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Spotlight on AIM Alumni

Michael Underhill on "Deeds, Not Words" Featured

May 20 2016

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Michael Underhill, Chief Investment Officer for Capital Innovations, LLC was a Vice President at AIM from 1997 – 2001. In this Q&A, Underhill describes the journey that led him to create Capital Innovations, based in rural Pewaukee, Wisconsin, how the industry has changed, and why he considers himself “commercially unemployable.” 

Q: What inspired you to start your own firm?

A: Something I noticed at the big Wall Street firms was that they were always focused on a style box – small, mid, large, growth, value – always producing widgets. They were creating products, but not necessarily solving problems for clients.

Growing up in a military family, my father used to preach a Latin phrase: “gesta non verba” – “deeds, not words.” I chose Main Street over Wall Street because of all the things that were going on at the time with big cities, and the challenges they pose when raising children. Today I live out in the sticks of Wisconsin in farm country, I wear a Timex instead of a Rolex, and I don't have a private plane.

Growing up in a military family, my father used to preach a Latin phrase: “gesta non verba – deeds, not words.”

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Q: How did you get Capital Innovations off the ground?

A: The first thing I did was take time off, spend some time with the family and get my head together. I also spent time with my attorney to focus on the governance model of the company. After 16 years of working with some of the largest asset managers in the world, I was subject to non-compete, non-solicitation and non-circumvent agreements. My attorney, Steve Eckhaus, was my best friend when we got this business started and he’s one of the best guys I know. Steve represents people like Gary Black, former CIO at Goldman Sachs. He is also the attorney for Sally Krawcheck, and is with one of the oldest law firms in the United States (Cadwalader, Wickersham & Taft).

 

 Q: How did your time at AIM shape you personally and professionally?

A: “People are the product” is what they used to say at AIM when I was there from 1998-2001, and it resonated throughout the organization – from portfolio management, to operations, to sales, legal, finance and administration. Objective number one is a cultural fit, followed by competency. I was taught that if you lead with cultural fit, the competency will follow. At Capital Innovations we can train people if they have a first-class temperament. If they have a first class mind, all the better.

One of the phrases that you'll come across in our job descriptions is “low ego,” a phrase that is sort of incongruent with this business nowadays. Low ego means you come in to work and do your job and have a sense of pride about it. You contribute to the team. You may not always get it right, but you strive for excellence every day of the week. That steady strain of discipline, tenacity and focus helps you deliver investment returns for your clients. That comes right out of the AIM playbook!

 

Q: You mention the value of mentors. Who are yours?

A: My father for character, Steve Jobs for innovations and John Taylor, Stanford University for personal freedom and fiscal/monetary policy.
At AIM my mentors were Abbott Sprague, Mark Santero and Pat Bray. They all knew what it takes to be successful as they not only had first class minds, but more importantly, first class temperaments.

 

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Q: What did the market look like in 2007?

A: We went out in 2007 with the idea of offering managed accounts of publicly traded securities in infrastructure, timber and agriculture, but we did it in an innovative way. We didn’t just say we had experience – we really had the experience. We said, “Real assets is all we do.”

Our first client was the California Public Employees Retirement System (CalPERS). They were working with a consulting firm that was using real estate returns and real estate risk numbers as a proxy for infrastructure investments. The first thing we did was help them really understand that real estate and infrastructure are drastically different asset classes.

 

Q: How would you describe launching your own investment firm?

A: Steady strain. I'm 46 years old, and I've run 26 marathons raising several million dollars for cancer research as a tribute to my father, and I’d have to say that starting an asset management firm in 2007 was more difficult than running a marathon. It's almost like an Ironman challenge. 

 

Q: What was it like being the first Chairman of the United Nations Principles of Responsible Investment (UNPRI) Initiative?

A: Uncharted territory working with asset managers, asset owners, pension funds, sovereign wealth funds, family offices and a wide range of global institutional investors from dozens of countries. Most of the people involved wanted to do the right thing, but several people had different visions as to how to do it. Imagine riding a unicycle downhill while juggling a chainsaw, a burning torch and a machete. Lots of politics, cultural differences and opinions, so having strong management skills was part of the job. My father was 2nd Marine Corps Division in WWII, and he used to say “you need to build a bridge before you burn it.” Leading the drafting of the investment guidelines for the UNPRI Infrastructure initiative was a transcendent experience.

Imagine riding a unicycle downhill while juggling a chainsaw, a burning torch and a machete. 

Michael Underhill, on the challenges of being first Chairman of the UNPRI Initiative

Q: What advice would you offer a portfolio manager just starting out? 

A: Never lose sight of who you are and why you're in this business. It’s all about the clients.  You've got to take care of them – your fiduciary responsibility comes first and foremost. You’ll be offered opportunities to climb the corporate ladder, you'll be offered opportunities to go on fast-moving trains and travel around the world. Be true to yourself. Second, find people who are willing to spend their time as a mentor to you. And when the time is right, turn around and pay it forward.

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