Dimensional’s David Booth on the Firm’s Surprise Leadership Shakeup

Six months after $518 billion asset manager Dimensional Fund Advisors tried its hand at naming a new generation of leadership, it’s facing its first test.

Eduardo Repetto, a 17-year veteran of Dimensional who had served as the firm’s co-chief executive along with Dave Butler, announced yesterday that he is resigning and will leave the firm in September. David Booth, founder and executive chairman of Dimensional, says that while Repetto’s announcement was “a surprise to everybody” at the firm, he is confident that Repetto’s successor, co-chief investment officer and head of research Gerard O’Reilly, will be a strong replacement.

Repetto, who at one time was being groomed to succeed Booth as CEO, doesn’t have plans at this point, Booth tells Institutional Investor. “I’m only speculating, but he’s worked incredibly hard his whole life, including long hours and travel,” says Booth. “Maybe he wants to spend more time with his family.” O’Reilly will run the firm with current co-CEO Butler and will join the firm’s board of directors.

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Booth says Repetto helped lead the firm through a heady period of growth. Dimensional, a pioneer in smart beta and factor-based investments, boasts the third-fastest-growing U.S. mutual fund family, right behind asset management giants Vanguard Group and BlackRock, according to Boston Consulting Group.

Booth, a native Kansan and a basketball fan, compared Repetto’s exit to that of coach Roy Williams leaving the University of Kansas’ Jayhawks basketball team in 2003 for the University of North Carolina’s Tar Heels after leading Kansas to the Final Four four times. “People got outraged, but wow, I said he gave us 15 great years. Let’s be thankful we had him,” Booth says. “People sometimes overreact.”

Booth stresses that O’Reilly has the backing of the University of Chicago’s Gene Fama, who won the Nobel Prize for his contributions to efficient market theories and still teaches, and Kenneth French, Fama’s longtime research partner and a finance professor at the Tuck School of Business at Dartmouth College. Fama and French are also both directors of Dimensional and work closely with the firm’s research, investment, and client service teams and sit on its investment policy team. Fama and French wrote a seminal paper in 1992 on the sources of stock returns, which led to much of the academic research behind factor-based investments.

Booth says it was important to find a successor who had Fama and French’s stamp of approval. “They could be a potential stumbling block as we’re still a shop where strategies are largely based on their work,” says Booth. “Fama and French have total confidence in Gerard.”

When Repetto became co-CEO in 2010 — when the firm managed $165 billion in assets — he had been the sole designated successor to the CEO role. But given the firm’s growth, Booth now feels the CEO role should be permanently shared by two people with complementary skills.

“Two is probably one more than many people think is optimal, but it’s desirable in our industry,” he says. Booth explains that asset managers are really two businesses, investments and client service. Repetto was more on the investments side, while Butler built more of a resume facing clients. O’Reilly will bring a career strong in research and investments.

Booth said it’s unlikely the structure of the CEO role had anything to do with Repetto’s departure. Repetto, he said, had moved to Los Angeles and was commuting to Austin, before that decision was made. “He moved to L.A. long before the co-CEO thing came along,” he says.

The firm’s six-person executive committee will go on a retreat on Thursday to determine the next head of research, among other items.