January 23, 2009

By Paul Feinberg

David DeWolf ('05) and Darius Gagne ('05) traversed divergent paths on their way to UCLA Anderson, only to end up as partners sharing a common vision on how best to manage wealth. Today, they are principals at Quantum Wealth Management, certified financial planners focusing on clients within five years of retirement.

DeWolf received his undergraduate degree at UCLA, and then earned his CPA while at Price Waterhouse. He then took a few different jobs in finance, before deciding to enter Anderson's Executive MBA (EMBA) program. His goal: to improve his finance skills and parlay his MBA into a CFO position.

Gagne (who also holds a UCLA undergraduate degree) studied science, eventually receiving his Ph.D. in physics from UCLA. He then headed straight for Wall Street, joining a cadre of quantitative specialists with advanced degrees in subjects like math and engineering, creating models for products like interest rate options, mortgage-backed securities and collateralized debt obligations. After five years, he returned to California to work at PIMCO in Newport Beach. He entered the EMBA program because he considered himself "a finance guy who knew very little about business." Gagne returned to Westwood with an entrepreneurial spirit. "PIMCO was an amazing ship to be part of, but it was a large ship and it was Bill Gross' ('71) ship," he said. "I'd rather have my own little ship and that's what I headed towards."

He soon headed straight towards DeWolf.

"It didn't take long before I noticed Dave," Gagne said, recalling his first few months at Anderson. "He was the other strong finance guy in the program and he had a way of explaining things to people that really caught my attention." Meanwhile, it only took DeWolf four months as an EMBA student to make enough connections to get a CFO position in Santa Monica, California. The last thing he expected to do was start his own business.

Then Gagne, who had already sketched out the plans for what would become Quantum (very detailed plans, DeWolf remembers), approached DeWolf with the idea of becoming partners. The idea struck a chord. "The more I thought about it, the more I realized that this was an opportunity to do something that I would enjoy for the next 40 years. I thought we could bring a lot of value to people and that it was something we could feel good about," DeWolf said. "It was also an opportunity to control my own destiny and it just sounded like a phenomenal opportunity."

It only took about a day for the two to decide to become partners. They then spent their second year of the two-year EMBA program consulting with faculty and leveraging the experience and expertise of classmates while formulating their final business plan. They opened the doors of Quantum Wealth Management -- the name derives from Gagne's background as a physicist -- immediately upon graduation without a single client. Within a few months, their client list had grown to more than a dozen.

The Quantum moniker connotes more than just Gagne's physicist-turned-financier history. It is a firm whose management approach and philosophy is grounded and guided by research. For example, DeWolf notes, "we found in the literature that it is asset allocation -- not stock selection -- that accounts for the vast majority of returns." The focus on research informs the company's philosophy, which has been trademarked as Total Market Portfoliotm.

"We believe that value migrates from business to business, industry to industry, nation to nation," DeWolf said. "Predicting the flow is usually impossible, but fortunately entirely unnecessary because we also believe that the global productive capacity for creating value is immense. Although we do not know where the bubbles will be in a pot of boiling water -- i.e., where value will migrate to -- we know overall that the heat will rise. There is no shortage of objective research supporting these beliefs. Therefore, the most rational thing one can do from an investment perspective in order to maximize returns while minimizing downside, is own a share of each of the global capital markets, the Total Market Portfolio, which includes over 10,000 stocks, 10,000 bonds and hundreds of real estate investments around the globe."

The Quantum philosophy is a shared one. "There are no Dave clients and no Darius clients," DeWolf said. While they might divide some tasks, "the real brainwork is done collaboratively," said Gagne. "We sit down at least once a week in the conference room and luxuriate, take our time, and go over every client and strategize to see what we can do to add value."

Adding value in today's economic climate isn't easy. It's a particular challenge when dealing with clients about to retire. DeWolf and Gagne are telling clients today to take a deep breath.

"I think first and foremost the key is not to panic. The number one mistake a lot of investors make is panicking," Gagne said. DeWolf added, "Our clients have an investment strategy that we develop at the beginning of the relationship. It serves as a great anchor, a way to ground them when they do start getting anxious. We remind them that we have this plan and we can absorb a year like this. The plan actually built in the possibility of a bear market. People come in here and sometimes they can't even sleep at night and we step back and remind them that ‘We have a strategy. Your portfolio still has a lot of safety in it; you're going to be okay.' Then they leave here with a weight off their shoulders, feeling a lot better and we have people telling us that they're sleeping better as a result."

This therapeutic aspect of their business is the closest the Quantum partners will come to the art-and-science cliché about money management. They'll concede that there is an art to managing their client's anxiety. But when it comes to managing wealth, it's all science. "Investing, in my mind, should be much more science than art. In terms investment philosophy, we strongly believe it should be grounded in academia," said DeWolf.

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