His name, Churchill Franklin, sounds like the hybrid of two unforgettable politicians: Winston Churchill meets Ben Franklin. But the CEO of Boston-based Acadian Asset Management, which oversees $80 billion in assets, has a background and a management philosophy that are anything but conventional.
In fact, 68-year-old Franklin oversees 20 strategic funds focused on global and U.S. regions, risk, leverage, and long/short. He calls the firm’s overall approach “active quantitative,” driven by analytics and data.
Franklin, a native of Darien, Connecticut, majored in American literature at Middlebury College in Vermont and once sold pots and pans door-to-door. That selling job taught him the basics of listening to a customer’s needs and fitting a product to the customer, skills he placed in his toolbox that have never left him. “Even with pots and pans, I did not want people to feel sold to. If they needed a pan, it was a win-win,” he says.
After college, he toiled as a carpenter in frosty Vermont for two years and was rebuffed by several publishing houses for a job in New York. He realized he needed to produce some steady income and knew that, in 1974, commercial banks were hiring liberal arts majors. He secured a job at the Bank of Boston, transferred into commercial lending, and was on his way.
A stint as assistant treasurer at Thermo Electron Corp. (now called Thermo Fisher Scientific) helped him hone his financial skills and led him to hook up with financial whiz Gary Bergstrom, who was developing a quantitative investment process. Bergstrom wanted to develop a fund based on his quantitative non-U.S. small-cap strategy, and he partnered with Franklin.
They formed Acadian in 1986. It took them 18 months to nab their first client, Bell Atlantic, which hired them to develop an international equity strategy.
Incrementally, Acadian saw its assets start to grow. They increased to $2.5 billion in 1993 and $6 billion in 2000, and by 2017 had proliferated to $80 billion.
The firm’s quantitative approach “takes the emotion out of the decision-making process,” Franklin explains. Acadian’s analytics revolve around four key factors: value, quality, growth, and momentum.
“Think about the fundamental drivers of return,” Franklin says. “Value is the easiest. If two stocks are similar and one is cheaper, you’ll probably outperform by buying the cheaper one.”
When investors rely on a simple price and earnings equation, “the odds are you’ll get crushed. It’s too simple. Diversification is the only free lunch in the investment world,” notes Franklin, a Concord, Massachusetts, resident who regards writers Ralph Waldo Emerson and Henry David Thoreau as heroes.
“If you diversify by stock and build a multifaceted approach, it gives you something to rely on when value is getting crushed,” Franklin opines. Although he does rely on data, he acknowledges that “sometimes it doesn’t work.”
Acadian’s Global Managed Volatility Equity fund, which oversees $9.8 billion, has been, despite its name, steady. It returned 7.7% in 2016, 6.6% in 2015, and 8.8% in 2014.
Acadian has a partnership with Microsoft to analyze its data. “[Microsoft] believes there may be actionable information in the Bing data with regard to consumer behavior, potential company earnings, and other factors that drive stock prices,” Franklin says. Acadian is turning that data into investment models.
Franklin champions “cognitive diversity” as a management strategy. He pursues talent “who will challenge the status quo,” often hiring humanities majors from little-known colleges. Franklin openly discusses the firm’s strategies in staff meetings, encouraging disagreement. He says doing so produces better results. “You get more discussion around the table and different points of view,” he explains.
In the future, Franklin expects, Acadian will serve a broader range of investors globally and explore new markets like Latin America. “But we will still be the same firm: client-centric, empirical, bringing experience to analytics.”
