Voice of Experience: Kimberly Mounts, Founding Partner, President and CEO of MAP Alternative Asset Management Company, LLC

This week we are profiling amazing women in investment management ahead of our annual career panel event on the 5th November for women in the industry who want to make it to the top.

sm_kimberly_mountsBy Michelle Hendelman

Kimberly Mounts, Founding Partner, President and CEO of MAP Alternative Asset Management Company, LLC (“MAP”) built a successful career working with fixed income derivatives for two of the industry’s top firms: Morgan Stanley and Goldman Sachs. However, if there was one thing she wished she knew earlier in her career, it was just how rewarding and fulfilling it would be to open up her own asset management company. Since Ms. Mounts founded the firm in 2006, MAP has grown into a premier institutional risk management and hedge fund consulting firm advising some of the largest public and corporate pension plans on over $35 billion of assets under advisory.

Selected as one of 140 business leaders to attend the White House Business Leaders Forum in 2011 and one of Institutional Investor Magazine’s 2012 Rising Stars of Hedge Funds, Kimberly Mounts’ persistence and dedication has established MAP as a leading risk management and hedge fund consultant. In addition, one of the largest public pensions awarded the firm a consulting contract for their hedge fund platform and a $40 billion state pension selected the firm as their investment risk consultant for their $18 billion defined benefit plan. MAP’s advisory work includes total portfolio risk management for public and corporate pensions, and a foundation. As part of the firm’s hedge fund advisory services, MAP researches, selects and combines the best-in-class fixed income managers with a particular focus on emerging, minority and women-owned hedge funds. The firm was recently named one of the Top 100 Emerging Businesses in California for 2013 by

Ms. Mounts explains, “MAP’s role is to provide our clients with independent third-party assessments on the risks contained within their portfolios by leveraging our team’s extensive backgrounds, acumen, and expertise gained from trading and pricing derivatives at top-tier firms.” Moreover, she adds that MAP’s combined risk management and hedge fund consulting services offer a cost effective way for clients to assure capital preservation, achieve attractive risk adjusted returns and build out their hedge fund portfolios.

As a California native who has an Electrical Engineering degree from UCLA, she initially worked as a systems engineer on a top secret satellite program, where she participated in meetings with Captains in the Army and the largest defense co-contractors. She mentions that it was a fascinating role but she did not see the career path that she wanted in 10 years. Seeking a new challenge, Mounts moved cross country to NYC where she joined Morgan Stanley as an IT systems analyst for the mortgage-backed securities desk. Her desire and determination to grow and expand her knowledge of investments motivated Mounts to earn an MBA in finance from the Wharton School at the University of Pennsylvania.

Upon graduation, Mounts was offered the opportunity to return to Morgan Stanley as a fixed income derivative structurer. Ms. Mounts described, “my engineering degree and Wharton MBA was a perfect combination for a career on the derivatives desk which required creating, analyzing and solving complex financial transactions.”

Mounts established herself in a niche role creating fixed income derivatives for the mortgage-backed security desk and was offered a role at Goldman Sachs where she successfully built their Mortgage Swaps structuring and marketing effort. In 2006, Mounts decided to start her own company and founded MAP Alternative Asset Management.

MAP competes in an industry dominated by goliath-like companies which offer a multitude of services and products. From Mounts’ perspective the size differential between MAP and their competitors is one of MAP’s most distinct advantages. “Our small size and focused service offerings allow us to provide conflict-free, superior third-party assessments to always put the needs of our clients first. Moreover, our nimble nature also allows us to be flexible and creative, always searching for the new and best ideas, whereas we are not constrained by bureaucracy, interdepartmental power struggles, or group think,” she says. Finally, she believes that MAP’s embracement of technology and investments in their process have allowed them to maintain access to the best information sources, cutting edge processes, and tools (which used to be only available to large firms) while maintaining their adaptability and entrepreneurial culture.

What is the secret to her success? Ms. Mounts stated that, “MAP’s business principles and culture of integrity, innovation, teamwork, and unwavering willingness to go the extra mile for our clients make us excellent in providing the highest quality service to our clients.” For Mounts, she attributes much of her firm’s success to the talented team of people she has on her side. “I value the experience of our board members. They advise on day-to-day decisions as well as the overall big picture strategy for the firm,” Mounts said.

Enthusiasm for Entrepreneurship

“Thus far,” says Ms. Mounts, “I believe my greatest professional achievement has been building MAP as a World-Class Business serving World-Class Clients. Taking the risk and making the sacrifices by pursuing a more entrepreneurial path, in my opinion, was the best way to create a premier risk management and hedge fund consulting firm that puts its clients first and foremost.“ She believes that throughout our careers and personal lives, the achievements we hold most dear, are typically those which are most difficult to attain.

When asked regarding what she wishes she would have known when she was first starting out in her career, Ms. Mounts enthusiastically responds, “I had no idea how much I would enjoy building my own firm and how rewarding it is to help clients solve their investment risk management problems during these uncertain times. Despite the challenges and tremendous effort it took to get this far, I wish I would have struck out on my own sooner. By starting my own firm, I can ensure we are truly independent and always do the right thing by the client. We have no conflicts of interest whatsoever.”

MAP’s primary focus is on increasing their clients’ awareness and understanding of the risks and complexities contained within their portfolios by utilizing the firm’s expertise in risk management for fixed income and derivative portfolios. The role of risk management for portfolios is important because future asset returns are uncertain and investors seek to capture returns while keeping risks within tolerable ranges. Regardless of the investment returns, without managing and monitoring risk a portfolio manager may be exposing their investors or beneficiaries to inordinate and inappropriate amounts of risk.

“What we see and hear from working with our clients is that they are very concerned with risk management and wish to examine risks by running various stress tests, historical analyses, and what-ifs,” proclaims Ms. Mounts. Also she mentions that their clients are taking a more holistic view of the portfolio when thinking about asset allocation. Clients are weighing the risk of making new incremental investments in alternative asset classes (such as hedge funds) by considering the correlations of returns to the existing assets within the portfolio and not on the isolated risk of the new investment asset class alone. Moreover, risk managers can add value by running stress tests and scenario analysis to identify the risks within portfolios, hedging risks exposures for which they do not have the tolerance or ability to bear, and by adding return enhancing diversifiers.

In MAP’s opinion it is extremely important to look at portfolios from a very granular level (position-level analysis) and to evaluate individual securities, their classifications, and their risk characteristics. Security level analysis also allows their firm the ability to provide extensive decompositions of the contributing risk factors within their client’s portfolios. Ms. Mounts further explained MAP’s approach to analyzing risk, “We sometimes like to think and look at risk like a mosaic – you need to do different things to complete it. You have to do stress testing and scenario analysis. You have to stress it. You need to look at VaR as a numerical measure of risk, but by no means does it capture or quantify all of the portfolio’s risk.”

Illiquidity and concentration risks are also major areas to be monitored by risk managers, which are sometimes not discovered in the variability of returns until it is too late. For example, Ms. Mounts explains how illiquidity and lack of trading activity can sometimes make asset classes and their respective investment returns to appear to be less correlated to one another than they potentially might be (i.e., common equities and real-estate). “Stock prices and values are available intraday and daily, whereas real-estate assets are usually valued (appraised) monthly or quarterly. Correlation of returns can appear to be lower due to asynchronous pricing between the two asset classes and the prevalence of dated or smoothed data.” She continued, “An investor’s need for liquidity is very much analogous to a person’s need for oxygen – you don’t truly notice it or appreciate it until it is not available.”

The Investment Landscape

When asked regarding the global investment landscape she explains that investors currently find themselves in extraordinary times where markets appear to be overwhelmingly driven by global central bankers’ coordinated policies, governmental debates regarding fiscal stimulus versus austerity, and volatile political headline risks. The predominant question for investors is: when extraordinary fiscal and monetary policies begin to normalize, and market forces and fundamentals return to being the primary driver of asset returns — how should an investor’s portfolio be positioned?

Ms. Mounts mentions, “From our perspective the macro changes that we are witnessing in the fixed income segment of the global financial markets are astonishing. Recently, I came across a rudimentary chart demonstrating that the most widely used aggregate fixed income index has only experienced negative total returns in 2 of the past 30+ years since 1980. Therefore, the majority of the populace, politicians, and practitioners in the financial markets are unfamiliar with an environment of rising interest rates and the primary and tertiary impacts rising interest rates will have on investors’ portfolios, the financial markets, and the real economy.”

In her opinion, we live in a world where equities (stocks) are pretty widely followed and understood by the vast majority of people. For instance, many individuals enjoy discussing their stock portfolios and investments at cocktail parties, however it is difficult to find the same level of enthusiasm when individuals are discussing their bond portfolios. But, interestingly enough, almost all of us in our daily lives rely significantly on the depth, breadth, and well-functioning of the global credit markets. Many of us have mortgages. Most of us have had a loan, either a car loan or a personal loan, and maybe even credit cards.

“For our clients, we are concerned about the ramifications of higher interest rates on their portfolios, the markets, and the broader economy. Given the funding ratios and annual spending needs upon which their beneficiaries depend, many of our clients which serve their local communities, but also operate on a broader scope for the causes, programs, and people they serve both nationally and globally, do not have the option whether to be invested in the markets or not. However, our firm partners with our clients and assists them in how to best navigate these uncertain times,” says Mounts.

What Makes MAP Different

“We believe our risk management and hedge fund consulting services add value to a portfolio,” explained Mounts. She continued, “It is extremely important to look at portfolios from a granular perspective, and we have the systems in place that can measure, monitor, and interpret risk so that we can effectively communicate that risk to our clients.”
This holistic view of portfolio management is what gives MAP Alternative Asset Management a competitive edge, Mounts said. By designing portfolios with risk management in mind, Mounts anticipates that risk will be used as a source of generating alpha in the future.

The position level analysis portfolio work MAP performs has been on portfolios ranging from 9,000 to 40,000 positions just in fixed income and much higher across the total plan. Given the large number of securities contained within large institutional investors’ portfolios many professionals are concerned about data overload, the quality of data, and interpretation. Ms. Mounts acknowledged that this can be a challenge, however at the same time she believes it makes the investor’s rational choice even more apparent, “Hire somebody as a consultant who knows what to do with risk – don’t just go out and buy the latest risk software. The smarter pensions are doing this, they hire risk consultants. Others, who may experiment with implementing a risk system themselves, will quickly find out that it takes them forever, but if you go to a risk consultant we can get you up and running in about a month. That is because we already have all the systems in place and have them automated. We already do have and can actually handle full position-level transparency.”

Women in Asset Management

According to Mounts, one of the biggest challenges for women in financial services is the lack of senior role models in the industry. “It makes a difference for women to see other women in senior level roles,” she said. “It gives young women something to aspire to,” added Mounts.

Mounts has been an active member in the investment community in Southern California, and is especially focused on helping other women in their career paths in asset management. She is the founding member and steering committee member of the Southern California Chapter of 100 Women in Hedge Funds. She has also been very involved in prominent women’s networks such as 85 Broads and Broads Circle.

While Mounts encourages women to explore the benefits of entrepreneurship, she does acknowledge that access to capital is another obstacle that women can potentially face, especially if they are trying to leave the traditional asset management career path and start their own company. “By being involved in these networks for professional women, I hope to open doors for other women and help them recognize the opportunities that are out there,” said Mounts.

As advice to young women entering the industry Mounts stated, “I believe that women should build their own personal advisory board to help them navigate their careers. It is important to create your own team of advisers to mentor and guide you. Companies have Boards and I believe one of the biggest keys to making the best career choices has been a few key people who were unofficially my career advisory board. In fact one of MAP’s key to success is our Board. MAP has an outstanding Board headed by John Ward, the former CEO and Chairman of American Express Bank, and includes Russell Read, the Former CIO of CalPERS. The Board helps me with day-to-day issues as well the overall strategic direction. “

Striving for Greater Diversity and Inclusion within Finance

Ms. Mounts stated that, “MAP believes our embracement of diversity in our workforce makes us a stronger and richer firm and best able to serve our clients. We believe the best MAP stems from selecting the best people from the broadest talent pool which encompasses the full array of gender, ethnicity, origin, sexual orientation, religion, culture and physical abilities. In searching for suppliers and investment managers, MAP also embraces this diversity and seeks firms with similar values to our business principles. At the end of the day, MAP wants to ensure their suppliers and recommended investment managers are good business partners and will do the right thing for their investors.”

In particular, Ms. Mounts mentions that MAP has been and will remain to be a strong advocate for opening up the investment opportunity set by finding and fostering relationships with women and minority-owned investment management firms. Within the industry, there are growing discussions and interest expressed by Institutional Investors, particularly public and corporate pensions regarding the development of minority & women-owned emerging manager hedge funds programs. These programs stem from broader public policy interests and the goals of becoming more inclusive and diverse in business relationships and partnering, but also results from the fact that emerging managers tend to outperform in their early years.

“Despite these outstanding results, many of these women and minority managers have difficulty raising capital due to their small size, lack of institutionally compliant operations and processes, and the extensive search costs required to identify early emerging managers who will outperform,” Mounts says.

That is where MAP feels they can make a difference and add value to their clients on both a business and societal basis. Their consulting services on over $35 Billion in AUA, allows MAP to see managers at all stages of their lifecycles. Their team is able to identify success factors, how managers achieve critical mass and tap into their vast network of resources to benefit the emerging managers. Additionally, their risk management consulting capabilities allow MAP to provide managers with a secondary set of eyes and perspectives on their portfolio’s risk. In essence, Mounts believes their skills in risk management can ideally provide managers with both an early storm warning system and a shelter for drawdown disasters.

Ms. Mounts continues, “Furthermore, I can’t even begin to tell you how personally and professionally rewarding it is to meet with and hold conference calls with many of these small, and frankly unknown managers, who have extraordinary backgrounds and are now pursuing an admirable entrepreneurial path. Their levels of professionalism, creativity, and enthusiasm in building the investment enterprises of the future is extremely rewarding for me and my firm to be a small part.”

Outside the Office

Ms. Mounts is extremely passionate about helping advance education in finance and the careers of women. When she is not in the office, Mounts commits the majority of her time to the groups within her investment community of which she is an active member. She is currently on the Southern California Steering Committee for CAIA and President of Broads Circle in Orange County. Additionally, she was a founding member of the Southern California Chapter of 100 Women in Hedge Funds where she also serves on the Steering Committee. Moreover, outside of her volunteer work in the investment community, she values time with her family and enjoys playing golf.