Whether he is trying to ferret out value in a company that few others find attractive, or combing through financial records to discern terrorist activity, Daniel Schmerin approaches his job the same way: as a detective of sorts. “That’s the skill set. The specific manner in which I employ that skill set depends on the task at hand,” he says.
Few others have accumulated a more diverse career list of “tasks at hand.” The Penn alum is now director of investment research at Fairholme Capital Management, the Miami-based investment firm founded by Bruce R. Berkowitz. But most of his previous experience is in serving the public good. Schmerin, in fact, has played an important role in tackling some of the most daunting crises facing the U.S. in recent years.
During the recent housing market collapse, as chief operating officer of the U.S. Treasury Department’s Legacy Securities Public-Private Investment Program, he helped to implement a $40 billion initiative to bring new private capital into the market for troubled real estate securities. He also served as director for preparedness policy on the Homeland Security Council at the White House, tasked with facilitating interagency policy development and coordination of homeland security matters—including national incident management, energy security, strategic risk assessment, critical infrastructure protection, and combatting terrorist use of explosives in the U.S.
Today, he says, he “analyzes investment opportunities in the same way I evaluated the efficacy of certain economic sanctions policies, potential responses to the freezing of the credit market, or various mechanisms to pursue terrorist financiers.”
Working in the executive branch during the Great Recession was “an incredibly eye-opening experience,” says Schmerin. “You can push aside any fancy formal education in the heat of battle because you soon realize that you are receiving a crash-course MBA along with advanced on-the-job training in political science and psychology. Being able to understand human reaction, particularly human overreaction, in times of stress—that all boiled down into an intense three-year social experiment.”
The psychology of the crowd figures heavily into his work at Fairholme, which touts itself as a group that ignores conventional wisdom about where good investments may lie. One of his team’s ongoing projects is Sears Holdings Corporation—cherished, steadfast, and perhaps past its prime. Or at least, that is the image. “Sears is a classic example where the market has a certain perception, with Wall Street constantly writing the same negative things about the company. Yet we believe the discourse misses a very compelling sum-of-the-parts story.”
Viewed with fresh eyes, Schmerin says, Sears has greater attributes than many a company with start-up allure. It has brands that stir a very high level of customer confidence, and it owns or leases real estate in many desirable downtown districts. With retail evolving to be neither a completely online nor bricks-and-mortar enterprise, Sears Holdings (which includes Kmart Corp.) seems poised for transformation. Through its expanded online presence, Sears is becoming the kind of platform Amazon is, acting as both a seller through its own warehouse and middleman between small- and medium-sized businesses and the customer.
“Who is better positioned to do that? Sears certainly has an advantage in touch points for integrated retail,” Schmerin says. “Amazon cannot waltz into Manhattan today and obtain prime real estate without paying through the nose for that privilege, whereas Kmart and Sears have these perpetual long-term leases with below-market rents. How would you like to pay $28 a square foot in Herald Square and Astor Place – 80% less than prevailing rates? Think about that leasehold value.”
Schmerin long intended to begin his career in the federal government, focused on economics and international relations, and then later transition to the private sector. While earning a master’s in European Politics and Governance from the London School of Economics, he served as a research assistant to the Rt. Hon. Bruce George, a member of the United Kingdom Parliament and chairman of the Defense Select Committee. Schmerin continued his graduate work in Washington, completing a master’s in National Security Studies from the Walsh School of Foreign Service at Georgetown University while serving in the Bureau of Economic and Business Affairs at the State Department.
At the recommendation of his superiors, Schmerin received government sponsorship to complete several professional education programs, including the Advanced Economics Training Program at the CIA and executive courses in Business Administration at Georgetown University. “Federal agencies are not unique in seeking to strengthen their human capital through continuing education, but the breadth of their training programs at all levels make them quite unique. This is a key differentiator. It’s another factor that makes public service an attractive career choice, particularly for those who are intellectually curious. From the outside, it is hard to appreciate the full range of learning opportunities—from general leadership development to specialized subject matters—that are available across the executive branch.”
But well into his government career, he met, and hit it off, with Berkowitz, who was “relatively uninterested in hiring your pro forma Wall Street analyst, whom he believes could easily suffer from groupthink as a result of their standardized training.”
Schmerin has been interested in investing since he was a child, when he and his brother sat around the dinner table second-guessing their father’s stock picks. The job he has today retains at least one aspect of that dynamic. “Our primary mission each day is to wake up and tell Bruce how he may be wrong or what he may be missing, just like I used to do with my father. The key difference now is that there are several hundred thousand shareholders who have entrusted us with their money.”
The way Schmerin sees it, navigating between public- and private-sector work results in one substantially enriching the other. “Working in public service is often not the easiest route to pursue,” he says. “You encounter plenty of challenges along the way. It doesn’t always lead you down the most concrete path—it is not one where you simply start as an analyst, later become an associate, then a vice president, and then make partner. There is no clear track in many government roles. But in return for giving up some of the certainty that people think comes with private-sector opportunities, you gain the ability to effectuate meaningful change in so many areas of public policy—such as energy, healthcare, finance, national security, or telecommunications. Having a chance to shape events that may later become historic is certainly fulfilling.”
University of Pennsylvania - Arts & Sciences - 2003
- Bachelor of Arts
- Major(s): International Relations, Political Science