Jim Nevels says building a successful investment management firm requires demonstrating your integrity every day, even if it hurts.
“You have to be an enterprise that sometimes is willing to say, ‘I messed up,’” says Nevels, chairman of West Chester’s The Swarthmore Group.
There’s been plenty of pleasure to go with the pain, it would seem. Although Nevels and his team have grown The Swarthmore Group, launched in 1992, into an enterprise with nearly $2 billion in assets under management, that growth came during an era when erratic changes shook the confidence of investors in the markets and their money managers.
In some respects, Nevels’ business accomplishments pale when compared to the challenge he has faced as chairman of the Philadelphia School Reform Commission, a team put together in 2001 to fix Philadelphia’s public education system.
Nevels took on what seemed to be the impossible job of reviving a public school system of 200,000 students and 15,000 teachers that was in trouble on nearly every front. Nevels coaxed the state into allowing creative refinancing of the district’s debt and helped float new debt issues to fix crumbling infrastructure. He also engineered agreements with teachers and administrators to put the best teachers in the most troubled schools and to make educators accountable for results.
His term on the commission has helped him understand the challenges his firm faces as it grows and its structure becomes more complex.
Nevels talked with Smart Business about what it takes to be a successful investment manager, his schooling in business and the business of schools.
How has your training as a lawyer influenced your business management style?
It has affected it greatly. No. 1, I am a big picture person from the standpoint of business, but the law has really affected me in terms of my view of how things work together, how things fit together.
There is really something to the (notion) that when you go to law school and graduate, you’ll never think the same way. I can be incredibly analytical when need be. I found that I could be a well-informed consumer of legal services, but I don’t pretend to practice law anymore. I know just the right questions to ask, and the law prepares you in just the right way to ask the hard questions. And I found that is a gift, that’s a capability that’s incredibly valuable.
The thing that I am a little manic about is that I need information, I need information to know those details are taken care of. I can get very frustrated by not knowing those details are being taken care of.
Why did you make the transition from lawyer to entrepreneur?
I realized that I had an interest and an aptitude in commerce and in business. And in terms of practicing law, in terms of documenting those transactions, doing the legal work for a financial transaction, I realized that perhaps I was thinking at some point more like a businessperson than a lawyer.
And besides that, it became clear to me that the businesspeople had all the fun. I didn’t want to stay up all night working and drafting things for them when they were having the fun and doing the deals.
I saw it as exciting, but I also saw that there was a creative aspect. There was an analytical aspect, which the practice of law satisfied, but then there was an additional factor of creativity that I may not have been getting as much of in practicing law.
How do you lead an investment management firm successfully through the ups and downs of the market?
I think that the thing in any business, particularly in the investment advisory business, is maintaining strong relationships and the primacy of the most important thing in a business, the client. I know that sounds so elemental, but it becomes critically important to talk to and realize that the client is the coin of the realm and the most important factor in any business.
Because if your clients are happy and well treated and well attended to, everything else works out. When we started at The Swarthmore Group, we started as an equity only, stock only investor. We had the good fortune — and sometimes it’s better to be lucky than smart — we started in the equities market during the most robust equity market in the history of the republic.
You’re looking at 20 percent returns, incredible performance. What happened was my CEO, Paula Mandle, and I realized that this could not be the party that was never going to end, that the equity surge would have to end for any number of reasons. But then the critical thing that happened was our clients started talking to us about the following: How do you feel about this market?
Clients were saying, ‘I’m feeling uncomfortable about valuations in the equity markets.’ Our response was, ‘Would you feel comfortable about taking some of those gains off the table and placing them in the fixed income arena?’
And by listening to them, we were able to move into the fixed income arena, which has grown mightily in the last five years. The firm has $1 billion-plus in fixed income. That’s an illustration of what you do in difficult markets; you listen to your clients and you use your best judgment to assist them.
What do you look for in employees of The Swarthmore Group?
What we look for are individuals who understand the client is king or queen, and what that refers to is being responsive to client requests, being responsive to client servicing and making absolutely sure that the client is in the forefront for them.
The second is that we hire people with the utmost integrity, because I think that’s the sine qua non in the investment business. Integrity, in some ways, is the easiest, in that you talk with people that know them, you talk with prior employers. We follow up on references.
And the other way to screen is you sit down with the candidate and see if they’re comfortable with the environment of The Swarthmore Group, and you can read that pretty easily. Are they comfortable with the other people, are they individuals who seem like they are likely to get along with other people?
What are the most important qualities for success in the financial management field?
Valuing relationships and your integrity, and I know I keep coming back to that, but your word is your bond. You keep your word even when it’s uncomfortable to. I will tell you that you would be amazed how difficult it is for people to do that.
You don’t B.S. the client because the client will always find you out. I would also include intellectual honesty in that. If you’re not self-analytical, it’s hard to be financially successful in the investment advisory business. There are going to be times when you’re going to look in the mirror and say, ‘You know what? I made a mistake on that call, got to get out.’ Or, ‘Nothing has changed, I’ve got the courage of my convictions.’
How did you approach the job of chairman of the Philadelphia Commission on School Reform?
The way I approached it was, one, to identify the client. Again, simple and elemental; the clients are the children. You’ve got to focus on the children and their families. I learned the art of triage very quickly; what are the worst problems, how do you deal with them and how do you resolve them on behalf of the kids.
The other thing that was critical and remains is the focus on the children. I don’t make a statement without referencing the children, because ultimately, it’s not about the teachers, the teachers’ union, the principals, it’s not about the adults. It is the children’s business. I also knew it would be critical to find a crack jack CEO. The commission members and I worked studiously on a search to get the best CEO in place and then to act as a corporate board would, and that is to establish policy.
How do you get the disparate groups to work together for reform?
By establishing credibility, which affords the commission and the CEO the ability to have … an accumulation of what I’ll call capital, it’s intellectual capital, it’s political capital. Because with improvements, you have credibility.
And then you do everything you can to be fair to all of the members of the partnership … but there has to be that added conversation, to look across the table and say the children come first. Yes, it’s important to have a living wage and living benefits and so forth, but every nickel that gets saved goes back into the classroom to benefit the ultimate client.
What have you learned from your experience on the commission that influences how you think about your business?
While we’re getting larger in terms of number of people, we’re also getting larger in terms of assets under management, and what has become important is that (our CEO) choose members of her team … the chief investment officer, the senior marketing officer, assembling that cadre of leaders is very important.
You can draw a big circle around that portion of the organization and see how important it is to the longevity and viability and service to our clients, and I have certainly seen that in a far larger organization called the Philadelphia School District.
How to reach: The Swarthmore Group, http://www.swarthmoregroup.com
