,000
201520142013201220110
5
10
15
20
25
30
$35
20152014201320122011
AUM
0
10
20
30
40
$50
20152014201320122011
EARNINGS PER SHARE
0
5
10
15
$20
20152014201320122011
DIVIDENDS
REGULAR DIVIDEND
SPECIAL DIVIDEND
2015
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3332
DIVIDENDS PER SHAREDILUTED EARNINGS PER SHARE
NET INCOMEIn thousands
2015
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As of December 31, 2015, stockholders’ equity totaled $118 million. This reflects an increase of $12 million from 2014 as earnings were partially offset by dividends and the accounting for share-based compensation issuance. The Company paid dividends for the 54th consecutive year in 2015; the dividend was $15.00 per share, including a special payment of $9.00 per share, for a total distribution of $9.7 million. The regular quarterly dividend rate remained at $1.50 per share throughout the year. A strong balance sheet and growing stockholders’ equity are essential to Glenmede’s strength and stability as an organization. Equally important is providing a return to stockholders. For the ten years ended in 2015, dividends paid by Glenmede totaled $57 million, representing 42% of net income earned during that period. Including share repurchases, the total capital returned to shareholders from 2006 to 2015 was $110 million.
At the end of the year, there were 590,469 common shares outstanding, and 70,235 shares were held in treasury. Treasury shares are held for future issuance through compensation and benefit plans. Including the effect of non-vested share awards, diluted earnings per share for 2015 and 2014 were $40.99 and $36.66, and basic earnings per share were $41.96 and $37.49, respectively.
REGULATION AND RISK MANAGEMENT The risk management effort is overseen by the Board of Directors and through its committees, including the Audit Committee, the Compensation Committee and the Relationship Oversight Committee.
Glenmede coordinates its efforts in risk management, regulatory compliance and internal audit to ensure appropriate controls are in place across its operations. A comprehensive business process supports the security, confidentiality and integrity of the Company’s corporate and client assets and information. Safeguarding client information and assets is a central focus in our information technology management and operating controls.
GTC is regulated by the Office of the Comptroller of the Currency (OCC). GIM is regulated by the Securities and Exchange Commission (SEC). The Company’s risk assessment process includes a formal review of current compliance requirements and analysis of the implications of possible regulatory initiatives. GTC is subject to minimum capital requirements established by the OCC and continued to exceed those levels throughout 2015. Regulatory examinations were conducted by the OCC in both 2014 and 2013, and another routine exam commenced in early 2016.
A key component of the Company’s risk management effort is fortifying our defenses against cyber threats. Glenmede employs a multi-layered approach to its information security involving infrastructure protection, focused vendor management and continuous monitoring of the environment. A risk-aware culture is cultivated through recurring training and development of all employees on operational risk and security. The Company also ensures that employee compensation plans support the stability of the business and avoid excessive risk-taking.
The Company’s controls over custody and other processes have consistently been subject to independent examination. A formal audit report, prepared in accordance with the requirements and guidance established by the AICPA’s attestation standard AT Section 801, documents the controls and testing performed to assess the effectiveness of internal controls. Commonly referred to as a SOC 1 (Service Organization Control Type 1) report, this report is available upon request.
Glenmede has emergency preparedness and business continuity plans in place to minimize a business interruption caused by a loss of function within its office facilities. In 2015, the Company successfully conducted a test of its pandemic contingency plan with the majority of staff working remotely for a business day. Weather events also provide a regular opportunity for live tests of our plan design and effectiveness. The technology and staff response supporting the business continuity plan in cases of more severe impacts are routinely tested in simulations. These tests are performed to validate Glenmede’s ability to conduct operations in the event that its principal business locations are unavailable.
34
MANAGEMENT COMMITTEECLOCKWISE FROM THE LEFT: PETER J. ZULEBA, III, ANN MARIE BELL, SUSAN P. MUCCIARONE, HOWARD E. N. WILSON, LISA M. WHITCOMB, JAMES R. BELANGER, LAURA A. WILLIAMSON, LAURA LAROSA, GORDON B. FOWLER, JR.
Gordon B. Fowler, Jr.President and Chief Executive Officer; Chief Investment Officer1
Laura A. Williamson Chief Operating Officer1
Howard E. N. WilsonExecutive Director of Relationship Management
T H E G L E N M E D E T R U S T C O M PA N Y, N . A .
WASHINGTON, DCMichael K. Hickey, Managing Director
WILMINGTON, DELAWAREGeoffrey M. Rogers, Managing Director
RELATIONSHIP MANAGEMENTManaging Directors: E. Matthew Brown, Margaret H. Kelly, William F. Krauss, Carol D. Reid
Vice Presidents: Susan C. Nickel, David T. Zakielarz
BUSINESS DEVELOPMENTVice President: Matthew C. Beardwood
NEW JERSEYAdam G. Psichos, Managing Director
MORRISTOWNRELATIONSHIP MANAGEMENTVice Presidents: John W. Hoag, William M. Robb, Gary E. Walker
Officers: Assunta Buonincontri, Kathleen M. Murphy
BUSINESS DEVELOPMENTVice President: Carla E. Panzitta
Officer: Jennifer T. Becker
PRINCETONRobert P. Kiep, III, Managing Director
RELATIONSHIP MANAGEMENTManaging Directors: Mark S. Nurse, Dennis L. Walsingham, A. John Wright
Vice Presidents: Richard J. Giarrusso, Richard N. Gorda, Mary Jo Luongo
Officers: Leonie M. Bathersfield, Christopher A. Drake, Joanne E. Meehan
BUSINESS DEVELOPMENTVice President: Michael S. Schiff
ENDOWMENT & FOUNDATIONTHE PEW TRUSTS INVESTMENT MANAGEMENT Managing Directors: Stephen C. Lehman, Christopher M. Zafiriou
RELATIONSHIP MANAGEMENTManaging Directors: Nina L. Cohen, Adam M. Conish
Vice Presidents: John W. Church, Rosemary C. DiRita, Melanie Redmond Quackenbush
Officers: Stephen R. Burns, Maureen A. Chacker
NEW YORK, NEW YORKLee P. Miller, Managing Director
RELATIONSHIP MANAGEMENTManaging Director: Jonathan L. Stanley
Vice President: Richard W. Gale
Officer: Gregory M. Healy
BUSINESS DEVELOPMENTVice President: Lea R. Emery
CLEVELAND, OHIOLawrence H. Hatch, Managing Director
RELATIONSHIP MANAGEMENTManaging Directors: Doris A. Hogan, Tracy A. Jemison, II, Paul D. Neidhardt, Uma M. Rajeshwar, Robert M. Siewert
Vice Presidents: Deborah P. Cugel, Andrew W. Kirkpatrick, Lisa H. Michel
Officers: Jeannine L. Brzezinski, Wendy S. Lewis, Ann T. Paratore
BUSINESS DEVELOPMENTManaging Director: Linda M. Olejko
1 Also Officer of The Glenmede Corporation2 Also Officer of Glenmede Investment Management LP
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PRIVATE CLIENTSusan P. Mucciarone, Managing Director
PHILADELPHIA, PENNSYLVANIARELATIONSHIP MANAGEMENTManaging Directors: Luke H. Borda, Matthew J. Cross, Adam T. Douberly, Letitia A. Ewing, Brian K. Green, Frederick L. Haack, III, Russell E. Holladay, Thomas C. Huber, Robert M. Maxwell, Scott W. McGough2, Melinda G. Rath, Joseph J. Stoll, Timothy M. Woolley
Vice Presidents: Isabel M. Albuquerque, Fareeha N. Arshad, Kara A. Chickson, Peter K. Cutler, Michael R. Gallagher, Scott L. Gilleland, Deborah L. Hare, Barbara B. Hill, Caitlyn T. Kennedy, Stacy J. Martin, John F. McCabe, James E. Morris, J. Sergeant Pepper, Dennis E. Riley, Gale E. Rue, Brandy M. Scheydt, John M. Schulden, Caroline A. Wyspianski
Officers: William C. Madeira, Jaclyn M. Moran, Adrienne L. Mulcahy, Tara C. Singer
G L E N M E D E I N V E S T M E N T M A N A G E M E N T L P
BUSINESS DEVELOPMENT AND MARKETINGLaura LaRosa, Managing Director – Business DevelopmentSusan W. Worteck, Managing Director – Marketing
Vice Presidents: John G. Carson, Christine A. Dragoun, Karl S. Murray, A. Hobart Porter, Huldah A. Robertson, Melissa B. Stonberg, Philip Wachs
Officers: Kristine G. P. Golden, Erika L. McDaniel, Rosemarie Rauser, Erin M. Suhy
WEALTH STRATEGYLisa M. Whitcomb, Managing Director
Managing Directors: Melissa L. Burke, David K. Plotts
Vice Presidents: Jeffrey L. Biberman, William J. Christy, Jeffrey P. Dowds, Kathleen M. Fiorentino, Jeannette M. Leighton, Richard B. Martin, Mary-Noelle Rasi, Yong Shuai, Brian J. Sullivan
Officers: Susan R. Black, Kenneth Hunter, Sigmund W. Mikula, Jr., Miriam Niedelman, Stephen P. Norris, Chanae Riddick, Vincent R. Roettger
INVESTMENT ADVISORYManaging Directors: Benjamin Alimansky, Jason D. Pride, Kenneth B. Trippe
Vice Presidents: Anthony J. Albuquerque, Casey B. Clark, Greg M. Millhauser, Michael H. Sinoway
Officers: David M. Joyce, J. Douglas Wilson
RELATIONSHIP MANAGEMENT SERVICESDenise Murray Hayden, Managing Director
Vice President: Jonathan D. Hill
Officers: Elizabeth L. Carolan, Wanda S. Williams-White
FINANCE, ACCOUNTING AND ADMINISTRATIONVice Presidents: Mary V. Burke, Corporate Secretary1, Lisa C. Coia, Treasurer1, David G. Deuel1, Sara M. Dorsett, Theodore A. Flocco, Controller1
Officer: George C. Bell
OPERATIONS AND TECHNOLOGYLouis J. Pellicori, Managing Director – TechnologyRaj M. Tewari, Managing Director – Operations
Managing Director: Phyllis R. Simirglia
Vice Presidents: Michael F. Beck, Christopher T. Cooke, Maureen E. Fioravanti, Brian C. Johnston, Gerald S. Littenberg, Michael R. McKiernan, Deepak K. Patel, Jason H. Pearl, Michael K. Serra, Scott A. Sisson, Jeremy M. Telepun
Officers: D. Christopher Apostolu, Yvonne E. Bates, Linda C. Bellicini, Zachary P. Boden, Stephanie A. Brown, Jeffrey M. DePuyt, Scott Eng, Stacey D. Jones, Eina G. Lawrysh, Gregory J. Lorditch, Robert Rhodes, Mark S. Yoder
HUMAN RESOURCESAnn Marie Bell, Managing Director
Vice President: Dominique C. DuMouchel
Officer: Kristin M. Dougherty
BUSINESS ASSURANCEJames R. Belanger, Managing Director1
Managing Director: Neal J. Howard
Vice Presidents: Carile O. Bolton, C. William Hazelton
Officer: Michael J. Cervasio
1 Also Officer of The Glenmede Corporation2 Also Officer of Glenmede Investment Management LP
Peter J. Zuleba, III3
President and Director of Investment Management
Mary Ann B. Wirts3
Chief Administrative Officer
Maria R. McGarry3 Chief Compliance Officer
Portfolio Management: Alexander R. Atanasiu, Christopher J. Colarik, Michael C. Crow3, Vladimir deVassal, Sean E. Heron3, John R. Kichula, Brendan B. Lloyd3, Stephen J. Mahoney, Robert J. Mancuso, Paul T. Sullivan, John F. Thomas, Wade Wescott
Research: James S. Balazsy, R. Bradford Hoopman, Mark D. Livingston, James F. Messner, III, Keith B. Peter, Matthew F. Shannon Equity Trading: Melissa F. Hinmon, Anthony K. Iuliano, DonnaKay Tiller
Client Services: Rosemarie J. Kane, Kimberly C. Osborne, Kent E. Weaver, Jr.
Institutional and Intermediary Distribution: Jeffrey W. Coron, Michael R. Goold, Kevin A. Heckman
3 Also Officer of The Glenmede Trust Company, N.A
38
T H E G L E N M E D E T R U S T C O M PA N Y, N . A .BOARD OF DIRECTORS
Independent AuditorsErnst & Young LLP Philadelphia, Pennsylvania
James S. Pew4
Director since 2005Staff Attorney,Earthjustice
J. Howard Pew, II4Director since 1977Chairman of the Board,The Pew Charitable Trusts
J. N. Pew, IV, M.D.4
Director since 1988Chairman,The Glenmede Trust Company, N. A.
Joseph N. Pew, VDirector since 2014Attorney,Scarff Law Firm, PLLC
R. Anderson Pew4
Director since 1967Retired Director, Sunoco, Inc.Former CEO of Sunoco affiliates
Richard F. Pew4
Director since 1993Businessman/Rancher
John F. Porter, III4Director since 2000Retired Chairman and Chief Executive Officer,The Delaware Trust Company (now Wells Fargo)
Robert G. Williams4
Director since 1993Retired Vice Chairman, Girard Bank(now The Bank of New York Mellon)
4 Also Director of The Glenmede Corporation
Norman T. Callaway4
Director since 1993Managing MemberBroker Associate,Callaway Henderson Sotheby’s International Realty
Susan W. Catherwood4
Director since 1988Director, The Glenmede Fund, Inc. Trustee, The Glenmede Portfolios
Rhonda R. CohenDirector since 2008Former Partner,Ballard Spahr LLP
Gordon B. Fowler, Jr.Director since 2010President, The Glenmede CorporationPresident and Chief Executive Officer;Chief Investment Officer, The Glenmede Trust Company, N.A.
Aristides W. Georgantas4
Director since 1998Retired Executive Vice President,The Chase Manhattan Bank(now J. P. Morgan Chase & Co.)
Ronald J. NaplesDirector since 2006 Retired Chairman and Chief Executive OfficerChairman Emeritus,Quaker Chemical Corporation
G. Thompson Pew, Jr.4
Director since 1990Chairman, The Glenmede CorporationChairman, The Glenmede Fund, Inc. and The Glenmede Portfolios Investments/Consulting
40
CHILDREN OF JOSEPH N. AND MARY ANDERSON PEW WHO FOUNDED GLENMEDE IN 1956.FROM LEFT: J. HOWARD PEW, MARY ETHEL PEW, MABEL PEW MYRIN, J.N. PEW, JR.
The Glenmede Trust Company, N.A.Glenmede Investment Management LPglenmede.com
Cleveland, Ohio25825 Science Park Dr.Suite 110Beachwood, OH 44122-7315
216-378-2900
Morristown, NJ1200 Mount Kemble AvenueMorristown, NJ 07960-6797
973-451-3800
New York, NY 590 Madison Avenue31st floorNew York, NY 10022-8526
212-328-7310
Philadelphia, PA1650 Market StreetSuite 1200Philadelphia, PA 19103-7391
215-419-6000
Princeton, NJ16 Chambers StreetPrinceton, NJ 08542-3708
609-683-1005
Washington, DC1717 Pennsylvania Avenue NWWashington, DC 20006-4614
202-292-3131
Wilmington, DE 1201 N. Market StreetSuite 1501Wilmington, DE 19801-1163
302-661-2900