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CFA Society Columbus

I T I S T H E MI S S I O N O F T H E C F A C O L U MB U S S O C I E T Y T O P R O MO T E I N V E S T ME N T E X C E L L E N C E

A N D S E R V E T H E I N V E S T ME N T P R O F E S S I O N A L C O MMU N I T Y I N C E N T R A L O H I O .

Let me begin by saying that it is my pleasure to serve the membership of

the CFA Society of Columbus. All of the Board of Directors are working to

bring programs and new ideas to you, our members. We all want the CFA

Society of Columbus to be a vibrant organization.

Who works for the Society? Board members, volunteers, and a part-time

executive assistant. Nothing magic here. Last spring we awarded coffee

mugs to our Human Capital volunteers for 2012-13. Our mug order is going

to be larger this year, and my sincere thanks to our many volunteers. If you

didn’t get a mug last year, you’ll want one. If you have the Human Capital

mug, you’ll want the next one.

When I became the Society President last summer, I had two objectives

that I thought would be important to complete over the 2013-14 program

year. What I thought was important and what actually turned out to be im-

portant were, of course, two different things. Something that I had never

paid much attention to ended up taking hours of time and a multitude of

phone calls from July to October.

Inside this Issue Programming Events Pg. 3 Membership Membership Information Pg. 4 About CFA Society of Columbus Pg. 4 Board Notes

Society Leadership conference Pg. 5 Education

Research Challenge Pg. 7

Member Views

U.S. Healthcare System Pg. 8

Member Profile

Interview with Wayne Frisbee, CFA Pg. 10

Trivia Pg. 14

Special Thanks Pg. 15

If you guessed ‘Research Challenge’, you would be correct.

The Research Challenge is going to be an important part of the Society’s

programming. It is additional to our existing programming effort and ties

together several Board initiatives. It also requires a new structure filled

with…more volunteers.

By Christian Rieddle, CFA

CORPORATE SPONSORS

PRESIDENT’S MESSAGE

Inside CFA Columbus January, 2014

The Research Challenge:

Is the gateway for our University Relations efforts

Illustrates the need for the Society to become engaged with corpora-

tions for programming

Provides the Society with sponsorship opportunities

Provides the Society with new volunteer opportunities

Is valued by CFAI as a reflection of Society strength.

The Research Challenge has become an important objective for 2013-14.

We have several volunteers already for this effort, and I will be looking for

more after the new year. Get ready (cont’d next page).

Since 1931, Capital Group has been singularly

focused on delivering superior, consistent re-

sults for long-term investors using high-

conviction portfolios, rigorous research and

individual accountability.

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Board structure is the next important objective that I had not really thought about and both new and old issues are driving the

need for change here:

The Board meets once per month.

Board members have employers, spouses, children, other volunteer jobs, etc. One of our Board members owns her own

business: no work there isn’t an option.

Some Board members are developing programming in addition to the programming committee. Some Board members

lead and work with volunteer committees.

Some Board members have time consuming specific duties that preclude committee work.

I have come to the conclusion that right now, given the above constraints, a Board member can handle a “core” Society func-

tion with a committee of volunteers. Not multiple functions and multiple committees. Maybe someday, as we get more experi-

ence in our volunteer corps, “multiples” can work, but not right now. Time is the biggest constraint, and Societies are asked to

do more every year. We want a vibrant and interesting Society, and that means more people have to be recruited and super-

vised in more committees so that the time demands are manageable for Board members and volunteers.

Enlarging the Board will be proposed next spring to the membership so that the Society has more capacity to build on past

success with an eye on bigger things. I’ll expand on this in the next President’s Message.

Once again, congratulations to all CFA charter recipients!

Sincerely,

Christian L. Rieddle, CFA

President CFA Society of Columbus 2013-14

PRESIDENT’S MESSAGE (Cont’d)

Inside CFA Columbus

David Boone, CFA

Kurt Brown, CFA;

Craig Hickey, CFA

Stephen Huber, CFA

Neil Kandler, CFA

Xi Liu, CFA

Congratulations to the CFA Society of Columbus' 2013 Charter Award Recipients!

Scott McGrath, CFA

Brandon Merrill, CFA

Robert Murphy, CFA

Andrew Poole, CFA

Richard Price, CFA

Matt Sheridan, CFA

David Strickland, CFA

Walter Theado III, CFA

Brent Walton, CFA

Tracy Wang, CFA

Chong Yu, CFA

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Programming

Inside CFA Columbus

Mark Your Calendars for:

EVENTS

CFA Society of Columbus' Forecast Dinner

“2014 Outlook for the Markets”

Michael Kantrowitz, CFA Portfolio Strategist

Cornerstone Macro

January 22, 2014

5:30 pm

Renaissance Columbus Downtown Hotel

Title Location Info Date Start Time

LaVaughn Henry Cleveland Fed

Hilton at Polaris 2/12/2014 5:30 pm

AJ Righter Southam Consulting

Sheraton on Capital Square 3/19/2014 11:30 am

John Sinnenberg Managing Partner and Chairman

Cyprium Investment Partners, LLC

Sheraton on Capital Square 4/22/2014 12:00 pm

Troy Shaver Goldman Sachs

Sheraton on Capital Square 5/21/2014 12:00 pm

RSVP's due no later than Friday, January 17, 2014. Click here to RSVP or learn more about the event/speaker! You may also check out the details at our website www.cfasociety.org/columbus.

We would like to notify you of the Ohio Institutional Investor Forum in Colum-

bus on January 22nd. US Markets is running this program. If you're interest-

ed in participating, or strictly to attend for the education and networking,

please contact Daniela Guerrero at daniela.guerrero@usmarkets.org

Topics

A Conversation with the Region’s Leading Chief Investment Officers

Alternative Investment Manager Due Diligence

What Investors Need to Know about Investments in the U.S. and beyond

Investing in US Energy Opportunities

Asset Allocation Strategies

The forum is specially designed to bring together 100 plus attendees repre-

senting over $225 Billion in pension fund assets from organizations like

Ohio Public Employees, Ohio State Teachers, Ohio Police & Fire, Ohio School

Employees, Ohio Deferred Comp, Cincinnati City and more.

CFA Columbus members who work are employed by pension plans, endow-

ments, foundations and investment consultants may receive a $100 dis-

count to the forum.

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Inside CFA Columbus

Last May, CFA Society of Columbus added the Adjunct Membership category for those who wish to join the society but are not

members of CFA Institute and do not qualify for Student Membership (student members must be enrolled as a part-time or full

-time student in an accredited college or university or must have graduated from an accredited college or university in the past

year). People who are interested in the investment management profession and the CFA Program often reach out to CFA Soci-

ety of Columbus to learn more about both. In some cases, these people are interested in membership in CFA Society of Co-

lumbus to take advantage of all of the programming and networking opportunities even if they are not interested in sitting for

the exams. Most members of CFA Society of Columbus are either Regular or Affiliate Members of both CFA Institute and CFA

Society of Columbus. However, Student Members and Adjunct Members of CFA Society of Columbus need not be members of

CFA Institute. Both Student Members and Adjunct Members may attend all CFA Society of Columbus luncheons and events at

the Regular Member/Affiliate Member rate, which is typically free. The annual fee for a Student Member is $65 while the an-

nual fee for an Adjunct Member is $135. Please visit the CFA Society of Columbus web site (http://www.cfasociety.org/

columbus/Pages/LocalMembership.aspx) for information on all membership categories and membership applications.

MEMBERSHIP INFORMATION

Membership

About CFA Columbus

CFA Society Columbus was founded in 1962.

We are dedicated to professional excellence, integrity, education, volunteer service, and strength of community. CFA Society

Columbus has more than 350 members representing all major institutional investment firms in Central Ohio.

CFA Society Columbus is a local society for CFA Institute® based in Charlottesville, Virginia, www.cfainstitute.org.

Want to learn more about the CFA Society of Columbus? Contact Jen Montenaro at montenaj@gmail.com or 614-678-0356

or visit the CFA Society of Columbus LinkedIn and Facebook websites!

We would like to welcome our new student social media volunteer, Sam Snyder!

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Society Leadership Conference - 2013 By Steven J Mygrant, CFA

Inside CFA Columbus

Summary

CFA Institute’s Society Leadership Conference (SLC) was held September 19-21, 2013 in Washington D.C. with over 300 par-

ticipants representing 60 countries. The conference’s size, scale, and ambition have expanded tremendously (as has mem-

bership) since the last SLC in Charlottesville. John Rogers, CFA and President & CEO of CFA Institute (CFA-i), noted that the

theme this year is one of working together to add value for members after a couple of years of focusing on brand initiatives.

Ray DeAngelo (PCR) echoed this, monitoring the progress of the Claritas, Future of Finance, and Wealth Management initia-

tives. Bob Jenkins of the Board of Governors emphasized the need for CFA-i to have active participation in banking reform. The

buy side (and CFA) was tarnished with the same brush as the banking industry in the financial markets collapse and has a

vested interest in financial stability.

Overview

A significant portion of the SLC is aimed at brainstorming- sharing common experiences, perspectives, initiatives, and ideas

sourced from across the globe. There were literally hundreds of exciting, creative ideas discussed formally and informally. The

following paragraphs attempt to summarize several of these for consideration. Like any volunteer organization, our society’s

ability to implement ideas is dependent on our leadership’s ability to select and prioritize projects as well as our members’

willingness to contribute.

Advocacy

CFA UK is a 10,000+ member society that has taken a very proactive approach on the regulatory front, writing white papers on

a far-reaching set of topics, including those specific to the UK (“Letter to Her Majesty’s Treasury- Foresight: The Future of Com-

puter Trading in Financial Markets”) and to the IASB (“CFA UK responds to IASBED ‘Financial Instruments: Expected Losses’”).

CFA UK’s Board worked through the proper channels of CFA-i with only 3-4 volunteers initiating a very active dialogue

(cfauk.org).

This year, the Milwaukee and Madison societies collaborated to have May 31st, 2013 declared Investors 1st Day in Wisconsin

by Governor Scott Walker. Next year, Investors First Week will take place on June 2-8, 2014 and an aggressive advertising

campaign is planned. Milwaukee would like other societies across the globe to be part of this program, and will work with local

societies with already-constructed marketing materials, web links, etc. The buzz on this project was tremendous and, as it

clearly dovetails well with our Future of Finance initiatives, CFA Institute is likely to become much more involved. Informal dis-

cussion with members from Cleveland and Dayton suggest they would be open to working with us toward a similar program for

Ohio. Clearly any state-wide initiative would require collaboration, coordination, and financial and volunteer resources. Advice

from Milwaukee: “Someone needs to be ready to talk to the media on a moment’s notice” (investors1st.org).

Collaboration

CFA Societies Texas was created by Dallas (1200 members), Houston (900), San Antonio (300), and Austin (300) as a sepa-

rate entity to augment capabilities. While different society governance (2 voting members/society) and business models

(dues/meals) had to be worked out, they have been able to leverage management/volunteer time, corporate sponsor re-

sources, and university collaborations. Advice from Texas: “Have a common understanding as to why you are collaborating,

document how you will work together, and avoid unnecessary requirements”

Member Value

Advice from Japan: “The best value proposition is not words but real action and services”

CFA Chicago is a roughly 4,000 member society with five full-time staff members. They attempt to segment their membership

with internal data (the CFA-i database appears limited) and an active feedback mechanism for all activities (Advice from Chica-

go: “Nothing happens without feedback”). Their database systems are internally built and maintained (there were numerous

comments on technology limitations of CFA-i). On conferences, they look at the “build vs. buy” decision and generally think

their members are “over-conferenced” (cont’d next page).

Board Notes

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Society Leadership Conference - 2013 (cont’d) By Steven J Mygrant, CFA

Inside CFA Columbus

Member Value (cont’d)

Engagement of members outside the traditional investment community was a theme mentioned many times by conference

leaders as ways to promote/differentiate CFA Charterholders. (note that improved CFA brand recognition is a decades-old need

echoed by members). Several societies used these events to broaden (non-charter) membership. Initiatives included:

HR events (a CFA booth at a job fair); HR resume review; dinner with headhunters, etc.

Career fair at ESSEC (international business school in Europe)

Private wealth conference targeting retail clients; one society targeted lawyers and doctors

CE-qualifying CFA-i ethics seminar for (non-investment) public companies and non-profit boards

Forecast dinner w/high-profile speaker, inviting the public (with fee) and moderated by a member of press

Corporate sponsorships of CFA-sponsored events to help offset costs for bigger, bolder initiatives:

Asset allocation dinner aimed toward CIOs with well-known speakers

Investor conferences w/information sponsors aimed at financial professionals

CFA lecture series - $500 for members, $1,000 for non-members w/professors & limited enrollment; has been a

big fee generator for some societies

One society provided recognition for corporate sponsors twice a year

Society Management:

A shortage of volunteers was mentioned a few times by SLC members. Some members are collaborating with other societies to

gain scale to hire full time staff. Others have invested in technology to be more efficient. Several local societies noted the lack

of capabilities (and or competencies) in the technology employed by CFA-i and were actually doing more themselves.

Conclusions:

It is somewhat comforting to know that CFA societies across the globe struggle with many of the same issues: serving a diverse

set of interests with a finite amount of volunteer resources, providing value to their members and choosing and prioritizing

projects. Solutions to these issues are not easy, but many of the ideas discussed at the SLC could have tremendous value to

our society. If any of the ideas or initiatives sparked a personal interest, I would be happy to discuss at length. Please also con-

sider contributing part of yourself to our CFA society, be it in areas where you already bring expertise or in areas where you

would like to develop expertise with the support and backing of our global organization.

Board Notes

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RESEARCH CHALLENGE By Vincent Petitti, CFA

Inside CFA Columbus

The CFA Society of Columbus and the CFA Society of Cincinnati have partnered to host a local CFA Institute Research Chal-

lenge. Twelve university-sponsored teams of three to five members from the Columbus and Cincinnati areas will compete in

the event, with scoring weighted 50% on a written equity research report due January 20 and 50% on a live presentation that

will be held in Wilmington, Ohio on February 19.

Each local heat focuses on a publicly-traded subject company, selected by the local society. Our heat will feature Lancaster

Colony Corporation, a Columbus-based producer of branded and private-label retail and food service products, including Mar-

zetti and Simply Dressed salad dressing, croutons, various frozen foods, and candles.

The teams each have access to a faculty advisor, employed by the team’s university, and an industry mentor, which is an in-

dustry professional provided by the host societies. The faculty advisors will provide guidance and direction to the teams while

the industry mentors will review the research reports and provide critiques of the live presentation.

On November 8, executives from the Lancaster Colony Corporation, including Chairman and CEO Mr. John B. Gerlach, provided

a live presentation about the company at the Ohio State Teachers Retirement System in Columbus. Following the presentation,

the company’s executives participated in a question and answer session with the teams. The teams are permitted to send one

follow-up communication to the company and there are no restrictions on contact with the company’s customers, competitors,

former employees, and suppliers in conducting research.

A team of graders comprised of members of both societies will score the research reports. The names of the team members

and the universities that they represent will be masked from the graders. The live presentations will be scored by a panel of

judges based on a variety of criteria, including rigor and appropriateness of the financial and sensitivity analysis, as well as the

valuation model used. Other factors that will be taken into consideration include effective use of data to support the recom-

mendations and conclusions, the quality of the presentation slides, poise of delivery, and ability to effectively answer questions

posed by the judges.

The winning team will advance to the Americas regional event at the Grand Hyatt in Denver, Colorado on March 18-19, funded

by the CFA Institute. At the regional event, each team will be graded based upon the equity research report and a live presenta-

tion before a panel of judges. The winning regional team will advance to the global competition at the Westin Grande Su-

khumvit in Bangkok, Thailand on April 25.

This is the eighth year that the CFA Institute has sponsored the Research Challenge. The previous seven winning teams are

listed under the Community header at CFAInstitute.org, along with their written research reports and presentation slides. We

wish all of our university-sponsored teams success with this year’s challenge.

Education

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U.S. HEALTHCARE SYSTEM - EVOLUTION TOWARD BETTER OUTCOMES By Igor Golalic, CFA, Diamond Hill Investments

Inside CFA Columbus

The U.S. Healthcare system is unlike any other in the world. It is driven simultaneously by benevolence and greed, tilting to

one side or the other depending on the circumstances and the type of criticism that it faces. It is the largest healthcare system

in the world, and it has the most resources at its disposal, including the best-trained physicians, innovative medical devices,

and cutting-edge pharmaceuticals. Many patients from around the world come to the U.S. for help not available at home. The

country where I was born, Serbia, recently sent an eight year-old girl suffering from restrictive cardiomyopathy to Texas Chil-

dren's Hospital in Houston for a heart-replacement surgery. That is how special and advanced healthcare is in this country - it

gives meaning to the term "hope".

However, there are aspects of the system that are dumbfounding, troubling, and unsustainable. In the dumbfounding category

is the fact that while the best care in the world exists here, it is also inaccessible to millions. The system discriminates on the

basis of the ability to pay or the ability to keep a job with employer-provided medical insurance. The troubling part is the lack

of pricing transparency. Chances are we, as patients, have no idea how much we are paying for a procedure or a service until

after the fact. In essence, we are really not the consumers - our doctors are. The unsustainable part of the system is the

steep annual growth rate of healthcare premiums over the last three decades. When coupled with a shift in the burden of ex-

penses towards the individuals via higher deductibles and copays, the growth in healthcare premiums has created a feeling of

healthcare crisis. Adding fuel to that fire is the increasing share of our economy's productive capacity that has gone to

healthcare. The U.S. spends per capita on healthcare more than twice the Organization for Economic Cooperation and Devel-

opment (OECD) average1. The U.S. healthcare system, however, ranks poorly relative to its OECD peers in some basic

measures like quality, access, efficiency, equity, and life expectancy2. Given that, the question is how to adjust the system in

such a way that its output becomes more reflective of the quality of its inputs. President Obama's healthcare reform law, the

Patient Protection and Affordable Care Act (PPACA), also known as Obamacare, is an attempt to nudge the system in that di-

rection.

The Impact of “Obamacare”

The Act was signed into law in March 2010. It promises to expand healthcare coverage to those who currently do not have it

while keeping costs in check at the same time. It does this by requiring that everyone carry health insurance or face a penalty,

or a "tax". Under the law, Managed care companies can no longer use "pre-existing conditions" as reasons for rejecting cover-

age to individuals. They can also no longer place dollar limits on coverage. The law offers individual states additional re-

sources to expand Medicaid coverage by widening the qualification criteria. States can choose whether to participate or not,

but terms are such that they are being irrational if they do not. In 2014 we expect to see the emergence of Health Insurance

exchanges, where individuals and small businesses will be able to shop for standardized healthcare policies. The law also

allows for a change in the payment mechanism by the system's largest payer, Medicare, from “fee-for-service” to “bundled

payment”.

It is this last aspect of the law, the shift towards bundled payments, which is of greatest interest to us as investors. The cur-

rent system rewards those who produce volumes largely independent of the quality of care they provide. The critical link be-

tween pay and performance is weak, at least from the patient outcomes standpoint. The Centers for Medicare and Medicaid

(CMS) reported in a recent study that within the group of 3,300 hospitals that service the system, pricing differences for the

same routine procedure can be 5-6x with no evidence of any differences in outcomes3. In general, the more admissions the

hospital gets and the higher its prices, the better off it probably will be. In that kind of a system, healthcare dollars are spent

on establishing commercial networks capable of reaching important volume centers and Key Opinion Leaders (KOLs), who can

further influence decision makers to favor a particular product or service. The manufacturer's voice is heard via the size of its

SG&A spending, the provider's voice goes to support what they buy from the manufacturers, and Managed care companies are

happy to see the pie grow as long as they can protect their margins and re-price risk quickly. The innocent bystander, the pa-

tient and the taxpayer, is caught in the middle and pays the price over time.

Why Do Bundled Payments Matter?

Payment bundling means that healthcare providers will be given one payment by Medicare per patient based on his or her con-

dition. The healthcare provider will then have to make the best use of this payment to provide quality care with an eye towards

improving outcomes. Re-admissions of that same patient, which once were an additional revenue stream for the provider, are

now potentially a cost and a risk. The repercussions of such a shift are tectonic in nature – they move slowly but are irreversi-

ble. The emergence of Accountable Care Organizations (ACOs) is a testament to that. The ACOs involve more partnerships

between hospitals and Managed care and the formation of risk-sharing platforms and systems to facilitate information sharing

and ultimately profit and risk sharing (cont’d next page).

Member Views

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U.S. HEALTHCARE SYSTEM - EVOLUTION TOWARD BETTER OUTCOMES (cont’d) By Igor Golalic, CFA, Diamond Hill Investments

Inside CFA Columbus

Why Do Bundled Payments Matter? (cont’d)

We would expect similar HMO-type products with narrower network designs to re-emerge, offering employers savings and con-

trol over premium growth. Managed care companies are becoming more interested in managing the healthcare risk of their

coverage pool in order to prevent future volumes. That means more focus on wellness and prevention. Similarly, we would

expect Managed care companies to help the hospitals improve the way they practice care by sharing information on best ther-

apeutic care-paths in return for lower pricing or a piece of that bundled payment. The hospitals should be happy to oblige if

they can offload some of that risk of re-admission to Managed care. Medicare will also look to reward those systems that de-

liver best care by increasing their payments in the future. As patient knowledge increases about provider tiers, quality metrics

should ultimately allow for some pricing power, and we would expect better outcomes to be rewarded in the marketplace. Low-

er growth of premiums and better outcomes will follow over time.

Who Will Thrive under the New Healthcare System?

From an investor standpoint, the focus should be shifting to recognizing those attributes that will allow companies to thrive in

the new system. Durable competitive advantage no longer means simply having large R&D organizations and expansive com-

mercial networks that are hard to replicate. It does not mean having a budget large enough to support a KOL network around

the world. Gone are the days of making a new drug or a medical device and charging a premium just for a few bells and whis-

tles on it without much evidence of improved efficacy. What lies ahead involves knocking on new doors and breaking the ste-

reotypes. Competitive partnerships will be required in Big-pharma to find drugs for medical conditions that are not treatable

today. We are already seeing that in Hepatitis C and melanoma. Those companies that are aligned with the customer’s focus

on optimizing care within limited budgets will do well, whether that means reducing hospital acquired infection rates, or im-

proving the efficiency of provider’s staff, or generating savings through better drug-formulary management or biosimilar inno-

vation. Information sharing and Electronic Medical Records (EMRs) are coming at the right time and will improve transparency

in deliverability of care. They will be crucial in fostering the formation of the ACOs, allowing them to focus on prevention, pri-

mary care, and chronic disease management, the latter arguably the biggest source of system savings over time.

Investors have recognized that the new paradigm should be positive for the sector long-term. The healthcare sector has been

the second-best performer year-to-date and over the last five years as of May 31, 20134. In choosing stocks for our strategies,

we have tried to identify those companies that have recognized the paradigm shift (e.g. Abbott Laboratories (ABT), Greatbatch,

Inc. (GB), Pfizer, Inc. (PFE), Teva Pharmaceutical (TEVA), UnitedHealth Group, Inc. (UNH), and Universal American Corp. (UAM)),

have assets that should be valuable under PPACA (e.g. Alere, Inc. (ALR), Natus Medical Incorporated (BABY), Baxter Interna-

tional, Inc. (BAX), CareFusion Corp. (CFN), Quest Diagnostics, Inc. (DGX), and Express Scripts Holding Co. (ESRX)), or have em-

braced the concept of "value" and are willing to disrupt the current marketplace with innovation (e.g. Boston Scientific Corp.

(BSX), Forest Laboratories (FRX), and Medtronic, Inc. (MDT)). We see disconnects between current expectations and long-term

prospects for these companies, which is reflected in market prices below intrinsic values. They are either not being rewarded

for the investments that they are making today to compete more successfully in the future or their innovative ways are being

overshadowed by shorter-term dynamics. While valuations in the sector are not as attractive as they were at the time the

healthcare law was adopted, we see opportunities for the companies that we own to grow their intrinsic value within the new

framework being introduced by healthcare reform.

End Notes:

1 - Source: OECD Data 2012

2 - Source: The Commonwealth Fund

3 - http://www.nytimes.com/2013/05/08/business/hospital-billing-varies-wildly-us-data-shows.html

4 - Source: Morningstar

Disclosure: The views expressed are those of the portfolio manager as of June 2013, are subject to change, and may differ

from the views of other portfolio managers or the firm as a whole. These opinions are not intended to be a forecast of future

events, a guarantee of future results, or investment advice.

Member Views

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Member Profile

Inside CFA Columbus

Interview with Wayne Frisbee, CFA By Vicki Armentrout, Vikas Dixit, and Kevin Ma, CFA Wayne Frisbee, CFA

Enterprise Portfolio Manager at Nationwide Investments

Wayne Frisbee is Investment Leader of the Enterprise Portfolio Management (EPM) team,

which is responsible for developing investment strategy and macro-economic views,

asset allocation, portfolio implementation, and oversight of external investment

managers. EPM’s portfolio managers develop economic and market views that are

applied consistently across all managed portfolios within the context of the needs,

objectives, constraints, and risk appetite of each client

BACKGROUND

Would you tell us how you became interested in investments and how you entered the business? I don’t remember ever not

being interested in the business. There was a member of our family who was a very successful broker for Merrill Lynch. At the

time, I didn’t know much about investments but it seemed to be a very cool thing. I attended Ohio State and remember having

a student subscription to The Wall Street Journal, pretty much throughout college, for something like $28/school year. I owned

a couple of stocks with maybe a few hundred dollars invested and bought an ITT 9 ¾ bond at $70 to see how it would pan out

and to learn more about the bond market. I think owning that bond is what actually got me the job at Nationwide since I was

asked some questions in the interview about the relationship between yields and prices. I understood the concept and it gave

the impression that I had seen a bond before. I also had interest in the field and took relevant classes. I graduated in 1981

during a very low point in the economy when Paul Volcker was at the Fed and yields were at record highs. It was not a great

time to be looking for a job but I got lucky and found a position at Nationwide in October 1981 after turning down an account-

ing job at a T-shirt company. I felt very good about it and liked what I was doing. Within days after accepting the job, the Treas-

ury issued a 15 ¾ 20-year bond and, literally from the day I started, rates have continued to go down ever since. I watched

that Treasury bond throughout its life and, even when it got to within three or four years of maturing, its price was creeping into

the 150’s. I started my career at Nationwide in municipals but there wasn’t much of a need for municipals at the time and I

soon moved on to taxables.

Can you tell us a little about your role at Nationwide and the different career moves that you have made? Currently, I lead a

group called Enterprise Portfolio Management. It is a classic top-down role responsible for macroeconomic analysis, the inter-

est rate/market view, relative value analysis across asset classes, asset allocation, and overseeing third party managers. Es-

sentially, it’s a portfolio management function across the general accounts, a few external accounts, and some mutual funds

with total assets of about $70 billion. I started in municipals and rotated through a good part of the taxable space. In 1985, I

was involved in a re-organization to split public versus private asset classes and was instrumental in creating Nationwide’s

trading room. A colleague of mine, Tom Leggett, and I said we'd really appreciate it if Nationwide didn't build office walls be-

tween us because we think it'll work better if we can talk to one another. That request was essentially the origin of what later

became the Nationwide trading room. Tom and I shared some equipment and a room and talked about what was going on in

the world. Markets and businesses were evolving from being very deal oriented to more private placements and commercial

loans. And being more public market-oriented. With very high business cash flows, there was a lot left to do in the public mar-

kets and Tom and I were in the right place at the right time to set a path. When I started, the Property & Casualty Company

portfolio we managed was about $6 billion and the Life Company was about $1 billion. There were several lines being empha-

sized that created investment needs and the Life Company was growing significantly during the late ‘80s and early ‘90s.

Did you know from the beginning that you wanted to be in fixed income? It is almost true to say that, at the beginning of my

career, I didn’t even know there was such a thing called fixed income. At that time, investments meant the stock market. Bond

rates and prices were not quoted on the evening news and the idea of institutional fixed income didn’t much register, even

throughout school. The ITT bond I owned was most of my exposure to and understanding of how bonds worked, that bonds

were out there, and that there might be something to do with them. The idea that an institution like Nationwide would have a

story built mostly around bonds wasn’t even on my radar coming out of school. (cont’d next page)

Member Profile

11

Member Profile Interview with Wayne Frisbee, CFA (cont’d)

Inside CFA Columbus

BACKGROUND (cont’d)

What were some significant inflection points in your career? Moving from municipals to taxables at the right time was both

dynamic and relevant to longer term opportunities we were going to find. I also helped create a focus on the public markets

that became the entrée to see what was going on in the portfolio more broadly since we didn’t have a formal portfolio manage-

ment function until well after the mid ‘90s. Another significant opportunity for me occurred in 1996 when the new Life Compa-

ny president, Joe Gasper, invited me to attend a three-month long offsite meeting with 50 others from both the Life Company

and the investments office to deliberate and develop strategy. This offsite provided the first occasion for investments employ-

ees to meet with the Life Company and talk over their perspectives and needs and learn how we could help them achieve their

goals. It was a great experience and ultimately served to move the company forward since the investments office had previous-

ly been isolated from the rest of the business.

Do you have any advice for the readers who are keen to start a career in investment management? What about someone

coming out of school? In my opinion, regardless of where you are and where you want to go, it’s really best when it’s driven by

a true interest in the subject matter. Many people decide to pursue a career in investments solely for the opportunity to make

a lot of money. However, working in investments is really more about self-knowledge, what you’re interested in, and what gets

you excited. Coming out of high school, people looked at my test scores and told me I ought to be an engineer. I did some re-

search and decided to pursue it after learning how much engineers make. About six weeks into the program, though, I realized

it wasn’t what I wanted to do. On the flip side of that, if investments is really what you want to do, what you find interest ing,

and you don’t mind spending time digging into it and learning – this is as important as anything – it can be a very fulfilling ca-

reer. It really needs to be your passion and, if it’s not aligned with what you want to do, it’s not going to be fun!

What about CFA Charterholders out there who are newer to the industry and interviewing – how would you encourage them

to differentiate themselves? The way I think about it, the real payoff in investments, and maybe life generally, is to know

more, to go deeper, and to go further. There are a lot of opportunities to stop after having done just as much as necessary to

get by. The real differentiator is to go beyond that point and to develop real understanding that eventually becomes real in-

sight. It’s not a function of a particular space; it’s almost a state of mind. The real payoff in managing money is bringing this

kind of insight to the table. People wanting to differentiate themselves must drive to the point where they can look at a set of

facts about the state of the world, see through it, and bring some sort of new insight to the table. It’s really a state of being and

only a function of passion for the work and having the interest. If you want to differentiate yourself, then you need to ask your-

self “what more can I do here, what additional questions can I ask, and how can I go beyond the point where I’ve done just

enough to get by?”

Is there any mistake from your career that might stand out or something that you learned from that sticks with you today? I

think anyone who has been in investments for over 30 years can always think of mistakes they’ve made in terms of things that

were bought or not bought, sold or not sold. The spirit of this question seems more towards a career path and, in that regard,

nothing leaps to mind that I wish I had done differently. A very important lesson I have learned over the years is to be cognizant

of the people around me and realizing that, in one way or another, I am going to be reliant on them. I try to learn whatever I can

from my colleagues and credit them where appropriate. Working in investments isn’t a job you do on your own at any level and

you must understand and recognize there are people out there who are a part of the answer. Surrounding yourself with good

people and valuing diversity is a lot of what really matters. Not everybody thinks the way I do and I shouldn’t want them to. In-

stead, I recognize value in pulling from others the differences they bring to the table and find there is a lot of power in that.

I know you enjoy playing poker and I know quite a few people in the investment industry enjoy poker. Are there things you

learn from playing poker that help you in investing? It might be more accurate to say that what I learned from investing is

what helps me with poker. I was actually a late comer to the poker game. There was a guy I knew who played in the World Se-

ries of Poker before anybody knew what tournament poker was and I got involved by following what he was doing. I think it’s

fair to say that the characteristics necessary to be a good poker player and a good investor or trader are similar. Having both

an interest in poker and investments is not an uncommon thing and I have found that the way I think about the world, disci-

pline, risk-reward, and making decisions with less than complete knowledge is very similar across both spaces. In the end, it’s

something I have a lot of fun with and enjoy (cont’d next page).

Member Profile

12

Member Profile Interview with Wayne Frisbee, CFA (cont’d)

Inside CFA Columbus

Investment Process, Philosophy, and Outlook

How has Nationwide’s investment culture evolved over the last twenty years? One way I think Nationwide’s investment cul-

ture has evolved is that it has become increasingly client focused. As I mentioned earlier, the investments function was fairly

separate from the life insurance company 15-20 years ago. The president of the Life Company at the time, Pete Frenzer , who

was also the CIO and kind of a conduit between the two organizations, would direct the investments office on what to buy. Af-

ter the three-month offsite with the life insurance company, our office became increasingly oriented toward an ever deeper

understanding of who the clients are, what products they have, how they work, and what they need. Over time, we’ve also be-

come increasingly markets focused. In the past, the investments function used to be much more about the deal and generally

followed a buy & hold strategy; however, both the markets and the offsite meeting slowly changed the culture to the point

where we have become quite a bit more opportunistic. The other thing that has changed is the focus we bring. The way we at-

tack the investments space now is much more specialized than 20 years ago when we were generalists operating in relatively

narrow asset classes and without much to tie them together. Specific departments such as Enterprise Portfolio Management,

Client Advisory Services, Risk Management, and Derivatives weren’t there 20 years ago. Culture doesn’t change easily, but

after 15-20 years I think there has absolutely been a change in the investment climate at Nationwide.

Please describe your team’s investment philosophy and how has it changed over the last 20 years? The investments group

has become much more coordinated across the various spaces. Even the concept of considering relative value as a philosophy

now exists in the sense of systematically thinking about value across the spaces as opposed to just buying what is cheap with-

in a space to fill a need. Today we’re fairly classic in that we spend a substantial amount of time thinking about the macro envi-

ronment. We look at what is going on the world through central bank policies and the direction of the economy and then build

market views on top of that framework. I don’t think there’s anything magical about the approach but it’s more a matter of how

well you do it, the people you have closest to it, and whether they have insights that make a difference in the way you think

about it. If there’s a concept that pervades the way I think about our investment philosophy, it’s relative value and the closer

you get to it, the more you understand that it’s not a simple thing. It sounds simplistic, but if you can come to understand value

and peel back the layers to find where that value is and what risk you’re being paid for or not being paid for, it’s a concept that

is almost infinitely complex. The difference between being good at relative value at a deep level and being relatively superficial

at it is the whole game.

How has your team’s investment process evolved over the last 20 years? The team I have today didn’t exist 20 years ago.

After the three-month offsite strategy meeting, my mandate was to connect the investments office with the Life Company. It

was not well defined at the time but it basically meant establishing everything we do today in portfolio management, risk man-

agement, and third party management. What started out as a couple of people talking about establishing investment policies

with very little process has become greatly integrated. My personal style is not overly formal but more about the concept of

getting ideas out and getting people in the right positions to add value. Most of our job in Enterprise Portfolio Management is

to connect with the people who are experts in their own spaces and to ensure that we make the most of that connection.

What differentiates your team from other asset managers in the Insurance industry? It’s difficult to say. I have been here

since 1981 and 30 years in one spot isn’t terribly conducive to understanding what everyone else is doing, except at a dis-

tance. The one thing I always strive for and promote is doing our own thinking. This concept manifests itself in many different

ways. For example, in the early era of CMO’s we spent a lot of time studying them and speculating what might happen if bor-

rowers prepaid their mortgages. At the time, Tom and I took a lot of criticism for looking at the prepayment risk of CMO’s with

speeds as high as 500-600 PSA. We thought, if we had a 9.5% mortgage and rates dropped to 6-7%, we would probably re-

finance and figured that a lot of other people would do the same thing. I can’t begin to tell you how much disapproval we took

from the street for wanting to look at these types of scenarios. Taking the time to go a little deeper is central to doing the job

we have. One of things I find to be a differentiator, and I don’t know whether it’s unique to our shop, is identifying key ways of

thinking differently than the majority. There’s always opportunity to look at a set of facts, do your own thinking, and land on an

answer that diverges from the conventional wisdom (cont’d next page).

Member Profile

13

Member Profile Interview with Wayne Frisbee, CFA (cont’d)

Inside CFA Columbus

Investment Process, Philosophy, and Outlook (cont’d)

What advice do you have for long-term investors trying to navigate the fixed income and equity markets? One of things I

learned fairly early on when people ask me for advice about their personal accounts is to try to avoid answering them. When

you give advice, it generally works out that either they’re a genius or you’re an idiot and there’s not a lot of upside to that! If

they take your advice and you turn out to be right, they tend to take the credit. On the flip side, if your advice turns out to be

wrong, they’ll remember it and it’s also not good to be on the other side of that. Getting to the heart of the question though, I

would say you need to understand yourself, how you are put together, and what are you looking for. Understanding who the

client is and what they need is the foundation of the CFA program and knowing yourself and what type of exposures and time

horizons you are comfortable with is essential. Most of it starts with knowing who you are.

Lastly, what are some books that you recommend? I do a fair amount of pleasure reading rather than reading classic busi-

ness books. Authors I like a lot include Michael Lewis and Jon Krakauer. Lewis started in the investment industry and I’ve

found anything written by him to be interesting. I also enjoyed a book called Unbroken by Laura Hillenbrand. It’s a fantastic

story about Louis Zamperini, who ran in the 1936 Olympics in Berlin just before WWII, got stuck on a raft in the ocean and

eventually landed in occupied Japan. Other books I recommend as all-time reads are The Road Less Traveled by Scott Peck

and a more recent book called The Power of Now by Eckhart Tolle. These books are mostly about life philosophies but I find

they are not irrelevant to the business because most of what we do in investments generally is about psychology, how people

think, and who they are. I don’t have trouble tying in a lot of what I read to what we do.

CFA Designation

What events prompted your decision to pursue the CFA designation? It was basically an expectation at Nationwide that you do

something to advance your education such as the CFA or an MBA. At the time, I didn’t know much about CFA and there weren’t

very many good part-time MBA options. Essentially, I pursued the CFA almost by default and because of the continuing educa-

tion expectation. As I recall it spoiled several Memorial Day weekends which always seemed to be the nicest weekend of the

year.

How have you applied the CFA curriculum over the years? It’s been a great base of knowledge, a source of a common lan-

guage, and a never-ending practical tool. It’s both great background education as well as an excellent continuing education

through the various papers, periodicals, and conferences made available by CFA Institute.

Can you describe your experiences working with investment professionals holding the CFA charter versus investment profes-

sionals who do not? I don’t recall a moment in time where I thought that a person doesn’t have a clue because they don’t

hold the CFA Charter. Having the foundation and common understanding, highlighting things like ethics, and having people

who have been confronted with the material does however create a much more common platform to build upon. I think it abso-

lutely helps builds up understanding and develops common ground and is clearly a differentiator.

Since the global financial crisis of 2007-2008, many people have lost faith in the financial services industry. How do you

believe CFA Charterholders can help restore trust in the financial services industry over and above other successful invest-

ment professionals? Trust is something I find is rebuilt on a personal level. It is hard to trust systems or things that are imper-

sonal or at a distance. Once that trust is gone, rebuilding it is a function of an individual’s personal experience and interac-

tions. I think the answer then becomes just being real and upfront in those one-on-one opportunities and keeping in mind the

ethics and client orientation. Don’t tell them the five stocks they ought to buy if you don’t know who they are, where they are,

and what their individual issues are. My experience is that trust is built at that level, one person at time, one conversation at a

time. I think that people who have this kind of background and mindset are in a good position to foster that kind of trust and

do things the right way. Trust builds up from the bottom and the nature of each and every one of those conversations and op-

portunities is how you get it back.

Member Profile

14

NEWSLETTER TRIVIA By Bryan Jordan, CFA

Inside CFA Columbus

1. Next to the U.S., which country has produced the most

Nobel Prize winners in Economics?

a. Germany

b. Sweden

c. United Kingdom

d. Austria

2. What company went the longest time in between stints as

a component of the Dow Jones Industrial Average?

a. Coca-Cola

b. IBM

c. DuPont

d. Chevron

3. Prior to 2013, what company held the record for the larg-

est non-pharma dollar-denominated corporate bond

deal?

a. Microsoft

b. Worldcom

c. Ford

d. GE Capital

4. What is the most commonly used name among the

world’s currencies?

a. Dollar

b. Franc

c. Peso

d. Pound

5. What is the only commodity for which futures trading is

banned?

a. Onions

b. Tea

c. Bananas

d. Potatoes

6. Which company’s logo was adapted from a tattoo worn

by its founder?

a. Nike

b. Target

c. Tesla

d. Macy’s

7. What is the only stock currently in the S&P 500 to have

risen in each of the last five recessions?

a. McDonald’s

b. Wal-Mart

c. Waste Management

d. Altria

8. How many times did the Federal Reserve increase the

benchmark fed funds target during Alan Greenspan’s

tenure as Chairman?

a. 9

b. 16

c. 30

d. 42

9. What is the only country in the Eurozone whose top ex-

port market is outside of Europe?

a. Cyprus

b. Germany

c. Malta

d. Ireland

10. What is the oldest continuous monthly data series pro-

duced by the U.S. government?

a. Business Inventories

b. Producer Price Index

c. Personal Income

d. Employment

Be the first one to send all of the correct answers to receive a small prize and have your name published in the next Inside CFA

Columbus newsletter! Send your answers to montenaj@gmail.com with the word TRIVIA in the subject line.

Answers will be published in the next edition of Inside CFA Columbus!

Trivia

15

SPECIAL THANKS

Inside CFA Columbus

In addition to our committee members, we would like to

thank our article contributors:

Igor Golalic, CFA

Steven J Mygrant, CFA

Wayne Frisbee, CFA

Vincent Petitti, CFA

Bryan Jordan, CFA

Chris Rieddle, CFA

A Special thanks to our CFA Columbus Newsletter

Committee Members:

Bryan Jordan, CFA - Editor

Vicki Armentrout - Coordinator

Vikas Dixit

Kevin Ma, CFA

Kassie Steegman, CFA

Special Thanks

The CFA Communications Committee would like to welcome our newest volunteer Vikas Dixit!

If you have ideas about a member you would like to see profiled, topics of interest, or would like to write an article to include

in one of our future newsletters , please contact Kassie Steegman, CFA or Vicki Armentrout to discuss further!

Kassie Steegman, CFA, MBA

Kassie@EvolvingLeadershipLLC.com

Vicki Armentrout

Varmentr69@gmail.com