Skillfully raising and retaining assets lets Anthony Faillace create value for his clients in the financial industry.

The one risk CIO Anthony Faillace '94 wouldn't take is dodging risk altogether

By achieving exemplary success in the financial industry, Anthony provides a leadership example for all Kellogg alumni.

by Kari Richardson

"Our business is pretty straightforward," reflects Faillace, chief investment officer of the resulting Drake Management Co. "It's 'can you raise and retain assets and effectively manage them?' We needed to raise enough assets to build a track record on and then we needed to be able to perform on them."

After years of working in the international fixed-income field, first at Pacific Investment Management Co. and then at a competitor, BlackRock, Faillace saw lots of potential niches ripe for entrepreneurship. But success, he figured, would take equal parts skill (planning and execution) and luck (a cooperative market). Even the best asset managers hit the occasional rough patch.

"We knew the risks," he recalls. "If you are new and you have a bad year you will probably close. We had to live with the risk that we would draw the black bead that first year."

It turned out that Faillace and Luttrell had timed their foray into entrepreneurship to coincide with the bursting of the Internet bubble. Their first year investing in the market was 2002, when months of precipitous declines in stock prices following the Sept. 11, 2001, terrorist attacks became the new market norm. Still, Drake Management's hedge fund was up 8 percent that year — a coup considering one of Faillace's former employer's funds had lost 10 percent during the same period.

"That first year put us in a position to really be able to grow our assets in the next couple of years," Faillace says. "We would have been less able to take advantage of the expanded hedge fund market if we hadn't experienced that success early on."

Today, Drake Management has some $5.75 billion under management in its three hedge funds and another $4 billion in its traditional long-only investment strategies. The company's clients are pension and endowment funds, Japanese institutional funds, and intermediaries who aggregate hedge fund investments for high-net-worth individuals worldwide. The company, Faillace says, uses a portfolio management model, in which a chief investment officer, with the help of several sector specialists, oversees each fund. 

With those critical first years safely behind him, Faillace is thinking about the next phase in his company's lifecycle — something his Kellogg School education has prepared him for: "Kellogg helped me think strategically about how to manage a business," he says.

With 97 employees and an already-strong international operation, Faillace and Luttrell plan to expand Drake's global reach further in 2008 by opening research offices in Brazil, Turkey and India, as well as in some yet-to-be-named developing countries. Employees in these local offices, Faillace believes, will provide meaningful research about macroeconomic trends shaping those countries, where opportunities are potentially greater than in the United States and Europe.

"It's fairly challenging to produce returns that meet expectations and are superior to your competitors'," he says. "As we've grown, it's become incumbent upon us to become good managers, to allow the people working with us to maximize their own talents and abilities."

Though risk is inherent in the market, Faillace says the biggest career risk would have been avoiding entrepreneurship altogether: "I never would have forgiven myself if I hadn't tried this. I could have lived with trying, making a mistake and failing, but I couldn't have lived with not trying."