Mannik Dhillon, Victory Capital

So I switched to finance, and I loved it and came out. And my first job coming out was with a firm called Hewitt. They're now Aon. And it was working with their defined contribution clients and building their plans and lineups and things like that. So on the consulting side, did that for, I was with them for eight, nine years, eventually moving into dedicated manager research. So that's where I started the point of my career where my job was to evaluate asset managers like Victory Capital and recommend their strategies to our clients. So that was a great experience. I took that to Wilshire Associates where I was head of manager research, moved from... So eventually, I went from Atlanta to Chicago, then now to Santa Monica. And again, got to meet with the best of the

Best in the industry. I think it was a really great role to learn the business of asset management. It gave me access to some of the most senior people, CEOs, CIOs, CEOs of firms across the globe. I visited different parts of the world doing manager due diligence on site. And so it was a really great learning experience. And it really helped me figure out kind of what I wanted to do or in my next phase role and kind of what that company should look like. So because I had the opportunity now to see thousands and thousands of different business models. So then when I came across, Victory was known to me because we used to use them in some of our multi-manager funds at Wilshire.

So I knew the folks at Victory. We worked on a couple of projects together. And then the conversation really began around, the model that Victory was building in its private state. So the, Victory Capital became independent of KeyBank back in 2013. Actually, on the 31st was 13 year anniversary of that. And the idea was create a new version of asset management where you can find the best and skilled managers with edge and, but leave them alone to do what they do best, which is manage money. in asset management, one of the things I learned in the research side is especially smaller boutiques, the investors are dealing with other things, like they're dealing with HR and accounting and all this other stuff. And, and, you know,

It does take time away. And then if you have these large firms that are built off of one research process, you kind of get groupthink across the portfolios, right? So this way we, we have independent autonomous investment boutiques that we call franchises that operate their process and manager teams independently and autonomous. And I'm there to help them be a best practice kind of provider, be counsel where they need, but really it's up to them to drive their process and team. And then we support them with everything else. So they don't have to, worry about managing a distribution team or marketing or, what are compliance best practices. And so that was a model that resonated with me. And that's why I decided to take on at the time, what was the head

Of product role at Victory Capital. And that's now grown obviously since then. And, and part of that growth has come, to other areas like overseeing the investor franchises to the solutions business to also the ETFs. Great. So before we like get a little bit deeper into the product lineup

No specific hobby that I would say, Hey, I do this every day or every week regularly other than,

Good at what they were doing went out of business because, the market declined so significantly, right? They just, they just couldn't survive. So, um, but I, I truly believe in, and we believe in that if you find those managers that are good at what they do, um, they've exhibited skill, have an edge, um, you can keep them, um, isolated from the noise of everything else that goes along with asset management and let them focus on generating returns for clients and servicing their clients. And that's kind of what we've done so that the other benefit of it is if somebody comes to victory capital to buy investment product from us, from either multiple franchises or the solutions team, they're not getting the same process at all. So in fact, like we get asked this a lot of times around, Hey, do you

Have overlap then of your strategies and products? And we do. And, we actually embrace it because even in the same asset class, different processes, different teams lead to different results, or at least the path is very different. And so we basically allows the clients to have the choice of which approach they want. And we have many clients that own multiple products from victory capital from multiple franchises because of that. Um, so I think that's, but then you need to support those franchises with all of the other things that are very important to clients. Um, you have to be able to go out and tell the story through your sales team. You have to be able to mark, create marketing collateral. You have to be able to run and operate the business in terms of

Operations, trading, all those things that go along with it. And so, uh, that's how we put that layer below the franchises to support them. Um, our model, our, our, our centralized platform, while it's centralized, it's not standardized. So we're very customized in how we work with our franchises. Some like things a certain way, some need certain help on certain things more than others. And so it's very customized, uh, not standardized platform off which they can kind of grow their businesses.

That avoid certain things like the value trap that you sometimes run into with value investing. So Vflow sits squarely in the large value space. That's how clients are using it. That's where it fits. Um, but it's a better way of measuring value than some of your traditional price to book price to earning type approaches. Um, and then along the way, whenever we've come out with a new rules-based product, that we have to, we have to say, what are we doing to make it better? So you identify a challenge or maybe I don't want to say a deficiency, but like something that can be improved upon and then say, how can we then make this better? So that the clients ultimately, it's about the risk adjusted outcome that they get and, um, how can we improve upon it?

So that's really how Vflow came about. Uh, we said, Hey, free cashflow yield is a great measure. There's a better way to do it. Um, and then we launched our product just over three years ago.

That time, um, they were flush with cash because of, of all the vaccines and then quickly their free cashflow profile turned around and, with a rear view looking approach, you would have missed that. And so having that as one enhancement that, um, has really helped with results. And the second is the one you were touching on, which is the growth filter really. So it's less about finding the best growing companies. It's about getting rid of the worst growers. So we don't end up accidentally in a value trap. And, uh, what that's done is really allowed the strategy, the index and the fund to outperform in what's been a really growth kind of headwind for value managers, right. And value strategies. And, um, interestingly enough, when it completed its

First three years, being able to outperform not only your style benchmark in the value space, but also core and growth benchmarks over that period of time and doing it without any mag seven, like that's a pretty compelling, I think, uh, solution for clients.

You're paying for them. Right. So given technology is a perfect example, right? It's not about, um, brick and mortar buildings and widgets, it's about way more than that. And so free cashflow is a better measure in that regard. And that leads to some of those differences you see between a standard price to book approach and maybe a free cashflow yield, uh, approach. The other thing is, um, the growth filter does matter. And so what you'll see is, well, free cashflow is great because it's the money that's left over after companies pay this bills, right? So it is a true pure representation, um, of a company's ability to generate, um, returns for clients really in, or cash, right? In this case.

And it removes a lot of the, um, other noise that happens in the accounting of income statements and balance sheets and things like that. So it's very pure in our regard. And then when you take that, you can say, okay, well, I found a company with a great free cashflow yield, so it must be great. The problem is maybe that yield is, uh, really attractive because there's something wrong with the company that, um, is going to not only persist, but maybe even get worse, right? So you want to attract a free cashflow yield, but you don't want it. You don't necessarily want the yield to necessarily go higher just because your price is declining, right? So in that case, what we found is just get rid of the worst growers, that, that tail that where these companies are not

Exhibiting growth. So then you can say, okay, not only are you generating a lot of free cashflow, you have a very disciplined way of managing your business, but you also have, you're not in, in, in that trap or in that kind of circling the drain around growth. Um, so that leads to how these companies do. And so what happens every quarter when we rebalance, you'll see a healthy number of changes, companies are being dropped, companies are being added because free cashflow yield changes over the quarter, but plus so does growth prospects. And, um, so we,

Story helps in conveying the value proposition for the product, right? So there's not a lot of, uh, uh, hoops to jump through for the, for the buyer to understand how it works. Um, so that's definitely one. Second is we have a fantastic sales team. Our intermediary sales team, uh, is well-resourced, well-experienced, has great relationships in the market. Um, we have a dedicated RIA sales team and with any new ETF launch, that's an important channel in the retail space. Um, so they're out there doing that, but we've spent so much time educating and training them before they're going out into the field that that helps. So we have basically subject matter experts in their own regard, have the confidence to go into their relationship and talk to them how this

Can benefit them. Um, a lot of it is also cross sell from other products. Like I mentioned, advisors have other products from victory capital. So they might know us for maybe our global strategy, or maybe they bought another ETF from us before. And we're going in there and telling them about the new approach that's helped. The marketing collateral is also very important. I think we have a, uh, great marketing team at victory capital where, the ability to take what are, um, technical concepts and, and distill them down into a way that, an end client even can understand, I think is very important. So having clear collateral, it's easy to understand and shows the value proposition has been another thing. Um, now you put all that together with obviously now

Great, a real, uh, three year live record, five-star rating. Um, I think, the adoption is only going to, uh, be better from here.

Convince me of that we could apply our process across market caps, styles, and geographies. And it, and it did work, in our research. And so we were, when, when those clients started asking about international, it's one of those, Hey, glad you asked. Like we actually have already done the work. We know the approach can work. And so we launched those products. So now we have a pretty healthy suite, you have large value of large growth, you have small cap, we're doing some research around small growth, if what, what can be done there. And then we have international value, international growth. So we got the right building blocks going for the flagship free cashflow approach. I think what you'll see down the road is there's a lot of

Opportunities for us to augment or, and what we do for different types of client needs, right? So for example, is there a way to enhance the income because, free cashflow yield isn't necessarily about dividend income. Now companies that generate high free cashflow can pay dividends, but it's not, your high yielding dividend type story necessarily. Is there a way to augment maybe the securities underneath with maybe derivatives based income or something like that? one of the things in the flagship methodology we don't include financials and rates. And it's a very good reason because free cashflow is not a good measure for financials. That's another area where, we've had some clients ask us, would we be willing to do one that's maybe a little more core like,

Or maybe more complete from a sector perspective. Obviously, our research shows that, when you have conviction in a process and a methodology, just like active fundamental managers, you want to build a concentrated portfolio. And, as long as you can compensate for the risk you're taking, that's a great product. But, some clients feel that, maybe having financials and stuff is better, but it's, it's been a big, it's something that, we, we've looked at, but, it's, I, and it, it's always going to be, I think, an easy enough to understand concepts. So where it does have opportunities to add offshoots from it in the future. Another one we got asked about is running it as a global strategy,

Which obviously we would be able to do because we have, the, the geographic capabilities already out there.

So the concept of, we can give you a product that can still outperform. Now, here's the important thing about, where how the growth filter and everything works together is, generally value strategies using the old metrics, they do well in value environments. The problem has been, they give it all back in a growth environment. And, and that's where, the, the growth filter, just getting rid of the worst growers comes into play because what it's actually allowed Vflow to do is not only do well in those value oriented markets, but keep pace in growth led markets. And what that means for a client is they can still get their growth out of, let's say a Nasdaq 100 or an S&P 500 type S&P 500 is blend, but a lot of it's growthy, so it's like,

They just change, it just changes where the style marker comes in, but, they can look to diversify away. So for example, I mentioned earlier, Vflow has produced the track record it has with no mag seven exposure. Right. And I bet you most portfolios somewhere in there have a good bit of mag seven exposure, just either through index beta investing, or maybe even active large growth. So what we've seen is, it gives people comfort to be able to say, look, I understand even though values underperform for so long, okay, I can see how this approach won't leave me wishing I hadn't invested in value if growth continues to run. And it's also driving results without some of the same stocks I own in a lot of other places in my portfolio. And then we also have

The growth product. So a lot of clients have actually paired the two together. pairing the value version with the growth version. So Vflow, VFLO with GFLW has been a great pairing for certain clients. And then what they can do is they can keep that center part of their portfolio in low cost beta if they want, and they're getting something very different.