James Breech is the personification of evolution. He started teaching humanities at Toronto’s York University in 1972. In 1976, he completed his PhD in Hellenistic and Graeco-Roman history, religion, and culture at Harvard University. Today, he’s president and CEO of Cougar Global Investments LP, which has $1.4 billion of assets in its global-investment models.
“There is no reality principle in academia,” Breech says, explaining his move. “You can argue until the cows come home, and demolish someone’s position, but tenured professors don’t have to change their minds, so they keep saying the same thing. In money management, there is a reality principle: at the end of the day, you either perform or you don’t.”
By 1981, when Breech left York to pursue an MBA at the University of Pennsylvania’s Wharton School of Finance, he had already begun to develop the foundation of his next career—a platform that would bring institutional-level investment management to the middle market. “People with less than $100,000 were well served by off-the-shelf products like mutual funds, and people with more than $10 million could hire professional money managers,” he says. “No one was serving the people in the middle.”
To do so, Breech founded Cougar Global, in 1993. His plan was to develop asset-allocation mixes that could be implemented by financial advisors at large broker-dealers. “It’s a scalable business model,” Breech says. “We could reach billions of dollars in assets without increasing personnel.”
The idea, however, didn’t gain traction. In the early 1990s, mutual-fund firms were paying financial advisors hefty commissions to use their products, and Cougar Global just couldn’t compete. But the firm, like Breech, evolved. “Individuals started asking for access to our models, so we set up separately managed accounts and got moved into the direct business,” he says.
Initially, the firm developed models that were implemented by subadvisors, a strategy that proved less than ideal. “We did some attribution analysis and discovered that we were making the right asset-allocation decisions by choosing the right indices at the right times, but our subadvisors couldn’t always match the performance of those indices,” Breech says.
Breech solved that problem in 2007 by investing directly in the indices via exchange-traded funds. Today, the firm models only large-asset classes, moving freely between them—or out of them altogether—using a tactical asset-allocation strategy. “We don’t have any institutional clients, because they don’t understand what we do,” Breech says. “At one phase in the market cycle, we’ll be 97 percent equity, and at another phase we’ll be at zero percent equity.”
Individual investors, however, have rushed to Cougar Global’s models, which now have $200 million in direct client assets, in part because the firm offers downside protection. “In the 1990s, people would tell me they didn’t need someone to manage risk for them, but 2008 really changed all that,” Breech says. “Now investors know they need to think about risk.”
So, it turns out, do other financial firms. In 2010, San Diego-based LPL Financial, the world’s largest independent broker-dealer, approached Cougar Global about using its asset-allocations models. From hundreds of candidates, Cougar Global made the short list of three. Today, the firm provides LPL with monthly asset-allocation models; LPL then offers these models to advisors via a centrally managed fee-based asset-allocation platform called Model Wealth Portfolios.
In less than two years, Cougar Global’s LPL models have $1.2 billion in assets—and Breech is back to his original, scalable business model. And Breech, too, has come full circle. “People always ask me what the relevance of history is to investment management, and I point to Thinking, Fast and Slow, in which Daniel Kahneman points out that we think the future is knowable because we think we understand the past,” Breech says. “In reality, we don’t understand the past at all, and the future is also unknowable.”