Updated March 30 at 6:25pm

Five Questions With: Malcolm G. Chace Jr.

Portfolio manager at WhaleRock Point Partners talks about the biggest issues facing the clients of the investment-portfolio-management firm.

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Five Questions With: Malcolm G. Chace Jr.


Malcolm G. Chace Jr. is a portfolio manager at WhaleRock Point Partners in Providence. He has been an investment professional and portfolio manager for more than 20 years, beginning at Scudder, Stevens and Clark in Boston. He moved to Providence in 1996 to join the Providence Investment Advisory Group and later co-founded the Providence office for Baldwin Brothers in 1999, managing more than $500 million in assets for high net worth individuals and institutions. In 2008, he joined Oppenheimer and Company as a managing director and portfolio manager and formed the Nulman/Chace Group. In each capacity, Malcolm was responsible for investment policy, asset allocation by way of custom tailoring portfolios, investment process and relationship management.

He has served on the board of Women and Infants Hospital, Meeting Street and Providence Public Library and is a director of Dromoland Castle, County Clare, Ireland.

Chace has a bachelor’s degree in economics and history from Colby College.

PBN: WhaleRock Point Partners manages investment portfolios for families and institutions. What is the biggest concern for your clients today?

CHACE: The firm was founded in 2006 to manage the wealth of two substantial families. Our foundation was based on risk management and conservatively managed growth. As the firm has grown over the years, client objectives may vary, but our core principles have remained consistent. Today, five years after the crisis, with U.S. stocks having recovered their losses and now making new highs, clients remain mindful of the 2008 sell-off and their chief concern is preserving the gains they’ve achieved. We see it as our role to remind them of their long-term objectives, their own risk tolerance and their individual investment policy statement, or the roadmap we discussed at the inception of our relationship with them. We remind them not to try to “time” the market, but to be consistent with their risk tolerance by rebalancing their investment portfolios. Practically speaking, this tends to force some selling at higher price levels and buying at lower levels over time, and produces better total returns for clients.

PBN: You describe WhaleRock as growing more than 25 percent per year, yet the economy in Rhode Island is weak, at best. How does a firm based on Rhode Island achieve that kind of growth?

CHACE: The firm has clients throughout the United States and Canada. Although client referrals have been the biggest determinant of our diversified client base, the firm and its partners have been deliberate in developing contacts nationally in order to develop new business. On an institutional basis, one example of this is our consulting relationship with Upromise Investments in Boston, the leading administrator of 529 plans in the country. Through a competitive process, Upromise recently chose WhaleRock to help them oversee and consult with 18 different states’ 529 investment plans representing over $50 billion in college savings accounts.

How do we do it? We hire bright people with diverse professional backgrounds and we operate as a team. We follow a disciplined investment approach, custom tailor each account to suit that client’s specific investment needs, emphasize service and when appropriate, work closely with our clients’ other advisors, including accountants and estate planning attorneys to ensure continuity.

PBN: As a member of a family closely associated with Berkshire Hathaway and legendary investor Warren Buffett, what have you learned from his success?

CHACE: Where do I begin? At heart, Mr. Buffett is a risk manager and his long-term success can be attributed to not only a brilliant and contrary way of thinking, but also two very important decisions he made early on in his career. The first was to only buy companies he understood. I remember in 1999-2000, Mr. Buffett was ridiculed for not purchasing the dotcom stocks with their 20-something CEOs who seemed to represent the new wave of brilliant stock investing. The problem for Mr. Buffett was that it was hard enough trying to figure out what many of these companies did, let alone how they were actually going to make money. Most were riding a wave of momentum without a penny of earnings. Mr. Buffett refused to get caught up in something that made no fundamental sense to him and much to the dismay of his followers, stuck to the old “battle tested” names like Coca Cola, Gillette and Disney. Well, we certainly know how the rest of that story unfolded. Needless to say, Mr. Buffett showed why investing in companies he truly understood paid off in the long run. I have always remembered that and have never bought a company that I didn’t thoroughly understand myself. Chasing momentum stocks or “flavor of the month” names is not a game I ever wish to play with my client’s money.

The second decision Mr. Buffett made was to surround himself with a bright team of people. While I’m sure he had plenty of confidence in himself, he recognized that he simply wasn’t always going to have the answer. To find competent people who shared his enthusiasm was imperative. When I made the decision to join WhaleRock, it was based largely on the confidence I had in the team of professionals that worked there. Their experience and wealth of knowledge has only helped to complement the job I try to do.

PBN: As you scan the broad investment spectrum, are there any asset classes that are particularly worrisome in terms of valuation?

CHACE: We think the 30-year bull market run in bonds is over and investors need to be very diligent in analyzing the quality and duration of their fixed income portfolios. We think the 10- year treasury yield hit a low at 1.4% in 2012 and that yields will slowly rise from here on, therefore making bonds, whose prices fall as yields rise, an asset class that we would underweight. For example, if interest rates rise by 1 percent, a bond of 10-year maturity will drop in price by over 8 percent. Of course, a geopolitical event could change that thesis in the short-run, but long-term we think the asset class in general will underperform.

PBN: Speaking of bonds, the bankruptcy of the City of Detroit has been in the news. Should investors avoid municipal bonds entirely, or do you view that an isolated instance?

CHACE: Detroit isn’t the only distressed issuer of muni bonds, but we don’t see problems that severe as being widespread. Today, we see opportunities for tax-exempt income in well-researched credits in shorter maturities and in certain taxable bonds whose cash flow will rise with the general level of interest rates. We avoid long-term maturities and the muni bond mutual funds because most are highly sensitive to interest rate risk causing losses, and over 75 percent of those funds own Puerto Rico bonds, which are down 18-20 percent this year and may well fall further. Muni bond investors today should own individual bonds, managed professionally by people who accept fiduciary responsibility and who specialize in the asset class.


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