ONE on ONE with Som Seif: Returning With A Purpose

ONE on ONE with Som Seif: Returning With A Purpose

February 13, 2014 • Business, Features, In the Magazine

Regarded as a pioneer in Canada’s investment industry, Bay Street
power-hitter Som Seif sheds some light on the secret to success and
how he, himself, rose to the top.

{ written by David King }

It’s hard to believe that a 37-year-old can revolutionize the exchange traded fund industry in Canada. But that’s exactly what Som Seif accomplished when he launched, built and eventually sold his innovative fund management company, Claymore Investments, in just seven short years. After stepping down as CEO last April and taking some well-deserved time off to reflect and enjoy his success, the charismatic entrepreneur (who you may recognize from his stint as guest host on CBC’s Lang & O’Leary Exchange) now finds himself once again on the precipice of a new endeavor. Toronto-based Purpose Investments, which launched earlier this year, is a new player in town that sells systematic, rules-based funds and ETFs. And judging by the early buzz, it’s on track to be quite the encore for Seif.

ENGINEERING TO FINANCE
So tell us, how does a guy with an engineering degree from UofT become one of Bay Street’s most notable entrepreneurs?

Here’s the reality: I went into engineering with the goal of being an architect. My whole life I wanted to be an architect because I love the creativity of it and I love the idea of building things and seeing the things you create ultimately come to fruition. I also went into engineering because I was a little worried about money. Everyone told me that there was no money in architecture so I thought maybe this was a good path to get there.

When I was in my first year of engineering I said to myself, ‘Look, as much as architecture has been a lifelong dream, money is still unfortunately a major motivation.’ So I looked at other areas at the time and figured that I loved business so it seemed like a good path to follow. I didn’t know what I wanted to be and I didn’t know that ultimately I was going to be an entrepreneur. I was just thinking let’s go have some fun and make some money.

So I went through the recruitment process and as an engineer, it was tough to get a job. But I got one at RBC and it was a great opportunity right in the heyday of a bull market. We were seeing the tech boom at full-steam so I got in at a great time. I did more activity in the first nine months of my career than I did in the following three years.

So you admit that your motivation at first was money. Is it still?

I loved my time at RBC. It was a wonderful time and especially challenging though it wasn’t until a few years later when I realized money ultimately was a silly thing to base my career around. I remember it changed when I was 25 when I suddenly went back to this route of ‘I love seeing the progress of things’ and wanting to do what would put a jump in my step. It was seeing my ideas become something substantial.

This was the big important inflection point for me because I realized I wasn’t going to achieve this by working in a bank setting. I needed to go off and find an opportunity to do that.

LEAVING THE CORPORATE WORLD FOR LIFE AS AN ENTREPRENEUR

Like you, I left RBC at a young age. Can you speak to what specifically drove that decision and what surprises you may have faced once you took on this new path of entrepreneurship?

First off, I didn’t see myself as an entrepreneur and just saw it as a really unique opportunity to go and build something. You know, I always shy away from that word – entrepreneur –because although I’ve built something and have a lot of credibility in what I’ve done, the reality is that all I really care about is having some fun and building stuff. I don’t know anything other than the notion of ‘let’s go out there and work our asses off’ because the idea of just managing and running a business to be flat doesn’t make any sense to me. The idea of waking up in the morning to continue to do the same thing we did yesterday doesn’t resonate. So to me, an entrepreneur asks from a visionary perspective, ‘How are we going to take something from here to there?’

I think the thing that also hit me over the head was the idea that everything you do doesn’t happen unless you do it. So when I was building Claymore, if I needed to get coat hangers I drove to Ikea to buy coat hangers. If you need to throw out the garbage, it’s on you and you know if you don’t do it, no one else is going to do it for you.

Similarly, if you want to go out and build your business you can sit here and say ‘Okay, I’ve got this great idea.’ But if you don’t go out and execute, ultimately it doesn’t matter.

BEING AN ENTREPRENEUR

I’ve heard you talk a lot about why you didn’t stay with Claymore through the BlackRock purchase, and you often referenced missing the start-up process and wanting to build something as an entrepreneur. Is Purpose Investments that vehicle and if so, how have you learned from your previous start-up experience and what will you do differently this time?

The sale process was tough. We built a great organization and Claymore was an unbelievable story. We built a company from zero to $8 billion in three years and it was the fastest organically grown firm of its kind in Canada. With that though, there’s a lot of emotion and energy that get sucked out of you as you go through it. The sale process was a very difficult time for me. I was effectively selling my baby. It was everything that I knew. I lived, breathed and identified myself with it so it was an extremely difficult moment for me. But I was very interested when the acquirer talked about having me potentially come in and run the bigger opportunity. I hadn’t really thought about it when it first came up but I had a lot of respect for BlackRock. And so I sat down with my wife and we talked about it.

At the end of the day, you have to want to wake up in the morning and you have to want and go do it. As much as I was excited about the potential of running the big ship, it came down to what I really wanted in life and what was going to make me happy. That happiness factor was critical and so I decided what I really cared about was building something. I wanted to change the industry.

Am I going to be spending the next couple years dealing with politics and bureaucracy while running an organization that ultimately is a piece in a bigger wheel, or do I want to be part of something that I can re-shape, the same way that I did before? I said ‘Look, this isn’t the right opportunity for me and I want to go back and build.’

I didn’t know exactly what that was yet, and if I was going to do it I also needed to step away and take some time to myself. I’d been going hard for a long time. I started when I was 23 and didn’t stop until I sold Claymore, which was 12 years of non-stop, 80- to 100- hour weeks. That’s like two careers, 24 years of experience packed into 12 so I needed to reflect. I wanted to think about the important
motivators in my life in this next chapter and that’s what I basically took the time to do.

COMPLEX PRODUCTS

In our last issue we interviewed David Chilton and as you know, he’s very critical of complex investment products such as ETFs and, in particular, hedge funds. We know these products are very different but can you tell our readers why you feel these are great products for Canadian investors to consider?

Let me clarify something for you. David Chilton and I actually have a very similar view of the world. I am not complex. I am not doing something that is so out of the box structure-wise. I actually believe in the same thing, which is simplicity. If you actually look at what makes a great investment, there is more than one element.

Number one is the human element of the investor and the decisions they make. It’s important to not make emotional decisions about buying and selling. Second, the types of investment products you invest in are really important. When you look at the factors that truly add value to an investor, net returns are all that matters. Net
returns are based on a big principle of fees and Chili (Chilton) and I are on exactly the same page on that one. Thirdly, this idea that we can emotionally be better than the market and ultimately add value to our investors by picking stocks is sort of a lost notion. The reason is that most people are really bad at it so it becomes emotional. But they also charge too much for it.

At the same time, I believe that systematic and disciplined investing works but you’ve got to be more mindful about how you invest from a rules perspective and the factors that you apply. Buying the benchmark to me is a bad investment strategy, so all I’m saying is you can be more thoughtful with how you go about selecting securities. You can take factors and disciplines that actually add value, strip away a lot of the noise and the ugly parts of the market and you’ll win long-term. It’s fundamental thinking but doing it at a low cost.

Now that you’re a little bit older and a lot wiser, what are you trying to accomplish with Purpose?

What’s really different about Purpose and even what I did at Claymore is the notion that the market has become extremely oriented towards just buying markets. What really matters is risk management and this is the last principle investigator you have to think about. A lot of that risk management and policies around risk
management are very expensive. Most people who do it are charging big fees, they’re complex, and that’s what I’m really trying to change with Purpose. I’m trying to bring risk management to the market at a low-cost price point.

I love this industry. I love the opportunities. I see huge changes that are going on that are creating opportunities. But at the same time, I want to change the industry so it’s also about changing the way a value is charged in the marketplace and democratizing the world of high quality investment products.

RETAIL VS. SOPHISTICATED INVESTORS

There’s a perception in the industry that much of the products you develop are not really ideal for a typical retail investor due to their complexity. Why do you think this isn’t the case and why, as you put it, are systematic, rules-based investments a good investment solution?

It’s very simple. One, it’s about being transparent. If you keep your transparency high everybody in the market knows exactly what you’re doing and how you’re doing it. It all goes back to what makes a good investor and making sure that people do the right things.

I actually believe that most Canadians still need advice. I believe advisers are critical to long-term success of an investor but at the same time I think investors have to be knowledgeable in today’s economy and there’s no excuse anymore not to be. Think about Google and the Internet. It’s out there at your disposal and you can’t not take 10 minutes or half an hour every day to learn more on your own in
order to have a more intelligent conversation with your advisor.

We’re stepping away from this idea of complexity because we’re not doing securities that are unique or blackbox. What we’re doing is simplified vehicles and bringing that to the broad masses. Whether the broad masses are working on their own or working with an advisor, they have to do the simple thing. We could give them the best investment fund in the world but if they buy and sell it at the wrong time and they don’t stay disciplined to it, it doesn’t matter what I do. As a client, you’ve got to make sure you’re systematically investing, committing to building
wealth and being disciplined, and not being emotional in your investment
decisions.

Building on that thought, do you find people are accepting of this new way of educating the consumer and this transparent way of thinking?

It actually resonates really well and, of course, it depends on the level of sophistication with the client, but this is one of my great challenges in the business.

I’ve always been a big advocate for fees and I’m a big believer that fees matter. In the last five years people are focusing more on the cost of delivery and the value associated with that cost. One of the challenges with that, and this is just intuitive, is getting over the notion that everyone just flocks to where the fees are the lowest without thinking about why they are doing it. What matters isn’t just getting a
client the lowest costs but it also has to be invested properly. If it’s not properly managed or invested, there’s no point and so you have to be thoughtful of not just cost but also the strategy behind it.

When I started Claymore, we weren’t even thinking about these things in a defined sense. Sure, we were being a bit of a noisy disruptor back then but at the same time, we were telling people where the markets were going and that was a big generational move. Since 2008, we’ve of course seen the market go towards what we were building, and what we’re doing with Purpose is exactly that but in a more articulate manner.

What we’ve learned through our trials and errors is that to change the market, we need to look at how we’re educating the market. What’s really surprised me is how quickly people are taking to this advice.

What do you attribute this shift in perception to?

I think this is largely due to our credibility. People have won a lot with us in the past but we’re also telling a story that resonates. People are telling me that it makes sense, that we’re being intuitive. Everything I’d built at Claymore and now with Purpose is based on the notion of following the gut. When I speak to a client, does it actually make sense to their gut? If it does, that’s why it resonates and they can get past the idea that this is something new or different or risky. I just think we’re doing something right and being leaders through thought and I’ve got so much confidence in what we’re building because ultimately it makes sense to me.

FEE STRUCTURE

Much of your public stance on fee structures in the investment world has been to challenge the traditional thinking of current structures as being too costly to the consumer. At the same time, I’ve also heard you discuss balancing your desire to give back while running a for-profit company. Can you tell me a bit about how Purpose Investments balances these two contradictions?

This is really important. There are some fundamental shifts in thinking taking place and I draw a lot from what’s happening in the tech space. I’m fascinated with how tech companies have to constantly adapt or die and the way that leaders seek ways to innovate, knowing that if they don’t they’ll slowly die. And you know, Bay Street could use a little bit of that thinking. So when you talk about the concept of Positive
Social Utility, which is something that I’ve coined and talk a lot about, I just think it’s such an important message.

What it revolves around is the notion that you should give back to society more than you take. Let’s ignore Bay Street and look at the financial services industry as a whole – you realize that as it grows as a larger part of GDP for many nations, rather than giving back to society through fees or whatever, it has in fact taken more away from the market and dragged down the economy. But balancing the idea of being a for-profit organization with the idea of giving back to society is very simple to me. You put the client first. If the client is #1, then every decision will ultimately benefit society and I can make money off of that.

The opposite is a Negative Social Utility, whereby if you win despite the client winning or losing. If your business decisions are based on that then that’s what I have a problem with. My view here is that if you look at the best businesses in history, the best-of-the-best are the ones that put their clients first. If that happens, your shareholders win.

BRAND & PURPOSE INVESTMENTS

You’ve already successfully sold Claymore and have started Purpose after some time off to reflect. Tell me a little about how you came to the decision to launch your brand this time versus when you did so with Claymore, and what are the fundamental differences this time around?

This is actually something that was really important to me when I started Purpose because I wanted to tell a story. I wanted something different and one of the things with financial services companies, and it’s not necessarily a bad thing, is the perception of being very self-centered. And I’m not saying this in a bad way but it’s always about the Firm. ‘We do this’ or ‘We’ve done that’ and ‘This is what we do’.

It’s never about the client. Now contrast this with consumer products. You go to Apple or Google and it’s all about the consumer. They put the centre point about you, the client as the customer. They say ‘Oh, you want this, this is what we can do for you.’ Sure, there’s this idea of sexy messaging and a focus on how it may make
you feel or look more appealing, but at the end of the day it’s about being intuitive to you, the customer.

So when I developed Purpose, I wanted to start with the idea that we needed a brand that was going to talk to our customer. We needed a brand that was a little bit different, and our branding, messaging, overall copy and everything we do should revolve around communicating with our clients in a certain way. And you know what? We’re not there yet. Sure, we’ve made leaps and bounds in relation to where the industry is at but I feel like we’ve got a ways to go in order to appeal to the masses like great consumer companies are able to.

LIFE

After selling Claymore, you took some time off to travel and spend time with your family. Now that you’re back and presumably busier than ever, tell our readers how you manage to strike that balance between your personal and professional lives, and what do you do to indulge yourself when you’re out of the office?

I always tell people that as I get older, my priorities change and one of the most difficult things about starting Purpose has been the fact that I’m not a single guy. I want to be home to tuck my kids into bed. I want to be able to spend time with
my wife and do the things I didn’t need to do before I started Claymore. And what does that mean? It just means that I hire more people. When I started Claymore, I did it with myself and an assistant whereas here, I’m doing it with 10 great people. I needed that because I wasn’t going to work until 3 a.m. the way I did back then.
In terms of my priorities, I’ll say this: I’m generally a very happy person and I love my life.

I love the things that are out there. I’ve got three beautiful girls and an amazing wife who has been with me through all this so I’m very grateful, but they all take a lot of personal attention. Even when I built Claymore and before I was married, I took a lot of pride in my personal commitments like volunteering in my community and attending fundraisers. These are important to me but how you balance them is important as well. You have to make sure that you make time for these things because I know that having all of these things in life plays into your overall happiness.

When I stepped back after the Claymore sale and travelled for several months, I said to my wife that ‘maybe I won’t go back’. But then I got that itch and realized that this is what I love, what I know and what I really enjoy doing. I get fired up by the idea of changing the industry. It’s not easy but who said anything that’s great is easy? It’s been an exciting few months building this business and bringing people together. The difference between Claymore and Purpose is that now I realize I have much more wisdom and experience to draw from to build a business.

4 PILLARS: LIVING, WORKING, PLAYING, WINNING

At The Bull we live by 4 Pillars, the most important one being Winning. You’ve already got some very notable wins under your belt, but can you tell us what Winning means to you?

Achieving a proper balance in the end will be a win but the reality is that if you’re going to be in business and you’re going to do all the things in life you want to do, you’re going to have an imbalance at times. The key is realizing that this is
going to happen.

What’s really winning to me, though, is positive outcome. This means doing something that will in the end leave a legacy or make a mark, a Positive Social Utility in which three or three million people are affected positively. As long as I’ve done something positive for people and for the market, then I’m happy.
I have a goal for Purpose, which is I want all the members of my team to be successful. One of the things that made me really proud about Claymore was that every stakeholder that was involved in the business benefitted. Everyone who
came into it is in a better position now than before joining Claymore. They learned more, and today their careers are in very unique and influential places. If the same thing happens at Purpose, if we build a great business where our employees win, our industry wins, our service providers win, our customers win, then it’ll be a great success. That’s ultimately what winning is all about.

Bay Street BlackRock CBC Claymore David Chilton EFT Lang & O'Leary Purpose Investments toronto