WisBiz People: New WARF Investment Director Returns to Madison Roots

This is a new edition of WisBiz People, a column from WisBusiness Editor Brian Clark. If you know someone with a good business story to tell, write to [email protected] with your idea.

By Brian E. Clark

MADISON – When Tom Weaver visited his parents here in the early 1970s, he would often walk with his father past the new WARF building on the University of Wisconsin campus.

"I remember my dad (John Weaver, first president of the UW system from 1971 to 1977) telling me about what an interesting organization WARF was," says Weaver, then working on a MBA in finance at the University of Missouri in Columbia.

During those strolls, Weaver recalls, he learned about warfarin, a rat poison and anticoagulant named after WARF, which held the patent to the agent.

Never in his wildest dreams, however, did Tom Weaver think he would one day be working from an office on the 13th floor of the WARF building and managing the foundation’s $1.4 billion endowment.

WARF serves UW-Madison by patenting inventions made by university faculty, staff and students. It licenses the technology to companies for commercial development and returns money to the university to fund further research. Some of its investments fund Wisconsin start-ups.The income WARF shares with the university – last year’s grant was $48 million – comes from royalties paid on licensed inventions and the income from WARF’s investment portfolio.

Weaver, who started his job as director of investments at WARF earlier this month, has spent much of his career trying to quantify risk. He is promising to do things a bit differently than his predecessor, Mark Bear, who retired in December after 26 years on the job.

Though Weaver won’t give any specifics, don’t expect the portfolio to remain divided with 80 percent in equities and 20 percent in fixed income instruments. He calls that mix "very unbalanced."

Weaver left a post as senior investment manager of the $2.1 billion Fairfax County Employees Retirement System in Fairfax, Va. He worked there for five years as an in-house counselor to the fund’s independent board, which gave him flexibility to invest outside the traditional pension plan model.

Bob Carlson, chairman of Fairfax County Employees Retirement System board, says he was sorry to see Weaver leave.

"He was a key part of our team here," Carlson says.

"He shook things up, that’s why we hired him," Carlson says. "He had a lot of original ideas and took the fund in several different directions. They were positive changes."

Carl Gulbrandsen, WARF’s managing director, recoils a bit at the term "shake up" to describe what Weaver will do at the foundation.

"What I will say is he that he’ll bring a much different perspective to directing our endowment," Gulbrandsen says.

"The portfolio is managed by a strong committee, the WARF board," he says. "There will be a period of education to satisfy them that all of the changes Tom wants to make are a good idea."

Gulbrandsen says he is confident Weaver can bring the board over to his way of thinking.

"He was very successful in Fairfax County with how he looked at risk allocation," he says. "He is a very quantitative person."

Gulbrandsen says WARF is not the only foundation that is taking a hard look at the traditional split in investments.

"In the present market, that is more risky that you would want it to be," he says. "There are a lot of other interesting investment vehicles that all of us need to be educated about.

"Certainly, there is a concern that we are moving into a time of inflation and we need to have protections for that," he says.

Gulbrandsen says he is pleased with the way the endowment has been managed and calls its growth good.

"We have been ahead of most endowments," he says. "We just want to make sure that in five to 10 years, we can still give the university what it is expecting for the grant.

"Tom has the skills we need for looking at risks," Gulbrandsen says. "We also hope he increases our returns, too."

Though Weaver had a good run in Virginia, he says he is happy to come back to his Midwestern roots.

"In a way, it’s like I’ve come home, even though I never actually lived in Madison," says Weaver, who was born in Minnesota. His grandfather, Andrew, was a speech professor at UW-Madison from 1918 to 1961. Both of Weaver’s grandparents died in 1965 and are buried in a Madison cemetery.

I’ve been visiting here – sometimes for a week or so at a time – all my life, so it’s almost a surreal experience to be living here now," he says.

"It’s a great move for me and my family, including my daughter, Carrie, who will soon begin working on a master’s degree in speech pathology."

Weaver began his career in the trust department of the First National Bank of Kansas City.

"I was managing portfolios for the little old lady with $100,000 to support her for the rest of her life," he says.

He started in January 1974, which was one of the worst bear markets since the Great Depression.

"People said to me, ‘you poor guy, you had to learn the business in those conditions,’" he recalls.

"But I think that was one of the best things that could happen to me. I saw the downside of what could happen to portfolios and how that $100,000 for the little old lady could turn into $50,000. Trying to produce income from that to support her was a very difficult thing.

"So I began my career focused on risk as opposed to asset allocations in the traditional sense. And that’s had a big influence on my career," he says.

Weaver left that job after five years for a bank in St. Louis where he was in charge of the equity department.

"All this time I was focusing on risk and trying to understand it and the economics that drove asset returns," he says.

About that time, Weaver became a fan of Art Laffer – of Laffer Curve fame – and the economic studies he was doing.

Laffer, who was on Ronald Reagan’s economic advisory board, was a strong believer in incentives. His theory – the curve that bears his name – posits that when a tax rate gets too high, it stifles economic activity and brings in less revenue than a lower tax rate that would encourage more risk-taking and commerce.

In other words, if the tax rate is zero, it won’t bring anything into the public coffers. Likewise, if it is 100 percent, it probably won’t bring anything in, either. Between those two zeros lies the curve.

Opponents ridiculed Reagan’s policies "trickle down economics" and argued it meant if a rich man got an extra dollar, he would give the doorman a quarter.

"I went to work with Laffer in 1981," Weaver says. "And some people think I have a political orientation because of my work with him. But I don’t. I was advising money managers, not Reagan."

But Weaver missed managing money. After two years as a consultant with Laffer, Weaver went to work with Ned Davis, a market analyst known for his risk models.

"I wanted to get back to working with models that managed risk in a portfolio," he said. For the next 15 years, Weaver was president of the investment management firm of Davis, Weaver & Mendel, Inc. of Atlanta, Georgia. Over time, the company grew to manage $300 million. It gained fame in 1987, when it had all of its customers’ assets in cash when the market crashed in October.

"That put us on the map in the investment community and we were one of the top money managers for that year,"
he says.

Weaver doesn’t claim to have foreseen the 508 point drop – a decline of 22.6 percent – in the Dow Jones Industrial Average on what came to be called "Black Monday."

"There was nothing in our work that forecast this,"
he said. "
But the risk assessment said this is not a time to be taking a risk of being in the market.

"There are a lot of times that we were out of the market and nothing happened. In this case, though, the risk was realized. We were able to preserve capital because we were not invested in that environment."

About the same time, Weaver was asked to serve on the board overseeing the $2 billion pension fun for his denomination, the Christian Church, Disciples of Christ.

"It was a chance to sit on the other side of the table and be a board member evaluating asset allocation decisions instead of being a consultant, money manger or analyst," he says.

"It gave me a chance to look at the big picture," he says. "It wasn’t really more conservative, though it can come across that way. But at other times, if the environment rewards taking risk, I wanted to do it."

Weaver says he believes the market is now in relatively good shape and encourages a bit of risk.

"But that doesn’t mean it will stay that way for a long time," he says. "My personal feeling is that it will go sideways and not make any material progress for five or 10 years, but that there will be cyclical bull markets in a bear market.

"There will be favorable and unfavorable periods, repeating what we experienced from 1966 to 1982, though that really has nothing to do with how we handle this portfolio," he says.

By 1999, Weaver was ready for another change and he went to work managing Fairfax County’s retirement portfolio. During his tenure, it was in the top 10 percent of pension funds.

"We started a risk budgeting process, evaluating the asset allocation of the portfolio," he said. "It was not done in the traditional sense of 60 percent equity, 40 percent fixed income."

With a better understanding of the individual risks, Weaver said and his board were able to balance the fund and even put 15 to 20 percent of its capital in hedge funds.

Weaver had to educate his Fairfax board on his philosophy and strategy, however, to bring it around. He conducted seminars for the members and even gave them quizzes. The bottom line was that the fund was successful.

"To be honest, we were not happy that Tom was going to leave because he did such a great job," says Carlson, head of the Fairfax Board. "But we wish him well."

Now, Weaver is ready for a new challenge and a chance to be part of WARF’s management team. "Endowment foundations are different than public pension funds," he says. "They allow more flexibility. It’s a different kind of universe.

"Most of all, though, it’s good to be back in Madison. We’ll be building a house here and if this is the last career move I make, that’ll be just fine."