Cathe Tocher has excelled as a portfolio manager through very good times and bad. She is senior vice president of investments at Great-West Life & Annuity Insurance Co., whose five- and four-star Morningstar-rated stable-value portfolios continue to be embraced by the 401(k) marketplace.
A Canadian by birth, Tocher joined the firm's Winnipeg office in 1987 and has been with Great-West ever since. The performance of her portfolios has earned her considerable respect among investors - particularly during the chaos of the financial crisis when she continued to beat portfolio benchmarks.
In an interview with Money Management Executive, Tocher covers her experiences in the industry and her success in dealing with the market downturn. She provided honest answers about her fear during the early days of the crisis and the competitive drive that led her from a potential career in the arts to becoming a distinguished member of the financial community.
MME: Your assets under management and the strategies that you oversee are very impressive. Is it just your group that's gone from $250 million in 1990 to $9.6 billion?
Tocher: That is correct, it's my team, and it's been my focus. My team also works in the general insurance company portfolio, so we are an insurance company first. When we started the separate account business, the focus really was not on retirement services and building up that block of business. My team and I have really been building this from the ground up.
MME: What has really fueled that growth? Is there any one particular strategy or client base?
Tocher: It's the markets that we work in from the separate account side of the business. We have custom stable value in the government space-so that would be defined contribution. That's the biggest piece of our stable-value stable. We have 401(k)s and proprietary funds that have been difficult in the past because we're not a fund shop-we're not a PIMCO-we're an insurance company with this asset management capability.
Thirdly, there's life insurance, which is the second-largest component of our stable of separate accounts. The growth really started with custom stable-value in the defined contribution market in the early '90s. Our way of growing that was really by selling our services as a recordkeeping provider.
At first, managing assets was really just an add on, it wasn't a key focus; the real focus was in keeping assets under administration and our recordkeeping business.
Over time, we've managed the assets we've built by modifing and strengthening them.
We've really delivered in terms of performance, whether that's in the 401(k) market in terms of total returns relative to benchmarks, relative to our peers, in the custom stable-value fund, our customer service, helping to manage client relationships, providing education, or going before client boards. We've really been able to take the time to develop some momentum.
What I was hired for was the insurance company's general account assets, not separate account assets. But I was really given the green light when I started building the business and working with others to do so over time.
One of the big catalysts, quite frankly, was the financial crisis. We generated strong performance results across all of our business lines through the crisis and following the crisis. We were also able to develop the reputation to bring in new clients-so we were getting new business to manage.
We were able to help our clients work out of their bad portfolios, or very aggressively postured portfolios that weren't performing well at all through the downturn.
So, we were able to build a reputation, and now people have a sense for what we can deliver and that we're not kind of a phenomenon of the crisis. We have a long-term track record and a philosophy that is core to how this business is managed. We're credible, and we can compete with the big boys when you look at performance. We've really developed a product that is sound, and we support it with really strong customer service.
MME: Stable value funds are hot again, and people want conservative investments and are afraid of the market's gyrations. Because of the experience of 2007 and 2008, there's been a drop in the supply of wrap coverage for stable-value funds. How have you adjusted your investment strategy in light of these changes?
Tocher: People are afraid, and clients are concerned, as they should be. Stable-value wrap providers are also very concerned, which is interesting because when investment policies are set, and if you're using an outside wrap provider, the wrap provider is very familiar with, and really has signed off on investment policy guidelines. However, as with anything, when things are good for an extended period of time, complacency becomes the buzzword and you don't look as closely.
We've had this shock to processes and performance and to the market, and wrap providers have been pulling out of the business or are not looking for new business. Our advantage is that we provide the participants with the wrap ourselves so we don't go to an outside wrap provider.
The lack of supply in the industry has had no impact on us. As a custom stable-value fund wrap provider, we don't wrap outside managed firms, and so we have the capacity to accommodate the growth that we've experienced over the past couple of years and certainly the capacity for whatever kind of future growth we want to undertake in the custom stable-value fund business.
MME: Some of the investments that you specialize in are mortgaged-backeds. Do you want to comment on what is going on in that industry right now and where you see it headed?
Tocher: We do manage all fixed-income asset classes in the investment grade space in our portfolio. So we've got about a 50-50 split in the product lines, and I'm speaking specifically to separate accounts.
The government debt market was the recipient of the flight to quality, or the safe-haven trade. With respect to housing and MBS, the housing market has undergone a correction.
We've got prices down just over 30%, and I think the consensus is that we see another three percent to a possible 10% drop nationally in home prices.
Our strategy is very consistent and very disciplined. When we're building a portfolio, we build a core holding of pass-throughs, we hone in on current coupon, and then we build out.
The key over time, and consistent through the downturn, has really been to manage long-term prospects, to focus on interest rate sensitivity and the response to changes in the market, to the economic environment - to listen to what the market is telling you.
We're consistently looking at the risk profile of our portfolios and modifying them to be responsive to changes in the marketplace. When we had the crisis and the downturn in the housing market, there was enormous illiquidity and challenging issues with price discovery. What made it even more challenging was the uncertainty over how the Fed and the administration were responding and were going to respond in the future.
You had money market funds that were frozen and even if they were government funds, they were frozen. You had fund managers being forced to liquidate because of redemptions.
I'm not going to tell you that I didn't feel some degree of fear. I was certainly on edge during that period.
At the end of the day, the key message is that it's really important to be nimble and responsive to changes. The performance we generated during the downturn-and the growth in our business since-really speaks to the strengths of our strategies and what we've been able to deliver.
MME: Did you always plan on going into finance?
Tocher: I actually grew up as a budding ballerina, and I really believed that I was going to be a ballerina. I'm very competitive-and the truth is, when I realized that I couldn't be the prima ballerina, I chose then to leave the business, if you will.
MME: Your whole career has been with Great-West, you've been very loyal to them. Is your career where you expected it would be when you started?
Tocher: When I was studying finance I was really into the idea that I would be a portfolio manager. When I joined Great-West Life, understanding that Winnipeg is not exactly a financial Mecca, I felt very fortunate to have been hired and I really hoped that I could work in portfolio management.
In an insurance company, it's obviously a different perspective than total return money management. I just started working my way up, starting as a junior analyst, and I was given a lot of opportunities. As I said before, I'm very competitive; I think money management is a great place for competitive people who are also on and engaged 24/7.
I feel like I was fortunate that I found a fit for my strengths and my drive and my competitiveness-that I could really channel it into managing money. My company has been very good to me. I've delivered through my performance and, in return, my company has delivered to me. Since I've been able to run with this business and generate this performance, my boss has basically let me run with it, and I've felt like I've been a part of building the business process from the ground up.
It's exciting and challenging and that's why I'm still here-I feel very fortunate and excited to come to work every day.
