A bull’s eye on Alaska
With more than $4.5 billion in assets under management from offices on the 11th floor of the JL Tower that feature panoramic views of spectacular Alaska scenery, staying focused on the big picture comes naturally to McKinley Capital Management CEO Rob Gillam.
Taking the long view is also a family tradition.
Gillam, 47, took over as CEO on Oct. 1, 2018, just a couple weeks after his father and firm founder Bob Gillam passed away on Sept. 12 after suffering a stroke at age 72.
Gillam took a lot of advice from his father over the years, and the final piece he received over a lunch stands out.
“He looked at me and said, ‘Remember, in life and in business when you sit in this chair: don’t fly too low. Get out of the weeds and look up,’” Gillam recalled during an April 26 interview. “That was his message and I think every Alaskan should remember that.”
Gillam is a relatively rare breed in Alaska these days as the state is still climbing out of a three-year recession brought on by the 2015 crash in oil prices while the Legislature and Gov. Michael J. Dunleavy are locked in high-stakes battles over the Permanent Fund dividend, education funding and the size of government spending.
Gillam is, unabashedly, a bull on Alaska.
“People are depressed because they’re looking this far out,” he said, holding his hand near his face. “And don’t get me wrong, I get it. If it’s your job that’s at risk based on a budget, I’m not saying that’s not scary. What I’m saying is we live in a resilient place, and if you look this far out (extending his arm), it’s a very different picture.
“We have the ingredients that most of the world wants. We have natural resources, beautiful scenery, infrastructure opportunities, business opportunities. Any time you’re from a place where more people come to visit, by a multiple, than the number of people who live there, you need to remember we have something here. I think as Alaskans we can get a little too provincial and we forget to look up.”
That message is one Gillam wants to share as he leads what he has dubbed “McKinley 2.0,” building on his father’s work but also taking his own path. Just sitting down for an extended interview is a major departure from his father, who Gillam described as “notoriously press shy.”
“I am really proud of what we’ve accomplished,” he said. “I’m proud to be Alaskan. When I travel around the world they don’t even remember my name. I’m just ‘Mr. Alaska.’ The guy who owns the hotel I stay at in Manhattan just calls me ‘Alaska,’ ‘hey, Alaska.’
“I want my people to feel that way. I want Alaska to feel that way. I want our customers to feel that way. They should be really proud. I am. The more places I can tell that story, I’ll tell that story.”
The story of McKinley Capital Management — a homegrown entrepreneur who didn’t believe in “no” and overcame every disadvantage of time and space to build a powerhouse asset management firm — is pure pioneer Alaska.
“When he founded McKinley there was no such thing as an asset management firm in Alaska,” Gillam said. “It didn’t exist, and it was hard to do from a technology standpoint. It was hard to do because it was remote. But he never let ‘no’ deter him.”
For Gillam, who started working for his father in 1995 and led the creation of its international strategies arm after following in his footsteps at the prestigious Wharton School at the University of Pennsylvania, the story is also far from over.
Driven by digital
Nothing has changed the world more than technology in the nearly 30 years since Bob Gillam founded McKinley Capital Management in 1990, and the firm is no exception.
In fact, Gillam’s team has become world leaders in harnessing the power of artificial intelligence in asset management. With offices in Anchorage, Chicago, New York and most recently Abu Dhabi, Gillam is captain of a team of about 45 that also includes a scientific advisory board headed by 1990 Nobel Prize winner in economics Dr. Harry Markowitz.
Differences in time zones and limited computing power were once hurdles for McKinley. In a firm now firmly focused on a worldwide investing strategy, time and technology are its biggest strengths.
“My dad founded an asset fund. Today I run a technology fund,” Gillam said. “My dad founded a firm in Alaska, from Alaska. I founded a firm that chooses to be in Alaska. Because I can do what I do anywhere.”
Once solely invested in U.S. equities with individual clients, Gillam recounted how it used to take an entire weekend to perform the analytics on the 1,300 or so stocks McKinley covered.
Now with the vast majority of its portfolio invested around the world and huge institutional clients that have included the Alaska Permanent Fund Corp. for 22 years, the firm is covering more than 50,000 stocks in 105 countries.
“We never knew anything other than technology to do what we do,” Gillam said. “Traditionally money mangers would travel the world, meet with management teams, do that sort of old school analysis. That wasn’t our way. It couldn’t be our way. So we’re not in the disadvantaged position a lot of money managers are today in having to retool what they do.
“We were plumbed that way from the start.”
Utilizing incredible computing power and machine learning algorithms, McKinley vacuums up information from around the world from analyst calls, financial reports and other text sources using data scraping methods and a custom built platform that also have to account for different currencies, languages and accounting standards.
“We make billions of calculations every day and we do it in tenths of a second,” Gillam said. “The scale is astronomical.”
His team is made up of both the traditional financial analysts and computer scientists drawn from the U.S., the world and the University of Alaska Fairbanks and UA Anchorage.
“We have code writers from Indonesia, from China, from all over the place, and from UAF,” Gillam said. “We are an equal opportunity skill set. You bring the skills, we don’t care if you’re from Mars.
“The good news is that math doesn’t need translation.”
Gillam is solidifying McKinley as an Alaska firm that is bullish on the state’s future with the May 23 announcement the company has formed an academic partnership with the University of Alaska Lab for Data Science and Artificial Intelligence.
According to the announcement, the partnership will include students and interns, and McKinley is building out an area of its Anchorage headquarters where students will be able to study and work on AI and data science projects.
“Our goal with students is to help develop their skills, oversee their senior projects where appropriate, and collaborate with staff on research across the spectrum of AI-related projects,” Gillam said. “We value the university and its dedication to student learning. As a company, we want to invest in our community’s most critical assets: the students and the youth of Alaska who are our future. This partnership allows us to provide UA students a place where they can apply their talent and create a future for themselves. It’s a really exciting partnership for us.”
UA President Jim Johnsen called the McKinley partnership an “amazing opportunity.”
“This agreement with McKinley Capital represents our commitment to solving the challenges of our private sector partners, and meeting the needs of our state,” Johnsen said.
So while McKinley continues to scour the globe for growth opportunities, it hopes to find the future of the firm in its own backyard.
“We have a lot of big dreams in Alaska and people who have the ability to turn them into reality should,” Gillam said. “We have a role to play in there and there’s other great players in the state we can do that alongside, and we’re happy to do it.”
As for the growth in artificial intelligence as a tool, Gillam doesn’t believe it can ever replace the humans who create it.
“One of the things I told the students over there (at UAA) was that ‘artificial intelligence is long on artificial and short on intelligence. Don’t think the bots are coming to take everybody’s job any time soon.’
“Having said that, we all know that when we get on a plane a computer does most of the flying. We also know none of us would get on if there wasn’t a pilot. That’s a good way to think about the interchange.”
Gunning for growth
The use of AI as a financial tool is critical for McKinley’s effort to find the best growth opportunities around the world. Its joint venture office in Abu Dhabi opened in December 2017 as the firm launched its “Middle East, Africa and South Asia” strategy in the second quarter of 2018.
McKinley sees huge potential in the region that has 44 percent of the world’s population and 8 of the top 10 fastest-growing economies while accounting for just 5 percent of total global market capitalization.
But just as investors seek a return, many McKinley clients also want their money to work for companies that are responsible citizens. The creation of its “Environmental, Social, Governance” strategy came in response to customer requests — its first ESG client was a large Dutch company that invested a half-billion dollars with McKinley — and now other factors than simply financial performance can be calculated.
“It’s hard to find fast growing companies in Ghana from Alaska. It’s hard to find fast-growing companies in Kuwait from Alaska unless you have the computational power,” Gillam said. “Once we find those companies, we have to decide what companies we want to have in that fast growing set that don’t pollute the environment, ones that don’t lie, cheat and steal. We want ones that are good to the communities in which they live and work. It’s an over and above good characteristics.
“We have a fiduciary responsibility to build a portfolio with the best return for the amount of risk that we can. That governs everything we do. If, on top of that, we can encourage good behavior, of course we’re going to do that.”
Creating custom products such as the ESG strategy based not only on generating a return but aligning with the values of the client is the fastest-growing category at McKinley, Gillam said.
“At the end of the day, we have to give people peace of mind,” he said. “That’s our job.”
Generating consistent returns has given clients a lot of peace of mind. According to Gillam, the various portfolios dating back to 1990 have made both positive absolute returns and positive returns relative to benchmarks.
“We remain focused on systematically searching the world for the best growth opportunities and are proud to work with clients from around the world that range from large global companies, cities and/or states, sovereign wealth funds, foundations and private clients,” he said. “While we have three other offices outside of Alaska, we are proud to play a role in helping our customers from our office right here in Alaska.”
Gillam and his wife Stacia made an investment in the state just as the recession was taking hold back in 2015 with their purchase of Alaska Glacier Products, a bottled water sourced from the Eklutna Glacier just north of Anchorage that provides the city’s water supply. The company has since won several international taste awards and Stacia Gillam is still the chair of the company.
“We call those ‘brand Alaska’ transactions,” Gillam said. “It turns out that a lot of people think we’re cool and have a really cool lifestyle. Turns out they are right. On top of that, we have really amazing quality. The reality is we have some of the best water in the world, right out here.
“What we realized was here was an opportunity to invest in a company that is brand Alaska, which we believe in, that can create jobs, and when we bought the company when jobs were shrinking there weren’t a lot of manufacturing jobs in the state. Every ship that goes out of the Port of Alaska is empty; we could put something on it. The world wants what we want and lets give it to them. It was a neat deal and a good investment.”
“Brand Alaska” encapsulates McKinley’s DNA, and Gillam’s thoughts on the Pebble mine, which his father was as well-known for vigorously opposing as he was for being named the richest man in the state by Forbes.
Rob Gillam said it’s time for the leaders of the opposition aided by his father to take the lead in the fight, but his opinion is no different when it comes to Pebble.
“I absolutely oppose the Pebble mine,” he said. “It’s not a good thing. But I have a little different perspective on it. It’s just a math question. You have one resource that is perpetual, that is already generating income for generations that goes on forever, and one that is finite. So do the math. It’s a net present value calculation.
“To me it is pretty easy. Every person in Alaska should pay attention to this; 58 percent of our wild salmon comes from one place. How’s our branding going to be if we have an ‘oops’?”
“The other thing that is important, is that there is nothing wrong with mining. Alaska has been built on that. There’s just some places you don’t want to do it, and that’s one of those places.”
A passion for Alaska was the driving force behind Bob Gillam’s efforts to conserve Bristol Bay and to keep McKinley a quintessential Alaska-grown company; the same passion for the state is driving his son to leverage its success for the benefit of Alaska as a whole.
“I hope McKinley, the new McKinley, can pave a little bit of the path to the opportunities in Alaska,” he said. “I think they’re pretty huge.
“My family has been in Alaska for almost 100 years. The one thing that has never changed about Alaska is the DNA of the people here. You can call it the pioneer spirit, the frontier spirit. You have a lot of people who are creative, who are sturdy, who are ambitious, who are self-sufficient, who figured out how to make a whole lot of something out of where there was nothing. That personality still exists.”
Spoken like a true Alaska bull.
Andrew Jensen can be reached at [email protected].